Due to the high cost of electricity and petroleum, an average middle-class household with an income of Rs35,000 per month, using 400 units (KWh) of electricity and a motorcycle as the primary mode of transportation, is spending half of its monthly income on electricity and fuel expenses, not leaving much for food, rent, and children’s education.

The situation will further exacerbate for these households and export-based industries with the forthcoming elimination of electricity and petroleum subsidies based on the International Monetary Fund’s (IMF) requirements.

This can turn into a blessing, though, if the government uses this as an opportunity to accelerate the implementation of technological solutions offered by solar, electric motorcycles, and lithium-based batteries, eliminating the need for subsidies permanently.

These solutions offer multiple benefits, including alleviating the burden on the middle class, reducing the oil import bill, creating a cleaner environment, and an opportunity for an economic turnaround by establishing local manufacturing for internal consumption and exports.

Consumers can significantly bring down their electricity bills by renting a small portion of a large solar farm

For lower-cost electricity, the expansion of rooftop solar and community solar subscription, a recent innovation for large-scale solar farms, needs to be considered.

Rooftop solar installations have been a success story for the past few years because of the 10x reduction in solar panel prices during the last decade, steep escalation in electricity tariffs, and net metering.

This has made solar installation one of the best investments, with a payback of fewer than four years, while providing an excellent hedge against inflation and tariff escalation. Advanced LFP (Lithium Ferrous Phosphate) batteries, with 15 plus years life, are also becoming financially feasible for peak hours use with imminent peak rate hike.

As per the National Electric Power Regulatory Authority (Nepra) annual reports, more than 20,000 net metering licenses were issued by the end of 2021-22, adding 450MW to the system. While it’s a good start, it is still a low number, and there is much room to grow.

There are 610,000 households in Pakistan using 700 plus units and 16.8 million households consuming 300-700 units on average per month. The country can easily achieve at least 10,000MW of rooftop solar installations on just 5 per cent of these houses during the next five years by continuing with the current net metering and export rate incentives.

For households using 500–700 units per month, rooftop installations can be accelerated by providing incentives such as reinstating low-cost loans, removing current limitations on net metering, and eliminating 17pc general sales tax on solar equipment for 10KW or smaller installations.

Rooftop solar, however, is not a practical option for lower-income households (300–500 units per month consumption) because of higher cost per kilowatt for a smaller system, financial constraints, roof space availability, rental housing, and apartment living.

Community solar, a recent innovation gaining momentum in various countries for large solar farms, along with virtual net metering (VNM) provides a practical and lower cost solution for these households and industrial facilities.

In the community solar subscription model, consumers either purchase or rent a small portion of a large solar farm operated by the utility or a private developer. For example, for a 100MW solar farm located near an industrial zone — multiple industrial facilities can purchase 20pc of this farm’s capacity (20MW), providing equity investment, while the remaining 80pc (80MW) can be subscribed (rented) by 80,000 low usage household (300-500 units) customers with a limit of 1KW for each.

Because of economies of scale, the per kilowatt cost of these solar farms is 15-20pc lower than a rooftop system, thus reducing the purchase or rental cost. Also, since the industry will be providing equity investment, there won’t be a need to find large investors for these solar farms. The government, however, should consider offering a 15-20pc tax credit to further incentivise the industry for this investment.

With the community solar model, the industry will receive almost free electricity (nominal charges for operations, maintenance, insurance and distribution) for their purchased portion as the return of equity and will only pay Rs10 per unit (based on the current tariff by Nepra for large scale solar without return on equity component) for additional electricity need during the day, 70pc below the unsubsidised rate of Rs32 per unit after tariff adjustments to meet IMF requirements.

As the subscription rate for household consumers will also be Rs10 per unit, they will pay Rs1,500 monthly for 150 units generated from their 1KW subscription. Still, they will receive a credit of Rs3,800 (current K-Electric rate of Rs25.53/unit for 300-400 units tier) using virtually net metering, effectively reducing the bill by 20pc (400 units per month consumption: Rs12,127 without solar subscription vs Rs9,800 with solar subscription and VNM). The savings will be even more with increasing electricity tariff.

Pakistan can achieve up to 20GW solar installations in the next five years through rooftop and large solar farms, significantly reducing the impact of costly and pollutant fossil fuel-based energy generation.

Published in Dawn, The Business and Finance Weekly, February 20th, 2023

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