The solar power tariff

The utility purchases solar power at less than half of its notified tariff. A further reduction will be blatantly unjust

The solar power tariff


lthough the government has denied that it plans to slap a fixed monthly charge on solar panels installed by households, the idea has been floated. It could be revived once the initial adverse reaction to it has cooled down.

There is a view in the relevant ministry that solar panels represent an opportunity for generating revenue. The ministry, of course, is in a deep financial crisis. Speaking recently at a webinar, an official of the power ministry, said only the rich benefit from solar energy. This is not true.

The statement indicates that households using solar power could be penalised at some stage. Before discussing this issue further, let us first review the history of solar panel installation in Pakistan. Relatively few households had installed solar energy units before 2015. They used the free power during day time and shifted to grid power in the evening.

In 2015 the government announced that it will purchase any extra electricity produced during day time by such households. For this purpose they introduced net metering under which all additional power was transferred to the grid. The government at that time purchased the household solar power at Rs 9 per unit; the prevalent grid rate was Rs 15 per unit.

The household could consume these units during the evening when solar power was not available. Then in 2018 it was announced that the solar households should pay a higher tariff for power consumed during ‘peak use’ hours. This measure effectively lowered the tariff for the solar power.

During the past three years the power sector has had to raise the tariff many times as distribution companies failed to recover the cost of the power produced. Rising tariffs made the consumers miserable and made the investment in solar energy more attractive.

The trend has accelerated in the recent months. A large number of domestic consumers have installed solar panels that have a cumulative capacity to produce 480 MW of power. The efficiency of solar energy plants is around 16 percent and there is no power production during the night and cloudy weather. Only about 56 MW power is actually produced.

Assuming that 50 percent of it is exported to the grid, the utility has to pay for no more than 28 MW. When the utility purchases power from the solar IPPs it guarantees payment indexed in US dollars for 25 years. Solar IPPs, commissioned in 2015 and 2016, are getting between Rs 35 and Rs 25 from the NEPRA. Why cannot the government then continue the arrangement with households producing solar energy for the same period?

Some of our bureaucrats devote themselves to finding faults in policies chalked out after comprehensive deliberations. The trick is to point out the additional revenue potential by tinkered with the policy. Solar energy is a glaring example of this. Governments across the world are facilitating home owners [as well as commercial entities] to install solar panels and produce clean electricity. The government of Pakistan too has lately offered some incentives in this regard. The duty on solar panels was withdrawn and the government started buying surplus power produced by domestic consumers and others by connecting the system with the grid. The home owners could consume the power transferred to the grid during the evening when solar power is not available. The facilitation encouraged a large number of middle class households to go solar.

Some of our bureaucrats devote themselves to finding faults in policies chalked out after long deliberations. Solar energy initiatives are a glaring example of this. Governments across the world are facilitating consumers to install solar panels to produce clean electricity.

The real estate industry in India is undergoing a transformative shift, with a notable surge in the adoption of solar power. Government initiatives, such as the Ministry of New and Renewable Energy’s Rooftop Solar Scheme and the PM KUSUM Scheme, coupled with tax benefits like 100 percent depreciation on solar plant machinery, have become instrumental in fostering a solar-friendly environment.

As of 2022, the Indian real estate sector had witnessed a commendable 8.1 GW of installed rooftop solar capacity. The number is expected to grow significantly in the coming years. This paradigm shift is not merely an environmental consideration; it is a strategic move towards a sustainable future, aligning with the growing consciousness of both developers and homebuyers.

Government initiatives have played a seminal role in propelling this shift. MNRE’s ) Rooftop Solar Scheme offers support for rooftop solar installations up to 3 kW for residential and 1 MW for commercial and industrial segments.

The Pradhan Mantri Kisan Urja Suraksha evam Utthaan Mahabhiyan (PM KUSUM) Scheme reinforces the commitment to solar energy, particularly in rural areas. This scheme provides crucial support for both grid-connected and off-grid solar power plants, aligning with the broader goal of sustainable rural electrification.

In India, states manage the power sector independently. Some states offer net metering facilities, some do not. At the state level, diverse incentives further fortify the drive towards on-site solar generation. Various states offer additional subsidies, net metering policies and land exemptions, contributing to the heterogeneous yet collectively sustainable growth of solar adoption in the real estate sector.

Another country that is considering a proposal to stop buying from solar households is Vietnam. What is their reason? According to media reports, the Vietnamese government might stop paying for rooftop solar power sold to the grid to prevent an overload and abuse of its renewable energy incentives.

A recent bill drafted by the Ministry of Industry and Trade covers rooftop solar systems installed in homes and offices. At the end of 2022, the installed rooftop solar capacity had reached 16,500 megawatts, or 19 times what had been approved under National Power Development Plan 7. This means that solar power accounted for 23.8 percent of total power supply. Still, the Vietnamese government has not threatened to slap a tax on solar power producers.

The government Inspectorate said at the time that some businesses had installed rooftop solar systems on agricultural and forest lands in violation of the law to get the incentive price of 8.38 US cents per kilowatt-hour the government offered. Power Development Plan 8 to regulate electricity supply until 2030 caps rooftop solar power supplied to the national grid at 2,600 MW.

It is disgusting to note that some bureaucrats in Pakistan continue to advise the rulers to generate revenue from any source where the consumer cannot escape the levy. Why do the governments not order the same bureaucracy to generate revenues from avenues that fall in their jurisdiction? Why are tax evaders with documented wealth spared? Why do they not ask the state to do away with exemptions?

The bureaucracy must stop exploring easy ways of generating revenue. Imposing a tax on solar systems will open the floodgates of corruption. The house owner will start paying the inspectors to report lower capacities than installed. Next, the government will lower the exemption ceiling from 12 kilowatt to 10 and then to 8, 6, 4 and so on.

The purchase of surplus power policy was apparently formulated in haste. Maybe there should have been a ceiling on how much of it the government will purchase; maybe no more than a fourth of the installed capacity. On the other hand, the utility already buys solar power at less than half its notified tariff. A further reduction will be clearly unjust.

The writer is a senior economic reporter at The News International

The solar power tariff