Pakistan Government’s Net Metering Hiccups


At present, the Net Energy Metering (NEM) capacity in Pakistan is too small to warrant any policy revision

by Dr Shahid Rahim

A thunderbolt struck electricity consumers in Pakistan a few weeks ago; its tremors are still being felt across the country. It all started with media reports that the government was considering raising the average electricity tariff by almost 25% starting July 2024. That it was reconsidering its net metering policy and looking at imposing taxes on the import and sale of solar panels, led to an unprecedented uproar from consumers, forcing a volte-face from the government’s fast-track solarisation ambitions.

However, the public’s trust in government policies has been dented, and it may take a long time to heal, notwithstanding clarifications from the Power Division and multiple press briefings by relevant ministers to refute any such move. The Power Division’s kneejerk reaction to public uproar exposed not just the weak foundation on which the initiative was based, but also that it had done little homework to assess the costs and benefits before launching it.

After two years of pushing the virtues of fast-track solarisation down our throats by promoting net metering, encouraging rooftop photovoltaic (PV) systems on public buildings, and deploying these on 11 kV distribution feeders, the government has learnt suddenly that speedy adoption of distributed solar power threatens the viability of the power grid.

This fear, however, is unfounded and seems to be an effort by the power sector empire to maintain the status quo since it is addicted to sucking the consumers’ blood on one pretext or the other. Assessed from any angle, the adoption of PV systems anywhere in the grid benefits the country, provided it is planned, designed, interconnected, and operated carefully. It is perhaps the only option that contributes to all three strategic objectives – affordability, security, and sustainability – stipulated in the National Electricity Policy 2021.

Five years ago, in an article titled “Reworking the traditional electric utility”, I had cautioned that four new trends, including small renewable power generation technologies, were poised to shake up the electricity business by making the traditional way of doing it – via centralised generation and its transmission and distribution (T&D) to end-users – obsolete. The government was urged to take them seriously and modify its approach to managing this business by giving greater emphasis, autonomy, and control to distribution companies. This advice, however, went unheeded.

Net Energy Metering will bring many additional benefits to Pakistan like reducing pollution, improving security, self-reliance, affordability, and sustainability

Different techniques can be used to assess the viability of renewable power technologies for society. Since the current debate revolves around their deployment in the power grid, we utilise a concept called “avoided cost” for this purpose. To acquaint readers who are not familiar with the jargon of the electric supply industry (ESI), let’s first have a little background.

For most of its history, the ESI remained governed by a tacit “regulatory compact”. This meant that, in return for consumers’ universal access to its services at rates and quality approved by a regulator, a utility was free to function as a natural monopoly in its jurisdiction. It was required, however, to periodically submit its plans to serve demand and the revenues required to recover its costs with a fair profit.

This century-old paradigm was turned on its heels when two successive crises hit energy markets in the seventies. Most oil-importing nations were rudely awakened to their vulnerability to supply disruptions from oil-exporting countries and resultant price upheavals. This triggered research in every part of the ESI and led to many developments, including small but competitive generation technologies (conventional as well as renewable), power control systems, energy conservation, and efficiency improvement of the energy-consuming processes and appliances.

Regulators were quick to take note of these developments and demanded that the utilities, answerable to them, reflect these new trends in their plans. Traditional planning gave way to integrated resource planning (IRP), requiring utilities to consider any feasible demand-oriented options before seeking supply expansion.

The above requirement was formalised in the Public Utilities Regulatory Policy Act (PURPA) 1978 in the US, which mandated utilities to buy excess power from “qualifying non-utility producers” in their areas at the utilities’ avoided costs – the cost a utility would incur if the option of buying from the qualifying non-utility producer did not exist. The reasoning was that to serve consumers’ demand, a utility requires adequate generation, transmission and distribution assets. These costs can be avoided by procuring electricity locally.

Owing to the ESI’s heavy reliance on fossil fuels and the resulting noxious emissions, especially greenhouse gases, multiple policies were introduced to incentivise electricity consumers to reduce their demand and support the power grid using options like rooftop solar PV for their own use and export excess to the grid. Net Energy Metering (NEM) is one such policy. By 2022, over 90 countries were using NEM of some sort. Two such efforts deserve special mention. One by the American state of Hawaii, which initiated its NEM programme in 2001 and had solar penetration (share of solar PV in peak demand) exceed 15% by 2018. By that time, Germany already had over 33% of its demand served by mostly grid-interactive solar PV at homes and other consumer sites.

Exact NEM statistics for Pakistan are not available, but according to the Private Power and Infrastructure Board (PPIB), by June 2023, their number was 63,703 with a cumulative capacity of 1,505 MW. This implies that NEM’s energy exports to the grid are about 989 GWh (assuming a capacity factor of 15% and half of it exported). On all three counts – the proportion of consumers on NEM (0.16%), penetration level (5.5%), and share of energy sales (1.78%) – NEM capacity in Pakistan at present is too small to warrant any policy revision. Such aberrations are normal for the grid. Only when their penetration exceeds 5% to 10% is when they start having any adverse impacts, and even these can be easily managed using different techniques.

Fears about the stranding of distribution assets or cost shifts to non-NEM participants are untenable at present. Even if they had some substance, the government could allay these by announcing a cut-off date for new participants, a capacity ceiling, or maximum penetration threshold instead of making any changes for existing NEM participants. The stability and continuity of a policy are as important, and perhaps even more, than the policy’s contents.

A far more worrisome trend for the government should be the massive shifting of consumers to non-grid-interactive rooftop solar to reduce their electricity bills

Based on last year’s statistics from NEPRA, one can argue that NEM’s injection of one GWh of surplus electricity into the grid could avoid 1.25 to 1.5 GWh of generation upstream. This is just the avoided cost for the grid. NEM will bring many additional benefits to the nation, like reducing pollution, as well as improving security, self-reliance, affordability, and sustainability, which can be quantified through proper studies only.

More worrisome for the government should be the massive shifting of consumers to non-grid-interactive rooftop solar to reduce their electricity bills. Precise statistics for such installations are not available, but you don’t need these statistics to appreciate the gravity of this trend. All you need to do is go to your roof and look around.

The government has only itself to blame for this alarming trend. The rigid mindset of its functionaries, from top to bottom, is directly responsible for it. They have treated, and continue to treat, electricity consumers as prisoners of their outdated grid and malpractices, in addition to using them as a dumping ground for all the costs of misgovernance (currently exceeding Rs690 billion by NEPRA estimates) in the power sector.

Solar PV is a technology whose time has finally come. Its march now seems unstoppable, and won’t be wise or prudent to hinder it. The government has only three choices: resist the tide and get run over; sweep along with it and hope to survive; or swim skilfully with it and thrive. Which way the government steers the nation, will be evident soon. Let’s keep our fingers crossed in the meantime.___The Friday Times Pakistan