Solar power: Curb the bigger beast of net-metering first
News is out that the National Assembly Standing Committee on Finance has unanimously rejected the proposed 18 percent sales tax on the import of solar panels. But does the episode end here — or is it only the beginning?
When the budget was announced earlier this month, the government, under the guise of withdrawing tax exemptions, appeared to go all out in its attempt to impose new taxes. In a press conference, seated alongside Finance Minister Muhammad Aurangzeb, Federal Board of Revenue (FBR) Chairman Rashid Mahmood Langrial sought to justify the proposed sales tax, arguing that it aimed to ensure a level playing field between local solar panel producers and imports.
He further explained that Pakistan is moving toward eliminating tax exemptions — a key requirement of the International Monetary Fund (IMF) program — rather than extending them. On paper, it all made sense. And yet now, there is a reversal. Let's park this U-turn for now. A more pressing issue looms: the glacial pace of reform on net-metering regulations.
Electricity consumption and off-take have declined — a trend driven by high tariffs and the rising adoption of rooftop solar. While the attempt to impose an 18 percent sales tax on imported solar panels may have been directionally correct, it was unlikely to meaningfully slow solar adoption. In 2024 alone, imported solar panels added a cumulative generation capacity of 17 GW — more than one-third of Pakistan's total installed capacity of around 46 GW.
Even with the proposed tax, solar adoption would likely have continued unabated. At best, the tax would have yielded modest government revenues. At worst, it would have driven more transactions into grey markets and encouraged smuggling. So while the tax had the right intention, it was misdirected.
The real policy focus should be net-metering.
What happened to the announcement by the energy minister and the Economic Coordination Committee (ECC) about revising the net-metering buyback rates? That decision stalled at the cabinet level. Why?
It's important to examine who remains on the grid. Most are those who cannot afford to solarize their homes. Behind the façade of net-metering lies an inconsistent policy framework increasingly captured by elite interests. The current policy places an undue burden on non-solar consumers, resulting in higher tariffs and undermining the power sector's long-term sustainability.
Net-metering was originally introduced to encourage solar adoption by allowing consumers to sell excess electricity back to the grid at an attractive rate of Rs 27 per unit. On paper, it was a win-win.
But there's a fundamental flaw: these consumers not only reduce their own bills but also export surplus electricity — generated at minimal cost — back to the grid at artificially high rates, even when the country has excess capacity and power utilities are unwilling or unable to buy more. With global solar panel and installation costs falling, payback periods for solar systems are shrinking rapidly.
At the heart of the issue lies a core question: why should the grid be obligated to purchase surplus electricity when there is no demand for it?
As more rooftops go solar, daytime electricity generation often exceeds consumption, forcing utilities to buy power they don't need — and at fixed prices that don't reflect true market value.
In March 2025, the ECC approved a revised buyback rate of Rs 10 per unit. The decision aligned with recently approved grid-level solar projects by NEPRA, which secured the lowest-ever tariff bids of Rs 8.9 — a truer reflection of renewable energy costs.
But the decision was held up in the cabinet. Rather than endorsing it, members called for broader "consultation," postponing ratification and instructing the Power Division to resubmit after further review.
Beyond the buyback rate, the current net-metering framework has other serious flaws. Consumers are allowed to install systems up to 1.5 times their sanctioned load — enabling the installation of excess capacity, which places even more strain on grid users. According to one study, this unregulated rooftop solar boom causes the government to lose Rs 100 billion annually and raises tariffs for grid-connected consumers by Rs 2 per unit. This creates a feedback loop — rising tariffs push more people toward solar, which in turn raises tariffs further — what the Arzachel study accurately calls the 'utility death spiral.'
Moreover, net-metering is currently only available to consumers with 3-phase meters. Ironically, this excludes much of the lower-income population and prevents solar from being used effectively as a tool to reduce theft and losses in high-loss areas.
Pakistan stands at a pivotal juncture in its energy and fiscal policymaking. While solarisation is a vital step toward sustainability and energy independence, the current policy architecture has disproportionately benefitted a small, affluent segment — while the majority bears the rising cost of an increasingly strained grid.
The delay in rationalising the net-metering buyback rate reflects how vested interests continue to shape national energy policy — often at the expense of equity and long-term viability. As capacity payments mount and the grid loses relevance to behind-the-meter generation, the system edges closer to fiscal and operational collapse.
As the government prepares to finalise the Finance Bill 2025, what is urgently needed is a balanced, inclusive energy roadmap — one that moves beyond blunt incentives toward targeted, data-driven mechanisms that reflect real-time grid dynamics and ensure shared benefits.
The longer these distortions persist, the deeper the inequities will become.
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