Sunday December 10, 2023

The net-metering remedy

August 17, 2022

The energy sector of Pakistan is in a crisis mode once again. LNG shortages in the last couple of months and rising fuel oil prices have resulted in prolonged power cuts countrywide.

Unfortunately, these fuel prices are likely to remain high and volatile given the uncertain geo-political crisis triggered by the Russian war. ‘Circular debt’ is rising fast too and is set to rise even further. In parallel, capacity payment charges have been persistently high, crushing any decline in the variable cost components of the tariff. And so, end-users have been bearing the burden of both unreliable access to electricity as well as rising tariffs.

The lack of indigenization of renewable energy sources is among the greatest and most important challenges facing the energy sector today. Despite all these challenges while the country plans to expand its power sector substantially in the years ahead, a major overlooked discourse when it comes to energy transition is the significance of promoting ‘net-metering’ and its suitability for Pakistan.

It is important to note here that reliance on decentralized configurations in Pakistan is already high due to the unreliable power supply. Frustrated with decade-old injustices associated with a centralized energy sector, residents in huge numbers have switched to decentralized modes of energy generation. Although these decentralized configurations are largely undocumented, some uneven statistics do highlight its magnitude.

The International Finance Corporation in a study has indicated that an estimated $2.3 billion is annually spent on alternative lighting alone in Pakistan. Another study indicates that more than 68 per cent of end-users alone in the country rely on alternative back-up energy systems (mostly UPS and fossil-fuel generators). So, reliance tends to be more skewed toward other systems, and high carbon backup appliances have become mainstream technologies in the country. Solar PV has failed to take off in the region despite immense potential. Among other factors, high upfront cost of technology, awareness gap, financial impediments, policy and regulatory design faults; absence of facilitative organization models; and overall misalignments in policy, planning, and coordination have been restricting its uptake.

Arguably, net-metering offers a potent option for a sustainable and climate-safe energy system. Pakistan has naturally high potential for these technologies. Distributed PVs can displace electricity generation from fossil fuels. It does not only offer an opportunity for advancing renewable energy uptake but also insulation from the immense transmission and distribution losses as well as an escape from unreliable power supply and the capacity payment trap that Pakistan is locking itself into. Distributed PV systems can also supply more affordable energy than the grid does.

What could be the proximate driver of net-metering in Pakistan? Integrated planning for pushing distributed PV growth is holding us back. As such, any desired upscaling would require proper planning and new approaches to growing penetration of net-metering. If the decentralized energy transition track is to be made workable, the government should place increased emphasis on it and set explicit targets for distributed PV.

Net-metering is still a new concept for many utilities and banks. Consequently, both have been slow to support its uptake. The inertia against net-metering also tends to be stronger in poorly performing utilities. A shift towards distributed energy resources would thus seek revisiting the existing ‘business-as-usual’ practices and fostering a more facilitative environment for investors. On the financial level, due to difficulties to acquire loans from banks, so far net-metering uptake has been more skewed towards resourceful sections of society. The bureaucratic hurdles in accessing loans for RE technology by potential adopters from banks should be systematically addressed.

In parallel, business models must be innovated in a way that facilitates wide-scale development of net-metered systems. New enabling legislation should be made which encourages private sector engagement in driving rooftop solar. The regulator should consider alternative remuneration mechanisms – such as feed-in tariff-like policy – for third-party investors who could drive roof-top solar PV. Grid codes will also need to be modified to optimize integration of solar PV in distribution networks, together with technical requirements for PV inverters. Gradual roll-out of smarter grids should also be prioritized for higher distributed PV proliferation. Information campaigns should be run by relevant authorities to disseminate awareness both on solar PV technology and net-metering facilities.

We need to move away from fossil fuel dependence and increase our self-reliance. Distributed generation – if mainstreamed – can resolve the longstanding insecurity and unsustainability challenges in the power sector of the country. Scaling up net-metering will scale up the grid at a relatively much lower cost. An integrated enabling framework will be central to influencing increased responsiveness from investors and driving the net-metering growth.

The writer is a researcher based at the Policy Research Institute for Equitable Development and Technical University, Berlin. She tweets @NSaleh91