PM Shehbaz orders to reduce net metering rates for preventing power sector ‘loss’

ISLAMABAD – To fortify the financial health of Pakistan’s power sector, Prime Minister Shehbaz Sharif has instructed the National Electric Power Regulatory Authority (NEPRA) and the Power Division to update the existing net metering regulations. This revision aims to realign electricity buyback rates to more sustainable levels, addressing concerns about diminishing revenues due to the rising adoption of solar energy.

During a recent high-level meeting led by Prime Minister Sharif, senior officials from various relevant authorities discussed the issue. The focus was on the increasing trend of solar energy adoption among consumers, particularly the affluent, who are turning to solar solutions to mitigate persistent load shedding and high electricity costs. This trend is significant across residential, industrial, and commercial sectors.

Net metering, which enables solar panel users to sell surplus power back to the grid, has substantially affected the revenue streams of Power Distribution Companies (Discos). Financial concerns related to this have been discussed in various forums, including with international bodies like the World Bank, the Asian Development Bank (ADB), and the International Monetary Fund (IMF), all of which stress the necessity for full cost recovery in the power sector.

A recent aide-memoire from the ADB underscored the Power Division’s concerns about the growing number of net metering projects and their potential negative impact on Discos’ financial stability. While the ADB’s programs mainly focus on off-grid areas, ongoing consultations with the Power Division continue as plans develop.

According to media reports, the Power Division presented a comprehensive case to the Prime Minister, highlighting the severe financial impact of widespread net metering on Discos’ revenues, which are already below target. Consequently, the Power Division has proposed new buyback rates of Rs11 to Rs12 per unit, significantly lower than the current rates of Rs21 to Rs22 per unit.

The discussion also covered the substantial import of solar panels, especially the 6,000 MW imported during the first nine months of the current fiscal year, mainly from China due to their cost-effectiveness. Furthermore, the Sindh Energy Department has sought ADB’s support for initiatives such as mini-grid solutions for rural areas, a new solarization drive for remote regions, and solarization of homes rebuilt in flood-affected areas, aligning with the Second Access to Clean Energy Investment Program’s goals.

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The meeting concluded with key resolutions to rationalize the net metering framework. These include transitioning to a gross billing system with separate rates for importing and exporting power units, creating a distinct tariff category, revising buyback rates, amending net metering regulations, and implementing a dynamic formula to determine reasonable payback periods.

Prime Minister Shehbaz Sharif has tasked NEPRA and the Power Division with expediting the approval of these amendments. The Power Division aims to finalize the recommendations by May 31, 2024.

The revision of net metering rules is anticipated to stabilize power sector revenues and ensure the long-term sustainability of Pakistan’s electricity supply system.