PAKISTAN — where the sun shines nearly 3,000 hours a year — is experiencing a solar revolution like never before. With 22 GW of solar panels imported in the last 18 months, Pakistan’s energy landscape is being transformed rapidly. Yet, this unprecedented ‘solar rush’ poses a paradox: while the sun gives hope of energy independence, it also threatens to plunge the national grid into financial darkness. How can the power sector embrace this solar rush without falling into a death spiral?

For decades, Pakistanis faced power shortages and high tariffs, with electricity prices rising 155 per cent in the last three years. The national grid, unable to offer reliability or affordability, slowly pushed households, industries, and even agricultural consumers toward alternatives.

Once seen as a secondary power source, solar energy has become the primary escape route from skyrocketing bills. As a result, national grid electricity sales declined by 10pc in FY2023. In the last five years, there has been a significant change in demand within the residential sector. The percentage of consumers utilising over 400 kWh fell from 10pc in 2020 to only 1pc in 2024, whereas the share of those using less than 200 kWh increased from 57pc to 89pc during this time frame. This indicates that high-energy users are shifting from grid electricity to solar energy.

While consumers shift to solar, inefficiencies in grid operations continue to rise. Due to high solar generation in the afternoon, the demand for grid electricity remains low. However, a sudden ramp-down of solar generation in the evening prompts households to shift back to the grid, resulting in a peak in demand. The national grid operates a few power plants at partial load to accommodate this sudden surge, leading to high Part Load Adjustment Charges. The Central Power Purchasing Agency paid Rs1.89 billion in November 2024 due to PLAC, with annual costs escalating from Rs18.7bn in FY20 to Rs55.7bn in FY24. This trend highlights the inefficiency of operating thermal plants at part load due to declining grid demand, further straining the financial viability of the Discos.

National grid electricity sales declined by 10pc in FY2023.

The sector must explore opportunities for optimisation to save Discos from this ‘death spiral’, in which declining demand leads to higher tariffs and further consumer attrition.

The law of supply and demand states: if the supply of a product increases, prices tend to decrease. However, Nepra, the power regulator, follows a slab-wise tariff system in which the cost of electricity increases in tandem with its consumption.

This is problematic, especially considering excessive generation capacity, which sits idle most of the year. Under slab-wise tariff, high-consumption users are shifting to solar power, further reducing Discos’ revenue. One possible solution to retain consumers and increase sales could be to transition from slab-based to Time-of-Use (TOU) tariff for all consumers while providing relief to protected consumers by targeted subsidies.

Another option would be introducing schemes such as the ‘winter demand initiative’, which offers incremental electricity consumption at a marginal price of Rs26.07/kWh. Historically, similar initiatives have successfully stimulated demand growth. For instance, the ‘use more, pay less’ package, implemented from Nov 19 to Feb 20, led to a cumulative growth of 16pc. In December 2024, the first month of the winter programme, industrial electricity demand saw a 7pc rise.

To mitigate PLAC, it is essential to improve demand forecasting and smooth fluctuations. A possible solution is revising TOU tariff, implemen­ting daytime schemes with peak-shaving st­­rategies to reduce in-efficiencies.

The same applies to consumers of well-per­­-forming Discos. Con­s­umers of efficient Dis­cos are penalised, and loss-makers are rew­arded. In 2023, four Discos paid Rs125 mil-lion in surcharges to cover losses from the inefficiencies in other Discos. The nationwide uniform tariff should be abolished, and a cost-reflective tariff should be implemented to enhance efficie­ncy and foster competition between Discos.

The power sector can no longer treat strategic reforms as optional — they have become crucial for survival. The way forward demands swift action: restructuring tariffs to win back consumers to the grid, establishing competitive rates for industry, and dismantling the uniform tariff policy to reward efficiency.

Finally, the solution lies in the operationalisation of the Competitive Trading Bilateral Contract Market. Under CTBCM, bulk consumers can negotiate bilateral contracts with power producers. CTBCM would foster competition, attract private sector investment, and accelerate renewable energy integration, leading to reductions in electricity prices and overall sector improvement.

The writer is an energy expert working at the think tank Renewables First.

Published in Dawn, March 1st, 2025