Skip to main content

The future of net-metered solar power in Pakistan

August 21, 2024
Haneea Isaad and Syed Faizan Ali Shah
Download Full Report View Press Release

Key Findings

Pakistan's current Distributed Generation and Net Metering Regulations offer incentives such as high buyback rates, fixed long-term generation licenses, and generous allowances for installed capacity. These have resulted in ideal payback periods, leading to a surge in net-metered rooftop solar photovoltaic (PV) capacity across the country.

The current policy offers 2-4 year payback periods for 5-25 kilowatt (kW) net-metered solar PV systems. Power utilities are concerned that higher penetration of distributed solar could place the distribution infrastructure at risk of failure and increase capacity payments on non-net-metered consumers.

The government is considering reducing buyback rates and a shift to net billing from net metering, which could increase payback periods for consumers with a higher self-consumption ratio but may incentivize oversized systems. A net billing scheme would therefore need to limit system size. Despite all policy shifts, the payback periods remain under 5 years.

For the government, while maintaining or improving buyback rates can encourage more renewable energy adoption, this must be combined with grid optimization and digitization. For consumers, choosing the right system size for their consumption profile can significantly impact their return on investment.

Executive Summary

Pakistan’s current Distributed Generation and Net Metering Regulations offer lucrative incentives such as high buyback rates, fixed long-term generation licenses, and generous allowances for installed capacity. With solar photovoltaic (PV) prices rapidly declining globally, these provisions have resulted in ideal payback periods, leading to a recent surge in net-metered rooftop solar PV capacity across the country.

Rapid solarization offers multiple benefits such as the supply of cost-competitive clean energy to the grid, and a reduction in the daytime peak for the national grid. However, the power transmission and distribution utilities are concerned that higher penetration of distributed solar in the system could place the distribution infrastructure at risk of failure and increase capacity payments on non-net-metered consumers. Therefore, the government is considering scaling back the current incentives, including a reduction in buyback rates, and a shift to a net billing mechanism.

The payback period is the most common metric defining the investment potential of rooftop solar PV in Pakistan. This report quantifies the impact of several policy amendments under consideration for the current net metering regulations on the payback period for rooftop solar PV in the country:

  1. The current government offers attractive payback periods between 2-4 years for 5-25 kilowatt (kW) net-metered solar PV installations in Pakistan. Larger systems generally have lower payback periods due to lower per kW costs.
  2. Reducing the buyback rate from the National Average Power Purchase Price (NAPPP), PKR27 per kilowatt hour (kWh), to the National Average Energy Purchase Price (NAEPP), PKR9.69/kWh, results in longer payback periods. However, for systems with a higher self-consumption ratio, the payback values remain within the 2-4 year range. The 5-year mark is crossed only for 5kW systems with a higher share of grid exports.
  3. A more moderate buyback rate, such as PKR15/kWh, would offer reasonably low payback periods to consumers. This would encourage the addition of further net-metered capacity while stabilizing the rapid rate of solarization that concerns the government.
  4. Switching to a net billing mechanism would extend the payback period for consumers with a higher self-consumption ratio, but it could also incentivize the installation of oversized systems to generate more credits, thereby significantly reducing payback periods. For larger systems, such as 25kW, the payback period could drop to just over a year as the proportion of grid exports increase. Therefore, if the government’s goal is to extend the break-even point for these systems, a net billing regime would need to be paired with restrictions on the size of systems that consumers can install.
  5. Reducing the capacity of distributed generators to 80% of the sanctioned load leads to a longer payback period compared to a standard net metering mechanism. This extension of the payback period is most pronounced under a net billing scheme when the generator capacity is capped at 80% of the sanctioned load.
  6. Net metering generally remains more beneficial for average sized systems, such as a typical 10kW installation, especially for consumers who utilize a higher share of generated output.

Policymakers, regulators, and consumers must recognize that selecting the right incentives requires a careful balance. For the government, maintaining or improving buyback rates can encourage greater adoption of renewable energy, but this must be paired with grid optimization and digitization efforts. For consumers, selecting the right system size and understanding their consumption profile are crucial factors that can significantly affect their return on investment.

Haneea Isaad

Haneea Isaad is an Energy Finance Specialist at IEEFA. Based in Pakistan, she covers Asian energy markets with a focus on Southeast Asia and Pakistan.

Go to Profile

Syed Faizan Ali Shah

Syed Faizan Ali Shah is a renewable energy and power systems expert with over 15 years of experience in Pakistan’s power generation, transmission, and distribution sector.

Go to Profile

Join our newsletter

Keep up to date with all the latest from IEEFA