Why net metering reforms alone won’t fix the grid crisis

Pakistan has long struggled with comprehensive, long-term energy policies that take a consolidated approach to addressing sector-wide challenges.

Today, the power and petroleum sectors are burdened with circular debt and massive leakages, a situation that threatens the country’s economic security. Yet, despite years of crisis, the government’s approach remains largely reactive, lacking the integration of innovation and sustainable energy solutions.

One of the most pressing issues is the ongoing grid demand destruction caused by excessive electricity rates. This has triggered the “Utility Death Spiral” in Pakistan, where the high cost of grid electricity drives consumers toward distributed generation, particularly solar energy.

As more users defect from the grid, the cost burden shifts to the remaining consumers, pushing them toward similar off-grid solutions.

The result is a vicious cycle that weakens the grid’s financial and operational stability. To counter this, the grid structure requires a complete overhaul, prioritizing affordability, reliability, and enhanced consumer engagement.

Recently, all of us have learned that the government is set to revise its net metering policy, transitioning to a new settlement mechanism where surplus electricity from net meter consumers would be purchased at a flat rate of PKR 10 per kWh.

While this reform has been long overdue, especially given the dramatic reduction in solar technology costs, it once again highlights Pakistan’s firefighting approach to energy policy. The country remains focused on short-term fixes rather than a broader, forward-looking energy framework that accounts for Distributed Energy Resources (DERs), energy storage, and digital grid management.

Globally, the declining costs of lithium-ion batteries are fueling the shift from conventional power plants to Virtual Power Plants (VPPs), integrating renewable energy sources with battery storage. Just as Electric Vehicles (EVs) are replacing internal combustion engine cars, renewables coupled with Battery Energy Storage Systems (BESS) are phasing out centralized thermal power generation plants in many developed economies.

Pakistan, on the other hand, remains oblivious of these global developments. Consumers facing reduced incentives under the new net metering policy are more likely to opt for off-grid solutions, further reducing demand for grid electricity. This approach will not prevent the decline in grid demand; instead, it may further accelerate the trend. Therefore, Instead of merely altering buyback rates, the government must implement a broader DER policy that considers:

• Special EV charging rates at noon when solar generation is at its peak.

• Higher buyback rates for renewable energy in the evening and night, incentivizing battery storage solutions.

• A comprehensive utility-scale BESS policy, encouraging large-scale energy storage deployment.

• Mandatory BESS installations for all renewable Independent Power Producers (IPPs) to smoothen energy supply and support frequency and voltage regulation.

One of the most overlooked areas in Pakistan’s energy policy is the absence of a functional ancillary services market. Countries at the forefront of energy transformation have established market structures that allow BESS owners to participate in frequency regulation, voltage control, and peak demand management. Enabling such a system in Pakistan would:

• Reduce reliance on expensive thermal generation during peak hours, decreasing fossil fuel imports.

• Provide the National Power Control Centre (NPCC), the system operator with greater flexibility in grid operations, lowering blackout risks, especially during low-demand seasons like winter.

• Create financial incentives for consumers and businesses to invest in energy storage solutions.

For decades, Pakistan has managed its energy sectors in isolation, with power, gas, and petroleum policies developed independently. This fragmented approach has led to inefficiencies, policy misalignments, and financial losses. While the need for reform has long been overdue, it is still not too late to embrace Integrated Energy Planning (IEP), a model successfully adopted by countries striving for long-term energy security.

By creating a comprehensive ecosystem that links electricity, transportation, and energy storage policies, Pakistan can ensure:

• A stable and sustainable energy mix.

• Reduced financial burdens on both consumers and utilities.

• Encouragement of private-sector investment in DERs and energy storage.

The future of energy lies in decentralization and digitalization, and Pakistan cannot afford to block this inevitable disruption through outdated policies. Instead of short-sighted fixes, decision-makers must learn from global best practices and introduce market-based mechanisms that ensure the efficient adoption of DERs, BESS, and smart grid technologies.

This is a defining moment for Pakistan’s energy transition. If policymakers fail to act proactively, consumers will seek alternative energy solutions, further weakening the national grid. The solution lies in embracing change, encouraging innovation, and creating a policy framework that benefits all stakeholders — consumers, utilities, and the national economy.

Copyright Business Recorder, 2025