- Challenges and solutions in balancing solar potential and power sector viability
The businessmen community has been stressing for quite some time now to bring down the policy rate if consumer confidence and economic activity is to pick up but so far State Bank of Pakistan (SBP) is maintaining its ‘wait and watch’ policy to see if downward spiraling of prices is sustainable or not. The announcement of annual budget for the year 2024-25 is just around the corner and if the present government manages to walk the talk, then we may expect SBP to bring down the policy rate in June.
So far, prices of a few consumer edible items, automobiles and fuel have shown downward trend and workers’ remittances/current account surplus are showing healthy signs. But if one looks at the power sector, then all the relief seems to diminish through increase in electricity tariff. Adding fuel to fire, the government is also considering revising its net metering policy to gross metering for on-grid solar panels. It remains to be seen whether the government is simply doing a balancing act to keep the capacity charges at a lower level or is actually discouraging individuals and industries from reaping the benefits of lower bills through installation of solar plants.
Pakistan has been actively working to increase its solar energy capacity to address energy issues and reduce reliance on traditional fossil fuels. Several projects have been initiated to harness this potential, for example, the Quaid-e-Azam Solar Park in Bahawalpur, one of the largest solar power plants in the world, which has been developed with Chinese assistance, has added hundreds of megawatts to Pakistan’s solar energy capacity. Meanwhile, several companies have also resorted to generating electricity through solar energy like Gul Ahmed Textile Mills (17.1 MW), Lucky Cement (25 MW) and DG Khan Cement (7 MW). The move comes as industrial and commercial power tariff has seen a massive increase over the last couple of years. Higher energy prices have triggered mass protests across Pakistan and have also stifled energy demand which has left policymakers thinking on how to move forward for the sector’s viability.
Pakistan pursued an aggressive policy to add power capacity but years of slow economic growth, power thefts and under investment in transmission and distribution networks have caused below par bill recovery thus resulting in idle capacity charges from the independent power plants (IPPs) set up in 2015. The agreements executed at that time for purchase of power in dollar terms have entangled Pakistan in a vicious cycle of circular debt from which it has not been able to free itself till date. The cost of idle capacity charges from these IPPs is now being recovered as fuel adjustment charges in monthly bills which has made on grid electricity unaffordable. For understanding purpose, the cost of electricity with all its overheads and surcharges comes to Rs46 for individual customers but through addition of Rs16 as idle capacity charges per person in the name of fuel adjustment charges, the per unit cost swells to Rs62/unit which has made electricity too expensive to afford by a common man.
Making things worse, the government is also considering reducing buy back rates of solar power generated through on-grid solar plants. On one hand, the government is encouraging transitioning to solar power whereas on the other, it is ‘penalising’ the individuals and industrialists for adding megawatts to the national grid leaving them in a fix.
To promote rooftop solar, India is offering $9 billion subsidies so that renewable energy is installed on 10 million homes and consumers can earn a good payback. In Pakistan, due to 25% losses and non-recovery of bills, the government is thinking of how to limit low cost rooftop solar. The power sector of Pakistan is in complete mess and may take down the entire economy if following solutions are not put into place i.e. end of single buyer model, privatisation of DISCOs and local manufacturing of solar panels.