Solar Panel Schemes by Punjab, Sindh, and KP Leave Policymakers Puzzled

The rapid adoption of solar panels across Pakistan, driven by provincial government initiatives to provide free or subsidized solar systems to low-income households, has presented new challenges for policymakers. While these programs aim to ease the energy burden on consumers, they also raise concerns about the financial implications for the power sector, which already pays over Rs. 2 trillion annually in capacity payments to power producers.

During a recent meeting on the power sector, the Prime Minister was briefed on the growing solarization trend, as reported by Business Recorder.

Ambitious Provincial Solar Plans

The provincial governments have launched large-scale solar distribution programs to support low-income households:

• Sindh plans to provide solar systems to 200,000 households.
• Punjab and Khyber Pakhtunkhwa (KP) have set targets of 100,000 households each.
• Balochistan aims to distribute solar panels to 50,000 households.

Meanwhile, wealthier consumers, including industrial and agricultural users, are increasingly adopting solar energy to counter high electricity tariffs. Similarly, residential consumers are installing rooftop solar systems to reduce their dependence on the national grid.

These provincial programs primarily target lifeline consumers (4% of total consumers) and protected consumers using 0-200 units per month (48% of the consumer base).

Impact of Solar Adoption on the Power Sector

Unverified estimates suggest that domestic consumers have already installed solar systems with a combined capacity of 2,500 MW. This development has been a major topic of discussion during public hearings at the National Electric Power Regulatory Authority (NEPRA).

The Power Division has raised significant concerns about the financial burden of capacity payments falling on grid-connected consumers as more households shift to solar energy. If the current solar adoption rate continues, it is projected that:

• Electricity tariffs for grid-connected consumers could rise by Rs. 2.50 per unit by 2034 to compensate for capacity payments.

Reduction in Grid Demand and Financial Shifts

The increasing use of solar energy has already caused an 8-10% reduction in grid energy demand, particularly during daylight hours. A typical 10 kW net-metering system allows consumers to bypass the grid’s fixed cost of Rs. 20 per unit, relying instead on solar energy. Behind-the-meter solar installations currently avoid fixed costs of Rs. 7 per unit on average.

In FY 2023-24, approximately Rs. 200 billion in grid fixed costs were shifted to non-solar consumers, leading to a tariff increase of Rs. 2 per kWh for these users. If grid demand continues to decline:

• A 5% reduction could shift Rs. 131 billion annually to non-solar consumers.
• A 10% reduction could escalate the cost burden to Rs. 261 billion per year.

Future Projections

If solar adoption continues at the current pace, the base tariff could rise by 17% as grid demand further declines. With increased solar imports and installations, grid energy sales could see an even sharper drop, compounding the cost burden on non-solar users.

The widespread shift to solar energy, while beneficial for individual consumers, poses a challenge for policymakers who must balance the financial stability of the power sector with the growing demand for renewable energy solutions.

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This rewritten blog provides a clear and structured overview of the issue while maintaining the key details. Let me know if further edits are needed!