Pakistan's Rooftop Solar Boom Shines Spotlight on Power Crisis

Blackouts, soaring electricity bills spur urban, rural residents to install own panels

         During the last week of June alone, there were 12 hours of "load shedding," or power cuts, in many areas of Lahore.

         The roots of the crisis in the power sector can be traced back to 1994, when Pakistan offered lucrative deals to foreign investors to establish power plants as the country with a rapidly growing population -- 130 million at the time, 241 million by 2023 -- chased economic growth.

         Independent power producers (IPPs), these operators secured a guaranteed return on investment indexed to the U.S. dollar, plus payment for fixed capacity charges -- covering their debt servicing and other fixed costs.

         In fiscal 2023, the government paid them $4.7 billion just for capacity payments.

         Figure is expected to cross $9 billion in fiscal 2024 due to a combination of factors, the most important being the reduction in demand for electricity.

         Kardigap, in Balochistan province, nearly 1,000 kilometers southwest of Islamabad, gets electricity from the national grid for merely three hours per day.

         The government provide interest-free loans to consumers to install solar systems. "All around the globe, green energy is supported by governments by incentivizing people to adopt such technologies," Idrees said.

 

[ABS News Service/09.07.2024]

Srinagar Highway offers a sun-drenched, 25-kilometer straight shot from Islamabad's international airport to the center of Pakistan's capital. It also affords a clear view of how increasing numbers of citizens are reacting to frequent power cuts and bloated electricity bills: Rooftops on buildings lining the route are covered in solar panels.

Atesham ud Din is among the homeowners who made the switch, investing $9,000 in a solar panel system two years ago to take advantage of one of Pakistan's most plentiful natural resources. "Now we never face the problem of power cuts, and our power bill is almost nil," the 34-year-old development professional said.

Amid rising power prices, consumption of electricity from the national grid skidded 10% in fiscal 2023 from the previous year. That is exacerbating problems in the crisis-ridden electricity sector, which is straining under $8.3 billion of debt, much of it owed to Chinese energy producers.

And the cash-strapped government is facing further pressure to increase electricity prices in budget-balancing moves on which its hopes of securing a loan deal with the International Monetary Fund rest.

The strain on the national grid is apparent. During the last week of June alone, there were 12 hours of "load shedding," or power cuts, in many areas of Lahore due to transmission flaws, reducing people's ability to use electric fans or air-conditioning systems just as temperatures in the city of more than 11 million people reached 46 degrees Celsius.

It's not immediately clear exactly how many people are switching to solar panels as an alternative source of electricity. Some households have opted for simple set-ups to fuel their own needs, residents says, while others, like ud Din, have invested significant sums into bigger solar panel systems, with a view to selling excess power generated to the national grid.

Saif ur Rehman, 48, a Lahore importer of medical equipment, has installed a system of 14 solar panels at his office.

"Now I can get peace of mind and focus on my business with uninterrupted access to electricity all day long and don't have to worry about load shedding," Rehman told Nikkei Asia.

Shahzad Qureshi, a vendor of solar panels in Lahore, said he has witnessed an exponential increase in sales of inexpensive panels, mostly imported from China.

"There is an increase of more than 50% in sales of solar panels this summer," he said. Panels cost $90 apiece on average, and vary in size and capacity.

The roots of the crisis in the power sector can be traced back to 1994, when Pakistan offered lucrative deals to foreign investors to establish power plants as the country with a rapidly growing population -- 130 million at the time, 241 million by 2023 -- chased economic growth.

Called independent power producers (IPPs), these operators secured a guaranteed return on investment indexed to the U.S. dollar, plus payment for fixed capacity charges -- covering their debt servicing and other fixed costs -- regardless of whether the power plants are operational.

Consequently, Pakistan pays a hefty amount to IPPs every year. In fiscal 2023, the government paid them $4.7 billion just for capacity payments. That figure is expected to cross $9 billion in fiscal 2024 due to a combination of factors, the most important being the reduction in demand for electricity.

Payment of capacity charges increases the electricity production costs for the government, which translates into increased power bills for consumers, a bane for large sections of society in a developing economy like Pakistan.

The government initially sought to incentivize the solar panel business. In 2017, it started a system for "net metering," in which people can sell excess electricity produced by their solar panels back to the national grid.

In March 2023, a Gallup Pakistan survey found 88% of respondents expressing satisfaction with the overall performance of the solar panels installed at their homes.

Still, solar power has plenty of room to grow, since it contributes a negligible portion of Pakistan's power mix. As of June 2023, the installed capacity of solar power in Pakistan stood at 630 megawatts, just 1.4% of the overall installed power capacity.

And as per the National Electric Power Regulatory Authority's State of Industry Report 2023, there were merely 56,000 net-metering connections, representing just 0.15% of the nation's electricity consumers.

But the appeal of solar is evident in distant rural regions that have limited connections to the national grid.

For example, the remote village of Kardigap, in Balochistan province, nearly 1,000 kilometers southwest of Islamabad, gets electricity from the national grid for merely three hours per day. Solar panels are becoming more common on the rooftops of houses in the village of 5,000 people, according to one resident who has gone a stage further and installed a full solar energy system sufficient to cater to his household's needs around the clock.

Vaqar Ahmed, joint executive director at the Sustainable Development Policy Institute (SDPI), an Islamabad-based think tank, agrees that solar energy offers an ideal solution for rural areas. "Solar has been a sort of blessing for rural areas of Pakistan, with more stable provision of energy, and these regions do not have high power demand," Ahmed said in an interview.

But even as the solar panel business has boomed, in March the government indicated it wanted to end the net-metering policy as it seeks to meet the IMF's criteria for state spending commitments.

Experts believe that the government is not sending a strong signal to potential investors in solar energy.

"Solar energy has faced policy whiplash in the last few years," said Aadil Nakhoda, an assistant professor of economics at the Institute of Business Administration in Karachi. "Frequent remarks by policymakers to reduce net-metering rates and then end the [practice] entirely has caused distress among domestic consumers."

Experts think the government fears that the continued spread of rooftop solar panels will increasingly lead to a loss of customers paying for electricity from the national grid.

A government official familiar with the developments told Nikkei on condition of anonymity, citing the sensitivity of the matter, that the government fears losing substantial investments in the electricity grid and generation systems: "If solar energy replaces [part of] the electric grid, then it will be a major economic blow that the government can't handle under current economic distress."

The Ministry of Energy did not respond to questions on the matter.

In the meantime, power industry watchers say solar offers one route for Pakistan to exit its energy woes.

"Pakistan has been ranked at No. 26 on the Renewable Energy Country Attractiveness Index by Ernst & Young," Aftab Alam, an expert on climate change and social development, told Nikkei Asia. "It would be an inexcusable failure if the government does not convert such blessings into socioeconomic development."

The SDPI's Ahmed said Pakistan could follow China's lead when it comes to solar power. "In China, there is no shortage of electricity but they are still building solar parks to keep future power needs in mind."

As things stand, existing users of solar panels are counting on the government to facilitate the spread of solar energy.

Rehman, the businessman from Lahore, said the government should encourage the local manufacturing of solar panels, which would help to maintain foreign exchange reserves.

Khuram Idrees, a resident of Rawalpindi who has a solar system at his home, recommended that the government provide interest-free loans to consumers to install solar systems. "All around the globe, green energy is supported by governments by incentivizing people to adopt such technologies," Idrees said.

Back by the Srinagar Highway, solar adopter ud Din remained concerned by the government's uncertain policy, saying its changing approach on net metering has confused the existing users.

"If the government scraps the net-metering policy, then we will be left high and dry, our investment will be wasted, which is a terrifying prospect," he said.