A great hue and cry over solar buyback rates

Third time in a row in July 2025, Pakistan’s net metering policy change once again has been frozen in time, waiting to be thawed someday. The proposed changes in March sparked heated debates, especially among the political circles, capitalizing upon their vote bank through solar panel distribution. Concerns were raised about discouraging solar adoption and harming the renewable energy sector, contrary to which, this amendment would have been in the best interest of the masses — grid customers. A closer look reveals that these reforms are a necessary step toward a more equitable and financially sustainable energy market.

One of the biggest misconceptions is that the reduction in net metering buyback rates—from the National Average Purchase Price (NAPP) of Rs 27 per unit to Rs 10 per unit, and now the yet again proposed Rs 11.3 per unit — would have deterred people from switching to solar energy. While the envisioned change did not have a major impact on the payback period for new solar users, it aimed to create a fairer energy landscape and also was not applicable to old net metering customers until the expiry of their current licence. It was assumed that all net metering users will see immediate reductions in their compensation rates. However, the revised rates applied only to new net metering applications. This would have ensured that those who invested in solar energy under previous policies were not unfairly penalized.

Solar prosumers — those who generate and export electricity—are currently compensated at a high rate, often leading to non-solar consumers subsidising their benefits. The reform would have ensured that the cost of maintaining the grid is more evenly distributed across all consumers. Ignorance claims that the policy change was designed to undermine the growth of solar energy in Pakistan. In reality, the government continues to support renewable energy but seeks to balance incentives with long-term financial sustainability. The rapid increase in solar adoption, especially among wealthier consumers, is shifting fixed grid costs onto non-solar users, raising their electricity bills while also increasing excess capacity into the system. By adjusting net metering buyback rates, the policy would have helped distribute these costs more fairly.

In a TV interview, the Federal Minister of Energy, Awais Leghari, had clarified that rooftop solar remains a strong investment proponent even for new net metering customers, with a payback of under four years, even with policy changes — outperforming most options, given the 12 percent risk-free rate. He further emphasised that solar net meter consumers capacity has increased over 4000MW and, as per expectation, it will grow at the rate of 1000MW on an annual basis. The total capacity in 2021 was 321MW. According to him, the amendment in the policy is in the best interest of power consumers and without a proactive approach without consumers would berate them a decade from now. If this change does not materialise, the affluent urban net-metered households causing a 90 paisa per unit impact on average electricity cost will shoot up to Rs 3.6 per unit for grid customers by 2034, translating into an almost a whopping Rs 550 billion. Considering the rapid increase, by the end of December 2024, the existing 283,000 rooftop solar owners (a rise from 226,440 in October 2024) had already transferred the burden of Rs159 billion to those dependent on grid power. Official estimates have further revealed that the number of net metering consumers has now increased to 325,000[3] with Lahore leading the way, having over 25 percent of such connections. In FY2025-26 solar net metering is expected to add 2,633MW of generation capacity to the system while the number of net metering consumers is expected to grow to about 200,000.

This policy change would have aligned with international best practices. For instance, in December 2022, the California Public Utilities Commission (CPUC) approved Net Energy Metering 3.0 (NEM 3.0), significantly reducing the compensation rates for new rooftop solar customers. Under NEM 3.0, the payment for surplus electricity was reduced by approximately 75 percent, aligning compensation more closely with market prices. This shift aimed to address concerns that previous incentives disproportionately benefited solar customers, leading to higher costs for non-solar customers. Similar to the US, certain regions in Australia have experienced adjustments in their solar incentive schemes, including reductions in buyback rates and the implementation of net billing systems to better reflect the market value of surplus solar energy.

Pakistan’s energy sector faces significant challenges, particularly circular debt and rampant power theft. Unchecked solar penetration, particularly without adequate storage solutions, has already begun creating problems such as voltage fluctuations and reverse power flows. There is a dire need for an amended policy to encourage a shift toward smart solar integration, where consumers invest in energy storage and self-consumption rather than relying on the grid as a backup battery after solar hours.

Following what would have been a positive change, the prices of solar panels had already dropped some time back. The government must insist on the policy change and complement these reforms with measures that continue to promote solar adoption in a sustainable way. Policies such as battery storage incentives, time-of-use tariffs, and localised solar manufacturing will ensure that solar remains a viable option while preventing financial imbalances. Net metering remains a valuable tool for promoting renewable energy, but it must evolve to support a financially and technically stable energy system. The proposed reforms were not an attack on solar but a necessary adjustment to create fairness among all electricity consumers. With the right complementary policies, Pakistan can continue its transition to a cleaner, more resilient energy future.

(The writer has served at the Energy Conservation Fund-NEECA. He can be reached at energyexpert.pk@gmail.com)

Copyright Business Recorder, 2025