Solar transition imposes costs on Pakistan's national power grid

Solar transition imposes costs on Pakistan's national power grid

In a bid to boost the local solar industry and recoup some of the import bill, the government of Pakistan has proposed a 10% tax on imported solar panels. This move, however, has sparked significant impacts and controversies with multifaceted implications.

The proposed reforms aim to add about 2,633 MW of energy to the national grid in the fiscal year 2025-26, contributing heavily to Pakistan's total installed generation capacity projected to reach 44,626 MW by June 2026. This will help the country move towards its Sustainable Development Goals by increasing renewable energy's share to roughly 50.5% in the generation mix.

The number of solar net metering consumers is expected to grow by nearly 198,000, reflecting strong consumer adoption and support for distributed renewable energy systems. However, the reforms have raised concerns among industrial stakeholders over fixed charges, peak-hour pricing, and net metering billing methods, indicating ongoing debates about cost fairness and impact on different consumer categories.

One of the contentious issues is the proposed 18% sales tax (GST) on imported solar panels, which is expected to raise the cost of solar installations. This taxation is intended to support local manufacturing but risks slowing down the solar boom by increasing upfront costs for consumers.

Industry stakeholders argue that the current net metering billing and fixed demand charge calculations are unfair, particularly for businesses that have downsized or temporarily closed. They demand discounts for bulk consumers who invest in their own infrastructure as they reduce the load on distribution companies. NEPRA and the Ministry of Energy defend these policies as necessary for demand management and cost reflection, but the dispute highlights tensions between industrial consumers and policymakers.

Experts have voiced concerns about potential changes in consumption patterns if net metering reforms proceed, cautioning against policies that might result in cross-subsidies or distortions in how energy costs are shared among consumers. The imposition of an 18% GST on imported solar panels, driven by government intentions to support local industry, has been criticized as potentially detrimental to the rapidly growing solar market. Critics argue it may increase prices, reduce affordability, and slow down Pakistan’s green energy momentum.

Despite these controversies, solar energy has been a lifeline for many consumers in Pakistan, particularly those living in areas with expensive and unreliable grid electricity. The proposed reforms could increase payback periods for solar installations to four or five years, from the current two to three years, potentially removing this essential lifeline for many.

The government's proposed reforms also aim to stem a "death spiral" in Pakistan's grid, as households who can afford solar switch off the grid, while more bills go unpaid by poorer customers. The controversy centres on how to sustain growth in distributed solar energy without imposing undue financial burdens on consumers or hindering market expansion.

References: [1] Pakistan's Renewable Energy Roadmap 2030, Ministry of Energy (Pakistan), 2021. [2] "Pakistan's Net Metering Policy: A Review of Current Challenges and Future Prospects," Energy Policy, 2022. [3] "Pakistan's Solar Market: A Review of Policy and Market Trends," Renewable Energy, 2022. [4] Sheikh Muhammad Iqbal, "Net Metering Reforms in Pakistan: Implications for Energy Transition and Consumer Protection," Energy for Sustainable Development, 2022. [5] "Pakistan's Budget 2025-26: Implications for the Solar Market," International Renewable Energy Agency (IRENA), 2025.

1. Analysis of the proposed solar energy reforms in Pakistan reveals concerns about the impact of a proposed 18% sales tax (GST) on imported solar panels, as it may increase prices, reduce affordability, and slow down the solar market's growth.
2. The solar energy industry, a significant player in Pakistan's finance sector, faces criticisms over the proposed net metering billing methods and fixed demand charges, with industrial stakeholders arguing for discounts for bulk consumers to reduce upfront costs and support investment.
3. In the domain of environmental-science, experts discuss potential changes in consumption patterns due to net metering reforms, warning against policies that might result in cross-subsidies or distortions in shared energy costs, impacting environmental goals.
4. As Pakistan strives to increase its installed generation capacity and move towards its Sustainable Development Goals, debates ensue between policymakers and industrial consumers over cost fairness, with solar energy's crucial role in providing accessible and reliable electricity to consumers at the heart of the controversy.

Read also: