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Who wins and who loses in the solar shift?

By Engr Asad Mahmood
20 January, 2025

Pakistan’s rapid shift to solar energy is driving up costs for grid-dependent consumers, with non-solar users already facing a Rs200 billion burden in FY2023-24 due to net-metered systems. As solar adoption is on the rise, even a 5.0 per cent drop in grid demand could add another Rs131 billion to their bills, while solar prosumers reap the benefits. Without urgent policy reforms, this widening gap threatens to destabilise the entire energy system.

Who wins and who loses in the solar shift?

Pakistan’s rapid shift to solar energy is driving up costs for grid-dependent consumers, with non-solar users already facing a Rs200 billion burden in FY2023-24 due to net-metered systems. As solar adoption is on the rise, even a 5.0 per cent drop in grid demand could add another Rs131 billion to their bills, while solar prosumers reap the benefits. Without urgent policy reforms, this widening gap threatens to destabilise the entire energy system.

The rapid growth of solar energy in Pakistan is reshaping the country’s energy landscape, bringing both benefits and challenges. While solar adoption is crucial for achieving Pakistan's renewable energy goals, it is placing a heavy burden on grid-dependent consumers, particularly middle and lower-income groups.

The shift towards solarisation is leading to increasing electricity costs for non-solar users, as those who rely on traditional grid power are left to absorb the financial strain created by solar prosumers; households and businesses that generate their own solar energy.

According to the findings of M/s Arzachel report ‘The Distributed Divide’ issued recently, the total installed solar capacity in Pakistan was reported at 1,244 megawatts as of 2023, indicating a 17 per cent increase from 2021.In recent years, Pakistan's solar capacity has grown significantly, with more than 2,200MW of solar installations now feeding into the national grid. Bloomberg NEF reports that Pakistan is on track to becoming the 6th largest solar market in the world this year, with an estimated installation of 10-15GW in 2024. This surge in solar installations is reducing grid demand during daylight hours, with some estimates suggesting a decrease of 8-10 per cent.

As a result, utility companies are experiencing a loss of revenue and the resulting shift of almost Rs200 billion in grid’s fixed costs led to an increase in electricity tariffs by Rs2 per kWh for non-solar consumers in FY2023-24.

This increase in prices further drives solar adaptation, creating a cycle that reduces demand for grid-supplied power and increases costs for consumers. This cycle, known as the 'utility death spiral,' threatens both consumers and utilities with escalating prices and financial instability.

Non-solar consumers are already faced with additional costs due to the rise of net-metered systems, which allow solar prosumers to sell excess power back to the grid. As solar adoption accelerates, even a modest 5.0 per cent drop in grid demand could add another Rs131 billion to the burden on non-solar consumers.

The major contributors to the net metering system are LESCO (34,516), MEPCO (34,187), and IESCO (34,162), which lead with the highest number of net metering consumers. If this trend continues, a 10 per cent drop in grid demand could push costs up by as much as Rs261 billion. As per estimates, grid demand is expected to reduce by 15 per cent this year which may lead to a 17 per cent increase in the base tariff for non-solar users. This growing disparity between solar prosumers and grid-dependent consumers highlights the urgent need for policy changes.

Meanwhile, solar prosumers are seeing considerable savings, with net-metering systems allowing them to avoid costs, for example, of up to Rs20 per unit of grid electricity with a 10kW system. Even behind-the-meter systems, where excess power is not sold back to the grid, result in savings of around Rs7 per unit.

Some larger solar systems, up to 1.5 times the sanctioned load, allow consumers to even receive negative bills, resulting in significant financial benefits for those who can afford to install solar systems. However, this leaves non-solar consumers to bear the increased grid costs, creating financial inequity.

The rise of distributed solar generation in Pakistan is also placing significant operational strain on the country’s power grid. Traditionally designed for centralised power generation, the grid is now facing reverse power flows, especially during peak solar generation hours in the midday. This reverse flow puts pressure on grid infrastructure, including transformers, which were not built to handle such surges. The result is voltage instability and potential damage to critical components, which could lead to blackouts or system failures.

Policymakers must act swiftly to implement reforms that balance the interests of solar adopters and grid-dependent consumers to create a fairer, more sustainable energy system for all its citizens

The growing share of solar power in the energy mix is also contributing to the development of a ‘duck curve’, a phenomenon similar to that experienced by California. During midday, solar generation causes a steep drop in demand, followed by a sharp rise in demand during the evening as solar power decreases. This fluctuation creates challenges in balancing supply and demand, requiring additional capacity to meet the evening peak and putting further stress on the grid.

Moreover, the shift to solar is increasing the demand for ancillary services like frequency regulation and voltage control -- services that were once provided by conventional power plants. With solar generation becoming more prevalent, the capacity to provide these services is stretched thin, further straining utility companies and raising the cost of maintaining grid stability.

The current net metering system, which compensates solar prosumers at the same rate they pay for grid electricity, is becoming unsustainable as solar energy’s share of the grid increases. This system places an unfair financial burden on grid-dependent consumers, particularly in light of the growing disparity between solar adapters and non-solar users requiring urgent resolution.

One recommendation is to shift from net metering to net billing or Feed-in Tariffs (FiTs), where solar prosumers are compensated at lower rates for the excess energy they supply to the grid. These FiTs should vary by time of day, with lower rates during daylight hours and higher rates at night, to encourage energy storage and reduce grid stress.

In addition, the government should introduce minimum monthly charges for solar prosumers, ensuring that they contribute to grid maintenance costs. These charges could be based on the capacity of their solar installations and the actual use of grid services. Transitioning to Time-of-Use (TOU) tariffs as imposed by the California Public Utility Commission, replacing the current slab-based system, could also encourage consumers to use electricity during off-peak hours when grid demand is lower.

Industrial users would face higher fees, with net-metered industrial users paying up to Rs2,500 per kW/month. This ensures that all consumers contribute to the fixed costs of grid maintenance, regardless of their level of grid usage.

Pakistan’s grid infrastructure must also be upgraded to handle the growing share of distributed solar generation. This includes addressing issues like reverse power flows and ensuring that grid components can manage fluctuating energy inputs. The government should consider implementing Locational Marginal Pricing (LMP) to optimise the placement of solar generation and reduce grid congestion.

Conducting a Distributional Equity Assessment (DEA) will also help identify the financial burden on non-solar consumers, allowing policymakers to design fair tariff structures and ensure that the benefits of solar energy are shared equitably, especially among vulnerable populations.

To further enhance grid stability, the government should incentivise the deployment of Battery Energy Storage Systems (BESS) in areas with high solar penetration. These systems can help manage fluctuations in solar generation while creating an ancillary services market that would enable distributed energy resources like solar and battery systems to help stabilise the grid and meet the growing demand for frequency regulation and voltage support.

There is also a need to revise the Distribution Code to accommodate two-way power flows and improve grid management for renewable energy integration. Developing technical solutions is crucial to maintaining grid reliability while supporting the expansion of clean energy.

A key breakthrough in addressing this issue could be investing in areas with high solar output potential and ensuring the benefits are evenly distributed among consumers. Balochistan, with its significant potential for solar energy production, should be prioritised for such investments. The recent 150MW investment by K-Electric in Winder and Bela, Balochistan, presents an opportunity to contribute significantly to renewable energy production. It is crucial that this investment not only supports green energy generation but also ensures that its benefits are distributed equitably, helping to reduce tariffs and promote lower-cost, sustainable energy for all consumers.

While solar energy adoption in Pakistan offers long-term environmental benefits, it is essential to address the growing financial and operational challenges associated with this shift. Policymakers must act swiftly to implement reforms that balance the interests of solar adopters and grid-dependent consumers to create a fairer, more sustainable energy system for all its citizens.


The writer is an energy sector expert. He can be reached at: asadm_46@yahoo.com