The fight over solar energy prices

The fight over solar energy prices

Net metering, also referred to as net energy metering (NEM), is a method of electricity billing that allows consumers to generate their own power to use at any time, not just when it is generated.

It involves customers with solar panels transferring the excess electricity they produce to the grid, receiving a credit from the utility company on their electricity bill. When solar panels generate more electricity than they use, the excess power flows back into the grid.

According to the World Bank, Pakistan has a solar energy potential of 40GW and aims to supply 20% of its electricity from renewable energy by 2025. Historically dependent on fossil fuels, mainly oil and gas, for power generation, Pakistan’s energy mix has changed in recent years.

According to Pakistan Bureau of Statistics (PBS) data from 2020, fossil fuels make up about 63% of total power generation, followed by hydropower at 29%, nuclear power at 5%, and renewable energy at about 3%.

The government has approved the Alternative and Renewable Energy Policy 2019, offering incentives and support for renewable energy ventures.

Continued challenges in implementing the National Electricity Policy 2021, which was endorsed by the Council of Common Interests in February 2021. Although aimed at ensuring affordable, reliable and sustainable electricity, opposition from certain regions and stakeholders in matters such as tariff determination and governance of the energy sector preventing its implementation.

The growing attractiveness of solar energy as an investment marks an important shift in Pakistan’s power generation dynamics. With abundant solar resources, Pakistan can reduce dependence on fossil fuels, improve energy security and promote environmental sustainability.

Reports indicate that the government plans to reduce the rate of solar energy exported to the national grid from Rs21 per unit to Rs11 per unit, sparking widespread criticism. Currently, consumers who generate solar power through net metering receive Rs21 per unit.

Solar net metering installed capacity has jumped to 3,000 megawatts, with projections showing further growth next year. Despite public concerns, the government cited financial pressures on capacity charges paid to Independent Power Generators (IPPs), regardless of whether electricity is purchased from them.

The proposed rate reduction is believed to be influenced by IPPs, who are concerned about losing revenue with the rapid increase in solar power installations, potentially costing consumers. Notably, regulatory bodies such as the National Electricity Regulatory Authority (Nepra) are seen to favor IPPs over consumers and solar net metering users.

A surge in demand for solar panels has disrupted the government’s capacity payment plan. Although the government maintains that the current rate allows consumers to recover the cost of their solar panel installation within 18 months, Independent Power Producers (IPPs) are pushing to extend this payback period to 10 years.

At the global level, the Sustainable Energy for All (SE4All) initiative aims to achieve universal access to modern energy by 2030 and double the share of renewable energy gains and energy efficiency. As a result, there is a rapid shift towards renewable and alternative energy sources for power generation.

The revised EU Renewable Energy Directive increased its binding renewables target for 2030 to a minimum of 42.5%, up from the previous 32%, with the ambition of reaching 45% of total energy from renewable sources, almost doubling the existing share. Similarly, other developed countries have also committed to increasing the share of renewable energy in their energy mix by 2030.

Sustainable Development Goal 7 (SDG7) supports “affordable, reliable, sustainable and modern energy for all” by 2030, with three core targets forming the basis of this effort: ensuring universal access to affordable, reliable and modern energy services.

Pakistan has ratified the United Nations Convention on Climate Change (UNFCCC) and adopted SDG-7 to coordinate global efforts in combating climate change and transitioning away from traditional fossil fuels and other carbon-intensive energy sources.

To meet its Nationally Determined Contribution (NDC) targets, Pakistan aims to transition to 60% renewable energy and achieve 30% electric vehicle penetration by 2030. In addition, Pakistan plans to ban coal imports and develop nature-based solutions.

Solar net metering stands out as a rapidly growing sector, offering consumers the opportunity to tap into their own resources for energy generation. Through initiatives like solar net metering, Pakistan can meet its commitments under the Paris Agreement, UNFCCC and SDG-7.

Given the above national and global commitments, leveraging net metering facilities can significantly help in meeting Pakistan’s obligations under the UNFCCC and Paris Agreements. Therefore, reducing the price of a unit of solar energy from Rs21 to Rs11 could affect the entire transition to renewable energy.

The government should reconsider its decision, as it risks undermining progress towards sustainable energy. A comprehensive study, involving input from market experts and relevant Ministries of Climate Change, as well as consultation with solar users, is essential.

It is important to assess the broader national and global dynamics before making any unilateral decisions. In order to uphold Pakistan’s international legal obligations, safeguard the interests of its people, and maintain momentum in the transition to renewable energy, a careful consideration and review process is essential.

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