There are lots of rumours floating around in the country regarding alleged drastic changes in the government’s policy on solar energy, especially the power-buyback agreements, commonly known as ‘solar net-metering contracts.’ Such rumours are apparently causing severe stress to many, amid a race among affluent households as well as commercial and industrial units to install rooftop solar systems.

The ever-snowballing power tariffs, rapidly falling prices of solar equipment — the cost of solar panels and their accessories have dropped between 12-25 percent in less than a year — and the inability of the national grid to supply uninterrupted or cost-effective electricity is what’s fuelling this mad dash.

Already, in a very short span of time, the solar power generation in the country has reportedly exceeded 2,000 megawatts, with another 4,000 megawatts in the pipeline. Needless to say, the current solarisation trends appear set to continue in the foreseeable future.

Pakistan’s energy crisis has resulted in a surge of solar use, but the government’s dithering on its solar energy policy means both consumers and power distribution companies lack clarity on how best to proceed…

POWER-BUYBACK AGREEMENTS

Unfortunately, our sun can only help us generate electricity during daylight hours. That too, equivalent to 5.5-6 hours in a day, a fraction of the per-hour installed capacity of solar systems.

The installed electricity generation capacity of power companies (more than 41,000 megawatt) already stands in excess of the national power demand. Yet, as per the existing power policy, power distribution companies (Discos) are legally bound to buy back excess electricity produced by the rooftop solar systems of their customers. But the same Discos have to restart supplying electricity to the very customers after sunset, ie during peak demand hours.

This fluctuation is proving to be a technical disaster for their generators. Clubbed with ‘capacity payments’ to independent power producers (IPPs), these anomalies are creating an impossible challenge for an already troubled energy sector of the country.

The federal minister for energy, Awais Leghari, and his ministry recently came under fire amid reports that the government was planning to terminate net-metering contracts or replacing them with ‘gross-metering.’

The minister clarified that the government had no plans to annul existing net-metering contracts, signed with 113,000 plus consumers nationwide. However, he remained vague and noncommittal about the ministry’s future policy, especially for fresh contracts.

THE LOAD OF TARIFF SUBSIDIES

The country’s power tariff subsidises the marginalised, low electricity-consuming population segments at the cost of high-end, well-heeled consumers. The general electricity supply tariff for residential consumers ranges from Rs4.73 per unit for consumers logging up to 50 units in a month to an effective rate of Rs74 per unit for those consuming more than 700 units.

While consumers who have opted for net-metering may be responsible for around five percent of national consumption, the Discos are concerned that these consumers were their premium customers, who were previously absorbing the cost of the subsidy for the ‘protected’ consumers from low-income groups.

As more and more premium customers move out of the system, they leave ever fewer customers to absorb the average cost of power supply. Power companies also complain that, instead of offering relief, every time the National Electric Power Regulatory Authority (Nepra) revises the unit cost of electricity, the Federal Board of Revenue (FBR) reaps a windfall of indirect tax revenues — without any effort of its own.

An ever-increasing number of consumers have already started complaining that Discos are refusing net-metering contracts by claiming that their pole-mounted transformers (PMTs) lack the capacity for additional loads.

POLICY PITFALLS

Because of these developments, consumers seem sceptical about the energy minister’s recent statements and clarifications. So, what are the options available to the energy ministry and what will be their consequences?

Except for waiving the import duty, the government has withdrawn all subsidies and concessions on renewable energies, including solar. While the government may not be able to stop ordinary consumers or commercial and industrial units from switching to clean renewable energy, it can deny future contracts or even renege on current net-metering contracts.

According to one source, Nepra is also considering reducing net-metering buyback from Rs22.32 per unit to Rs11 per unit — a loss of about 50 percent adjustment in the electricity bills of those with net-metering.

Alternatively, the energy ministry may try to replace net-metering with gross-metering contracts.

GROSS-METERING VS NET-METERING

In net-metering, consumers first use the self-generated electricity, which costs them about Rs17 per unit — a fraction of the cost of purchasing it from the grid. The remaining surplus units are sold back to the national grid at a cost that is nearly 25 percent more than what it takes consumers to produce it.

In gross-metering, all solar power generated by the consumers is exported to the grid. The same grid will supply them electricity to fulfil their needs. Even if the rate of buyback is the same as offered to the consumers as in the current net-metering agreements, it will be less than the rate (to be decided by Nepra) they pay to get power from the grid. Because of this tariff difference, consumers will be able to partially lower their bills, but in no case will they get the highly reduced electricity bills that they might be getting today.

For example, if the current electricity unit rate was Rs74 and Nepra maintains Rs22.32 per unit for export in case of gross-metering, let’s compare gross-metering with net-metering contracts:

If a household that consumes 750 units per month instals a 6-kWh on-grid solar system, it would be generating 720 units per month in-house. In the case of gross-metering, the consumer would be paying Rs55,500 (750x74) for electricity consumed. However, the household would also be paid back Rs16,070 (720x22.32) for the 720 units of electricity exported to the grid. Thus, the consumer would overall have to pay Rs39,430 in the case of gross-metering.

However, if net-metering were in place for the same system, the consumer would pay only Rs2,220 for the difference of 30 units consumed ((750-720) x74). This illustrates why those with existing net-metering contracts are up in arms over the potential changes.

ENERGY STORAGE SYSTEMS

But all these options are more likely to nudge consumers towards off-grid power generation, coupled with energy storage systems (ESS). Solar ESS are devices that can store electricity generated by solar panels, for use as and when needed.

A quick comparison between the cost of consuming grid-supplied electricity and storing solar electricity shows why the latter can be more feasible for consumers.

Let’s assume a household is using 5 kWh during peak hours, ie 6pm to 10pm. Consider the residential average peak hour tariff to be Rs50. Add 20 percent duty and taxes, taking it to Rs60. The yearly electricity cost for 1,800 kWh (5 kWh x 30 days x 12 months) used during peak hours will then be Rs108,000.

Now, consider the cost of installing an ESS. In China, it is quoted at RMB1-1.25 — or around Rs40 — per watt-hour. For a 5-kWh storage system, it is around Rs200,000. Add the cost of freight, general sales tax (18 percent) and another 10 percent for miscellaneous expenses, and it would take the cost to around Rs270,000.

This means that it would take less than two and a half years for someone with a solar ESS to recoup the cost through savings in electricity cost. With the lithium-ion batteries of the ESS guaranteed a life cycle of over 10 years, getting a storage system seems like a no-brainer.

This leaves the energy sector in a catch-22 situation. More and more consumers are likely to transition to renewable energy, which is a global trend and also cheaper for consumers in the long run. Even if the government annuls net-metering contracts and moves to gross-metering, consumers will shift to ESS.

What is required, it seems, is for the government to prepare for this transition and develop an energy mix that relies more on renewable energy sources, such as solar, hydel and wind, and consider the decommissioning of traditional energy plants, which are based on environmentally disastrous fossil fuels.

The situation is akin to people being forced to opt for motorbikes in the absence of green public transport. However, that’s neither good for the economy nor for citizens scrambling to save their skins.

Fahim Zaman Khan is a former administrator of Karachi and a freelance journalist

Published in Dawn, EOS, November 17th, 2024