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| 7-February-2025 |
How big is the shift to solar panels?
It is hard to answer this question, because most solar capacity is off-grid, and (as far as I know), no-one regulates or counts those panels.
Grid-connected solar is regulated and counted. It has expanded at least seven-fold in the last three years. In June 2024, the national electricity regulator counted 2498 Megawatts of grid-connected solar capacity, up from 1317 MW in June 2023 and 347 MW in 2021.[1]
Grid-connected solar is regulated and counted. It has expanded at least seven-fold in the last three years. In June 2024, the national electricity regulator counted 2498 Megawatts of grid-connected solar capacity, up from 1317 MW in June 2023 and 347 MW in 2021.[1]
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| Safety training at the Water and Power Development Authority staff college, Islamabad, 2012 |
Those panels were in 158,000 separate installations. Together, they exported 828 gigawatt hours (GWh) of electricity to the grid in the year to June 2024, up from 482 GWh in the year to June 2023 and 151 GWh in the year to June 2022 – a more than five-fold increase.[2]
Those electricity exports are less than the imports of grid electricity to those 158,000 customers. And they were only a tiny proportion of total grid electricity, less than 1%. But the electricity produced by the panels and consumed by their owners is not measured, and is likely to be much greater than the exports.
The scale of off-grid solar can be assessed roughly. Already in 2019, an energy ministry document reported that about 2.5 GW of solar panels had been imported in the preceding five years. Only 430 MW of this was used in utility-scale solar farms. The ministry reckoned that the rest were used for “self-generation” by households or businesses, or microgrids.[3]
It is clear from the level of solar panel imports, shown in customs data, that the number of installations is likely to keep rising. Imports were 2.8 GW in 2022, 5 GW in 2023 and 13 GW in the first half of 2024,[4] a cumulative total of more than 20 GW.
By mid 2024, it appeared that about 8 GW of this capacity had been installed, 5 GW off-grid and up to 3 GW with a grid connection.[5] At least that amount again could be on the way.
If most of these panels are installed, they could replace a significant chunk of Pakistan’s electricity generation capacity of 41 GW. It is dominated by coal and gas (52%), hydro (25%), and nuclear (17%), with wind, biomass and solar accounting for 3.6%.[6]
Pakistan’s capacity is chronically underutilised, with somewhere between one third and one half unused in 2022-24.[7] A rational policy based on Pakistani people’s needs would seek to close down expensive, little-used coal- and gas-fired power stations as fast as possible.
Keep in mind, though, that the different capacity factors (which measure generating capacity’s actual output, as a proportion of the peak output that is technically possible) mean that 1 GW of solar or wind capacity does not replace 1 GW of thermal or nuclear capacity.
At one end of the scale, nuclear power plants are usually run without interruption except for repairs; at the other, solar plants stop generating once a day for up to half a day, in hours of darkness. Global weighted mean capacity factors are 48% for fossil fuelled power stations, 81% for nuclear, 45% for hydro, 23% for wind and 12% for solar.[8]
Why is Pakistan paying for power station capacity that it is not using, while all these people do not have the electricity they need?
In summary, because (a) the electricity network is chronically badly managed and underfunded; (b) this has led to relatively new power stations with expensive capacity contracts being under-used, sometimes because the grid connections are not good enough, while older, fuel-guzzling plants are kept going; (c) this in turn has made Pakistan more dependent on expensive imported fossil fuels; and (d) decisions to invest in extending the grid, and make it safer and more reliable, have not been implemented.
a. The capacity payments problem, which has brought the electricity sector close to bankruptcy, is due to the “underutilisation of efficient plants” that still have to be paid, the over-use of aging plants, and “transmission constraints”, the electricity regulator NEPRA warned in its 2023 report. This was a “systemic shortfall in planning and infrastructure development”. Instead of keeping the old plants going, “investments should be channelled towards constructing a robust grid network”.[9]
NEPRA’s report shows that Pakistan’s transmission infrastructure (i.e. large-volume, long-distance cables) simply can not effectively carry electricity from new plants to the centres of demand. A scathing assessment by the Pakistan Institute of Development Economics points to “overloaded transmission lines, inadequate capacity of power transfomers and transmission lines outages” – and concludes that “a complete overhaul” of the National Transmission and Dispatch Company that operates transmission is needed. “We need an independent NTDC, free from political meddling, governed by a board of qualified professionals.”[10]
In the distribution companies that manage local networks, technical and distribution losses (some of which are actually theft) are close to 20%, compared to an international reference of 10% – although NEPRA warns that companies use these losses as a “pretext” to justify excessive load-shedding (blackouts).[11] The regulator also highlighted the poor safety environment in the distribution companies, listing 196 fatal accidents in the year ending June 2022, and 163 fatal accidents in the year ending June 2023. The electrical workers’ trade union says that there is a desperate shortage of skilled staff, and inadequate safety training.[12]
b. In the mid-2010s all these problems with the grid were well known. But the government addressed the apparent shortage of electricity supply – which could have largely been overcome by improving the grid’s efficiency – by commissioning the new generation of mainly Chinese-owned fossil-fuelled power stations. A lengthy report by a World Bank economist, published in 2019, questioned the “conventional wisdom” that more electricity generation capacity was needed: on top of the excessive electricity losses in the network, one fifth of available generation capacity had not been operational in 2014.[13]
c. Pakistan relies heavily on imported coal and gas: its currency crisis, and sharp increases in global prices, has hit it hard in the last three years. When coal-fired plants were being built, the government claimed they would run on Pakistan’s own coal from the Thar region, but those deposits have not been sufficiently developed. In 2023, the electricity regulator said that 4 GW of power station capacity was using imported coal, mainly from South Africa and Indonesia, and only 2.5 GW used Pakistan’s own coal.[14]
d. Pakistan’s government and state-owned electricity companies are committed to making network electricity more reliable, and extending the network to areas without access. But they now face an additional “problem” of the grid, which relies mainly on fossil fuels and hydro, being in many respects overtaken by renewables.
What can be done about the contracts with power suppliers?
The capacity payments to independent power producers (IPPs) constitute a national financial disaster for Pakistan. In the financial years 2020-24, revenues from electricity sales were roughly $18 billion, while Pakistan paid $21.5 billion in capacity payments. In the financial year 2024-25, it is estimated that capacity payments will rise by a further 10% or so. Each year, more is paid in capacity payments than for electricity generated.[15]
The problem originates in the contracts signed in 2014-15, as the government sought rapidly to increase the amount of fossil-fuelled power available. Not only were payments guaranteed in dollars, leaving the currency risk with the state, but returns on equity of up to 34% were guaranteed. A great deal of political anger has been generated over the contracts, and in 2020, Muhammad Ali, aspecial assistant to the prime minister, wrote a report claiming that “many IPPs had unduly profited over the years through over-invoicing, heat rate manipulation, and under-reporting of efficiency gains, earning substantial returns on their investments (50-70%) as opposed to the govt-mandated rate of 12-15%, leading to excessive capacity payments and a build-up in circular debt”.[16]
The government, under pressure from opposition politicians, began last year to renegotiate the contracts. Former energy minister Gohar Ejaz stated on social media that the IPPs had used less than 50% of their capacity over the past two years; current energy minister Awais Leghari had responded that the government was “not in a position to act unilaterally against the IPPs”.[17] By the end of the year, five contracts had been terminated, and 18 more faced possible conversion to different terms.
The capacity payments to independent power producers (IPPs) constitute a national financial disaster for Pakistan. In the financial years 2020-24, revenues from electricity sales were roughly $18 billion, while Pakistan paid $21.5 billion in capacity payments. In the financial year 2024-25, it is estimated that capacity payments will rise by a further 10% or so. Each year, more is paid in capacity payments than for electricity generated.[15]
The problem originates in the contracts signed in 2014-15, as the government sought rapidly to increase the amount of fossil-fuelled power available. Not only were payments guaranteed in dollars, leaving the currency risk with the state, but returns on equity of up to 34% were guaranteed. A great deal of political anger has been generated over the contracts, and in 2020, Muhammad Ali, aspecial assistant to the prime minister, wrote a report claiming that “many IPPs had unduly profited over the years through over-invoicing, heat rate manipulation, and under-reporting of efficiency gains, earning substantial returns on their investments (50-70%) as opposed to the govt-mandated rate of 12-15%, leading to excessive capacity payments and a build-up in circular debt”.[16]
The government, under pressure from opposition politicians, began last year to renegotiate the contracts. Former energy minister Gohar Ejaz stated on social media that the IPPs had used less than 50% of their capacity over the past two years; current energy minister Awais Leghari had responded that the government was “not in a position to act unilaterally against the IPPs”.[17] By the end of the year, five contracts had been terminated, and 18 more faced possible conversion to different terms.
Are there technological barriers to further solar expansion?
The short answer is no. Certainly NO insurmoutable barriers. So far, the expansion of on-grid solar has been the least of the electrical grid’s problems. Reports on blackouts and other breakdowns point to overload of transmission lines and transformers, other failures of network equipment, poor maintenance, human error and malfunctioning control systems.[18]
The only technological problem with on-grid solar mentioned by the regulator is that, while household solar results in “peak shaving” – i.e. reduction of demand at peak times – during the day, those households demand more from the grid at night. The energy ministry has claimed that this requires more capacity to be kept available – but this may be addressed largely by improved grid management and support for battery installations.
I do not wish to understate the engineering problems associated with the shift to net metering, and I understand that managers at NTDC, the transmission company, consider that the network is unprepared for it. But obviously this is one piece of a larger jigsaw – the overall crisis produced by years of under-investment in the network – about which there is substantial detail in the public domain (see above, second question).
The regulator, for its part, sees potential for further solar expansion, obstructed only by some distribution company managers, who “perceive net metering [on-grid solar] as competition rather than a complementary energy solution”. This has led to delay in installation approvals, complaints about the time they take, and “reports of [distribution company] staff soliciting illegal payments to expedite applications”.[19]
Looking ahead, engineers advise that wind and solar generation capacity can expand, and that this is in all scenarios better and cheaper than investing in fossil fuelled generation. A big study, commissioned by the World Bank from the multinational engineering firm Tractebel and Renewable Resources of Pakistan, urged that at least 6.7 GW of wind capacity, and 17.5 GW solar, should be added by 2030. Even more renewables, 27.4 GW, would be the optimum for reaching a government target of 85-88 GW of generation capacity.[20]
The study concluded that “a large and sustained expansion of solar PV and wind power, alongside hydropower and substantial investment in the grid, would be both achievable and desirable”, and would have immediate economic, environmental and other benefits. Domestic coal is not needed.
The research also highlighted the way that solar and wind can be developed closer to Pakistan’s centres of population, reducing transmission costs. This approach would allow the government to postpone new high-voltage transmission projects until at least 2028, the authors argued.
The solar boom has so far excluded low income families. Are there socially equitable ways of doing rooftop solar?
Yes, of course. There is no reason why rooftop solar should not be installed in millions of households at the state’s expense, especially in countries like Pakistan with many hours of sunlight.
Schemes to provide solar panels free, or at substantial discounts, have been launched in Punjab and Sindh provinces.
The Sindh project, supported by the World Bank, provides for commercial “solar solution providers” to install, operate and maintain systems for 200,000 households. Although the project documents state that households “could become asset owners over time”, initially they will pay a monthly fee to the providers. Home systems account for $30 million of the World Bank’s $100 million project; the rest is to support solar farms built by private business, and the solarisation of public buildings.[21]
Under Punjab’s Rosh Gharana programme, 100,000 solar home systems are scheduled to be supplied during this year – that is, to a miniscule minority of the province’s millions of low-income households. This will include 52,000 free 550-watt systems for households that use less than 100 kilowatt hours per month, and free 1100-watt systems for those using up to 200 kWh per month.[22]
Solar panels, like any other technology owned by a household, need maintenance and repair. This is a potential problem. In some countries, cooperative and municipal forms of ownership are being experimented with, as ways to develop solar electricity outside of the control of corporations, and addressing such practical problems collectively.
The “net metering” scheme is criticised for allowing households to profit at other electricity users’ expense. Is that fair? Is there a fairer way of doing this?
The answer to this depends not on the “net metering” formula as such, but on the economics of electricity provision overall.
Under the “net metering” arrangement, in Pakistan and many other countries, households with rooftop solar own, operate and maintain their panels. They produce and use electricity, and sell any remainder to the distribution company.
The “gross metering” system that Pakistan’s government is considering substantially weakens the households’ position. It means that, from the point at which the electricity is produced, it is owned by the distribution company, who then sell back to the household the amount it needs and keep the rest.
Other proposals have been made, for example by the Institute for Energy Economics and Financial Analysis, to adjust the terms of trade between the households and the distribution companies, e.g. by reducing the rate at which electricity is sold by households to distribution companies, or by switching from net metering to net billing (which is already used by Karachi Electric), meaning that the distribution companies, rather than the households, benefit from the price differential between daytime and after-dark electricity.[23]
These suggestions have come in response to the energy ministry and others who say that households with panels are free-riding on the grid. Since these households tend to use their own electricity during the day, but rely on the grid at night, this compels the grid to make extra capacity available. The ministry “believes that this situation increases capacity charges per unit of electricity supplied, leading to higher electricity tariffs for other consumers”.[24]
It is true that, as solar installations have expanded, the total amount recovered from bills falls while the capacity payments stay the same. But blaming households with panels diverts attention from the real cause of high electricity tariffs: gigantic capacity payments to owners of little-used or unused fossil-fuelled power stations.
In the year to June 2024, out of every 100 rupees of electricity bills, roughly 38 rupees went on these capacity payments, 35 rupees on taxes, surcharges and price adjustments, 17 rupees on fuels and 10 rupees on transmission, distribution and market operators’ costs.[25]
The responsibility for these crazy capacity payments – which observers fear will grow further unless contracts with independent power producers are renegotiated – lies squarely with previous governments, the International Monetary Fund and international corporations. Not households with solar panels.
As long as Pakistan’s electricity sector’s economics are shaped by neoliberalism, these costs will be a burden, above all on poor households who can not afford solar panels. The privatisation of distribution companies could make matters worse.
There are of course many ways of managing the electricity sector’s economics, in line with the two goals of making electricity provision more socially just, and speeding the transition away from fossil fuels. Firstly, electricity should be treated as something that people need, and provided as a public service. In Pakistan, as in other countries, the disastrous impact of neoliberal policies should be properly assessed, and the potential of public, municipal and cooperative forms of ownership properly considered. Secondly, ways should be found within such a framework to encourage rooftop solar, potentially the most powerful technology for providing cheap household electricity while also enhancing rapid decarbonisation.
This Q&A goes with a linked article: Pakistan’s rush for rooftop solar brings dreams and nightmares
Download both articles as a PDF here
References
[1] NEPRA, State of the Industry Report 2024, page 23
[2] NEPRA, State of the Industry Report 2023, page 12 and State of the Industry Report 2024, page 85
[3] Power Policy: alternative and renewable energy (Government of Pakistan, 2019)
[4] Solar Power Europe, Global Market Outlook for Solar Power 2024-2028, p. 142; “Dealing with Pakistan’s solar glut”, PV magazine, 4 November 2024; “Chinese module exports drop in September led by Europe”, Infolink
[5] Official data reported in: “Solar boom hits DISCO revenues”, Express Tribune, 10 November 2024
[6] NEPRA, State of the Industry Report 2023
[7] NEPRA, State of the Industry Report 2023; “Pakistan blackouts choke economy as China power plants go unpaid”, Nikkei Asia, 15 June 2022
[8] N. Bolson et al, “Capacity factors for electrical power generation from renewable and nonrenewable sources”, PNAS 2022 (e2205429119)
[9] NEPRA, State of the Industry Report 2023, pages 4-5
[10] The Power Equation: a comprehensive review of National Transmission and Dispatch Company Ltd (PIDE, Islamabad, August 2024)
[11] M. Ahmed et al, Reform or Bust: Strategic approaches to address the rickety electricity distribution system (PRIED, 2024), pages 5-7; PRIED, Gridlocked: obstacles in integrating variable renewable energy in Pakistan’s power grid. Six-monthly energy monitor Apr-Sep 2023, page 9; NEPRA, State of the Industry report 2023, page 18
[12] NEPRA, State of the Industry Report 2023, pages 53-54; author’s interview with A. Nizamani
[13] Fan Zhang, In the Dark: how much do power sector distortions cost south Asia?, World Bank, 2019
[14] NEPRA, State of the Industry Report 2023, pages 6-7
[15] “Dealing with Pakistan’s solar panel glut”, PV magazine, 4 November 2024; NEPRA State of the Industry Report 2024, page 12
[16] Haneea Isaad, Optimising Pakistan’s economy by renegotations PPAs (IEEFA, December 2024), page 8
[17] “Energy czar, ex-minister trade barbs over IPPs contracts”, The News, 17 July 2024
[18] The Power Equation, page 29; NEPRA, State of the Industry Report 2024, pages 71-74
[19] NEPRA, State of the Industry Report 2024, page 24; Haneea Isaad and S.F.A. Shah, The Future of Net-Metered Solar Power in Pakistan, IEEFA, August 2024, pages 6-7
[20] Variable Renewable Energy Integration and Planning Study. Pakistan Sustainable Energy Series (World Bank, 2020)
[21] Government of Sindh Energy Department, Revised PC-1: Sindh Solar Energy Project (August 2023); World Bank, Sindh Solar Energy Project (P159712). Annex: detailed project description; “World Bank extends solar project’s closing date”, Dawn, 24 July 2023. In July last year the provincial government claimed that the scheme would reach 500,000 households (see “500,000 off-grid households in Sindh to be provided with SHS”, Dawn, 20 July 2024), but that is not clear from the project documents
[22] “CM opens free solar panel scheme”, Dawn, 7 December 2024; Roshan Gharana programme page on the Punjab government web site
[23] Haneea Isaad and S.F.A. Shah, The Future of Net-Metered Solar Power in Pakistan (IEEFA, August 2024), pages 20-22
[24] Isaad and Shah, The Future of Net-Metered Solar Power, pages 6-7. See also page 27
[25] NEPRA, State of the Industry Report 2024, page 14
Anyone want to guess what solar panels are made out of, and use extensive amounts of during the manufacturing process?
ReplyDeleteAnyone? Anyone? Bueller?
Solar panels are a scam.....
DeleteWell they do reduce my electricity costs but they're nowhere near carbon neutral by a long shot.
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