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Wednesday June 19, 2024

Net metering: Watt’s the fuss all about?

There are around 113,000 households that have solar net metering in Pakistan

By Ammar Habib Khan
May 21, 2024
This image shows workers installing a solar panel. — Reuters/File
This image shows workers installing a solar panel. — Reuters/File

THE recent noise regarding solar net metering is akin to creating a mountain out of a molehill, with the noise largely being led by the more privileged households in the country.

Here is how:

There are around 113,000 households that have solar net metering in Pakistan, making up around 0.3 per cent of the total households in the country.

The electricity consumption of more than 75 per cent of households is higher than 700 units, placing them among the more privileged households in the country. While such households maynot consider themselves to be privileged, considering the overall wealth disparity in the country, they certainly are privileged.

Each household that installs solar net metering concurs to a distributed generation licence which clearly stipulates that the price at which the distribution company may buy electricity from the household is bound to be updated. Such a price ought to be a function of demand and supply.

Pakistan right now has excess capacity of electricity, wherein the energy cost is 9 rupees per unit – although after adding capacity charges, and other inefficiencies it exceeds 50 rupees per unit for the highest consuming slabs. Nonetheless, the actual cost of generating electricity remains 9 rupees per unit. In such a scenario, it does not make economic sense to buy the same electron at 22 rupees per unit from distributed solar units.

In this context, it makes sense for the buyback price to be revised. Even if such a buyback price is revised downwards, the economics of a solar net metering connection will continue to remain attractive.

At current prices, the payback period associated with installing a solar net metering connection may increase from 18-24 months to 36-40 months. This will not result in the disaster that many are making it out to be. If anything, a potential investment (although it may not be called one) still generates outsized returns – leaving little room for the more privileged households in the country to complain about slightly smaller outsized returns.

Moreover, it is important to understand that the availability of a grid that can provide backup power has a certain cost associated with its maintenance. If a household is relying on the grid as a backup, it makes sense for it to pay the price for it as well, and not be subsidized by other users who do not have solar net metering installed.

The potential revision in buyback prices has a strong economic rationale. However, this still does not compensate for inefficiency on the transmission and distribution front, particularly on distribution losses.

The future is solar, and the future is distributed – there is no denying this. As battery prices continue to reduce, in a few years we may see a massive exodus from the grid, if things do not improve.

It is estimated that solar generation and storage will reach grid parity by 2030 in most parts of the world. Considering the global geopolitical scenario, it is entirely possible that we may reach the same level earlier than 2030 – threatening the stability of the grid in the process. Carefully designing a forward-looking policy framework remains critical to ensure the stability of the grid.

The writer is an assistant professor at IBA, Karachi.