New Net Metering Policy: Is Pakistan's Solar Boom in Jeopardy?

[Riaz Haq]

Recent experience in California has shown that changes in incentives have a huge impact on residential adoption of solar power technology. Since the introduction of NEM 3.0 last year, new rooftop solar business in California has dramatically slowed. New residential solar installation applications have plunged 80%, according to Cal Matters. This has driven many solar installers out of business. The business that remains is mostly focused on adding batteries to existing solar installations. 

Impact of California NEM 3.0 on Solar Business. Source: Cal Matters

California Net Energy Metering (NEM 3.0) was launched last year after heavy lobbying by the state's utility companies like PGE and SoCal Edison. It has reduced payments for the excess power exported by the consumer to the grid by 75%. This change means that the consumer is better off with storage batteries to maximize self-consumption of the power generated by the solar panels. Companies such as Tesla Solar with its PowerWall 3 battery are the main beneficiaries of this change. 

With rapidly falling solar panel prices, Pakistan is experiencing a solar power boom. The country imported some 13 gigawatts of solar modules in the first six months of the year, making it the third-largest destination for Chinese exporters, according to Bloomberg.   In addition, there is approximately 2.2 gigawatts (GW) of net-metered rooftop solar PV capacity connected to the grid by June 2024, according to IEEFA. 

What is likely to happen to this solar boom as Islamabad considers changes to its net metering policy? A recent study published by the Institute for Energy Economics and Financial Analysis (IEEFA) attempts to answer this question. 

Net Metering vs Net Billing Payback Period in Pakistan. Source: IEEFA

There are several proposals under consideration by the Pakistani government to change its net metering policy. All are designed to significantly reduce payments to the consumer for energy exported to the grid. One of these proposals likely to be adopted is to switch from "Net Metering" to "Net Billing". 

Net metering transactions are usually one-to-one, so the credits are often equal to the retail rate of electricity (aka what you pay). Net billing credits are often equal to the wholesale rate of electricity (aka what your utility pays), which is less than the retail rate, according to Energy Sage. Utilities tend to oppose net metering programs, so alternative compensation programs are increasingly being used. 

Analysis by Haneea Isaad, an Energy Finance Specialist at IEEFA, shows that the switch from net metering to net billing would still reduce the payback period for 5kW to 25kW solar systems combined with 50% to 70% self-consumption. She concludes that the payback period will be well under 4 years for a system that has a life of 25 to 30 years. It is better than the 5-year payback period in California under NEM 3.0. 

Would consumers without solar be stuck with high electricity bills? It is quite likely because capacity charges paid to independent power producers (IPPs) accounted for 62% of energy expenditure in Pakistan for the 2023-2024 fiscal year. For the 2024-2025 fiscal year, 64% of the total power purchase price is expected to be fixed capacity costs. Lower consumption of grid electricity will result in a disproportionate impact on consumers who rely entirely on grid power.  

Higher levels of self-consumption closer to 100% would require larger batteries which are still quite expensive in Pakistan. This is likely to change as traditional lead-acid battery makers switch to lithium ion batteries in the country. Recent launches of electric vehicle assembly plants in Pakistan are expected to boost the lithium-ion battery production and bring down prices in the country in the coming years, according to Mordor Intelligence. 

Related Links:

Haq's Musings

South Asia Investor Review

Clean Energy Revolution in Pakistan

Pakistan Electric Vehicle Policy

Nuclear Power in Pakistan

Solar Power Boom in Pakistan

Pakistan's Response to Climate Change

IPP Contacts Bankrupting Pakistan

Renewable Energy for Pakistan

Net Metering in Pakistan

LNG Imports in Pakistan

Growing Water Scarcity in Pakistan

China-Pakistan Economic Corridor

Ownership of Appliances and Vehicles in Pakistan

CPEC Transforming Pakistan

Electric Vehicle Manufacturing Projects in Pakistan

Riaz Haq's YouTube Channel

PakAlumni Social Network

[Riaz Haq]

Pakistan ends power deals to save $1.48 billion, cut tariffs | Reuters

https://www.reuters.com/business/energy/pakistans-biggest-private-u...

Government to save 411 billion rupees
Negotiations with more power producers underway
IMF bailout talks influenced decision to revisit power deals

KARACHI, Oct 10 (Reuters) - Pakistan's government has ended power purchase contracts with five private companies, including one with the country's largest utility that should have been in place until 2027, to cut costs, officials said on Thursday.
The news confirms comment from Power Minister Awais Leghari to Reuters last month that the government was re-negotiating deals with independent power producers to lower electricity tariffs as households and businesses struggle to manage soaring energy costs.
"We studied these agreements and we decided what plants we need and what plants we don't need," Leghari told a news conference in Islamabad on Thursday, adding the termination of the take or pay agreements will save the nation nearly 411 billion rupees ($1.48 billion) in the coming years.
Take or pay is referred to as capacity payments in Pakistan where the government has to pay private companies irrespective of how much of the power they generate is transferred to its grid.

Negotiations have also begun with other power producers to revise their contracts, Leghari said, adding people would soon see the impact in their monthly bills.
"Our aim is to bring the tariff down," he said.
The need to revisit the deals was an issue in talks for a critical staff-level pact in July with the International Monetary Fund (IMF) for a $7-billion bailout.
Earlier on Thursday Prime Minister Shehbaz Sharif said Pakistan has agreed with five independent power producers to revisit purchase contracts. He said that would save the country 60 billion rupees a year.

Pakistan's biggest private utility, Hub Power Company Ltd (HPWR.PSX), opens new tab, also said the company agreed to prematurely end a contract with the government to buy power from a southwestern generation project.
In a note to the Pakistan Stock Exchange, it said the government had agreed to meet its commitments up to Oct. 1, instead of an initial date of March 2027, in an action taken "in the greater national interest".

[Riaz Haq]

Home Batteries Are Cheaper Than Ever - CNET


https://www.cnet.com/home/energy-and-utilities/home-batteries-are-c...

The quoted battery prices have dropped to $1,133 per kilowatt-hour (kWh) of energy storage capacity -- a 16% drop from last year. Lower battery costs are a result of streamlined manufacturing processes, especially in China, and the decreasing cost of materials. In fact, 70% of the world's lithium-ion cell production happens in China, according to IDTechEX.

As prices have fallen, consumer interest in home battery products has increased. However, most people still prefer to purchase a battery with a solar panel system. According to the EnergySage report, 34% of US customers who bought a solar system chose to include a battery during the first half of 2024, a trend that is expected to continue to rise.

Which home batteries are the most popular?
In terms of popularity, Tesla and Enphaseremain the most quoted battery brands on EnergySage, exceeding 75% of the market share when combined. Tesla saw an 11% growth in overall market share within the past six months, likely due to the recent launch of the Tesla Powerwall 3, which more than doubles the power of the previous model.



Tesla's Powerwall 3 is also incredibly cheap for home battery standards. EnergySage says the current cost of the Powerwall 3 is $1,000 per kWh of storage. The Powerwall 3 has 13.5 kWh of energy storage capacity; that's about $13,500. But this doesn't include the cost of battery installation. We were quoted $16,551 for the cost of installing one Powerwall 3 on a home in Fort Mill, South Carolina, via Tesla's website. The estimate includes the cost of the battery, gateway device, accessories, installation and taxes.

Tesla and Enphase aren't the only battery brands out there that are fighting for space in the market. FranklinWH, SolarEdge, EG4 and SunPower are starting to take over what's left of the market. However, SunPower has discontinued its energy storage product and recently filed for bankruptcy.



Interest in home batteries
Consumer interest in home batteries has more than tripled year-over-year, according to EnergySage. This is especially apparent in California, where the battery and solar panel attachment rate has skyrocketed since the net billing changes in April. The attachment rate outside California also saw a 22% increase, especially in states that don't have consumer-friendly net metering policies like Tennessee and Georgia. This makes holding onto your excess energy more valuable than selling it to the utility company.

[Riaz Haq]

Pakistan to reform power distribution after IMF meetings, minister says
Owais Rawda explores what the most recent request for IMF climate funding means for power sector reform.

https://www.power-technology.com/comment/pakistan-to-reform-power-d...

At last week’s International Monetary Fund (IMF) Annual Meetings, Pakistan’s finance minister Muhammad Aurangzeb requested $1bn in funding from the IMF’s Resilience and Sustainability Trust (RST) to help mitigate the country’s climate risks and accelerate its energy transition. Established in 2022, the RST offers vulnerable low- and middle-income countries long-term concessional cash for climate-related spending.

Pakistan’s power sector circular debt, driven by inefficiencies in the power distribution network, crossed Rs2.66tn ($9.5bn) in May, according to a debt report released by the government’s power division. Meanwhile, citizens have suffered significant and frequent power outages in recent years, leaving millions without electricity.

The government’s faulty capacity payment contracts with independent power producers (IPPs) have come to light as the primary source of these challenges. Interest rates borne from private IPPs have not only worsened the debt crisis but spiked consumer tariffs, making electricity unaffordable.

In light of Aurangzeb’s request, coupled with multiple IPPs terminating their contracts with the government, the South Asian nation is now likely to announce significant reforms.

“These IPP payments had a detrimental effect on the overall quality of life for our citizens,” Awais Laghari, Pakistan’s minister for energy’s power division, tells Power Technology. “It is imperative that necessary steps are taken to resolve the issue.”

Without specifying the plans, he claims that the power division is currently evaluating options “through which the fiscal burden shared by the consumer, whether through taxes or debt repayments, can be optimised through various interventions that improves household economics and consumption at the same time”.

Laghari says that there are also plans to “unbundle electricity” and create a competitive market for energy, citing the recent introduction of an independent system and market operator (ISMO) as a step in this direction.

“This will ensure that a B2B [business-to-business] market for electricity can develop, which can eventually evolve into a B2B2C [business-to-business-to-consumer] market thereby providing greater options for consumers and lower prices through a competitive process,” he says.

The minister adds that the role of renewables in reforming the country’s power market will be imperative, “given their price advantage”. He believes that their ability to generate cheap electricity will “always put them ahead in any competitive market regime, making them critical to the success of the market.”

Following the IMF meetings, Laghari says that the government plans to “move forward actively” with the privatisation of electricity distribution companies and that “necessary improvements in governance are already underway”.

He believes that privatisation can enhance the efficiency of these companies, allowing them to remain a key player in the power market, which in turn will result in more affordable prices for consumers.

“Similarly, we continue to focus on investment in transmission to remove constraints so that lower cost electricity generated in the South can be moved across the country and overall consumer tariff can be reduced.”

About the author: Owais Rawda is a regulatory policy researcher that has written about the energy and technology industries.

[Riaz Haq]

Is distributed solar energy a game-changer for emerging economies? | World Economic Forum

https://www.weforum.org/stories/2024/10/distributed-solar-energy-em...

Distributed solar energy and other green tech, is helping to transform energy from a commodity to a technology, enabling energy-independence in emerging economies like Pakistan.
Solar energy boosts economic growth by offering affordable energy, driving business expansion and increasing job opportunities.
Solar energy fosters greater energy autonomy, reduces political dependence on centralized systems, improves governance and contributes to lower carbon emissions.
Under the scorching sun in Lahore, Pakistan, the hum of factory machinery persists uninterrupted. Just a year ago, frequent power outages would have stopped production. Today, a collection of solar panels on its roof keeps everything running. This scene is one of thousands happening across buildings in Pakistan, marking a quiet but powerful shift in how emerging economies power their growth.

At Exponential View, we identify distributed solar energy as a key factor for the future, offering cheaper and more accessible electricity. As our research suggests, this grassroots transformation has the potential to redefine economic opportunities and provide energy independence for millions in developing nations, reshaping their futures.

Solar is changing energy from a commodity, like fossil fuels, to a technology, bringing two key benefits. First, as solar technology improves, its cost continues to drop. Between 2010 and 2023, the price of solar energy has fallen by 33.4% every time production has doubled. In contrast, fossil fuel prices are controlled by global markets and politics.

Second, solar panels let people generate power locally, giving them more control over their energy. Unlike fossil fuels, which depend on expensive, unstable grids and resources from other regions, solar power allows individuals to become more energy-independent.

As batteries become cheaper, this independence will grow and energy generation could become increasingly decentralized. Emerging economies are leading this transformation and Pakistan is one of the clearest examples this year.

Pakistan’s solar boom
Pakistan is now the third-largest importer of Chinese solar panels, buying an incredible 13 gigawatts (GW) in just the first half of this year. To compare, the United Kingdom is expected to add only 1.5-2GW of solar capacity this year and the United States added 32GW in 2023. This likely makes Pakistan the sixth-largest installer of solar panels in 2024 but locally, the impact is even bigger.

In six months, Pakistan imported solar capacity equal to 30% of its total power capacity, which was 46GW in 2023.

However, Pakistan’s regulator, NEPRA, only tracks grid-connected or officially registered installations. Geospatial data shows solar panels spreading across factories, homes and even government buildings, pointing to an under-the-radar revolution in energy production.