The rapid adoption of solar panels across Pakistan, combined with provincial government programs to provide free or subsidized solar systems to low-income households, is presenting significant challenges for policymakers. With the country already paying over Rs. 2 trillion annually in capacity payments to power producers, the increasing shift to solar energy is raising concerns about its financial impact on the national grid.

According to a report by Business Recorder, the issue was recently discussed during a meeting on the power sector chaired by the Prime Minister. Provincial governments have announced ambitious plans to distribute solar panels to households. The Sindh government plans to provide solar systems to 200,000 households, while Punjab and Khyber Pakhtunkhwa have set targets of 100,000 each. Balochistan has also announced plans to distribute 50,000 solar panels.

At the same time, wealthier consumers, including those in the industrial and agricultural sectors, are increasingly turning to solar energy to reduce their electricity costs. Many residential users are also installing rooftop solar systems, further decreasing their reliance on the national grid. Provincial programs are primarily aimed at lifeline consumers, who make up 4% of the total consumer base, and protected consumers using 0-200 units per month, who account for 48% of total consumers.

Unconfirmed estimates suggest that domestic consumers have already installed solar systems with a combined capacity of around 2,500 MW. This trend was highlighted during public hearings at the National Electric Power Regulatory Authority (NEPRA), where the current state of solar adoption was discussed.

Concerns Over Capacity Payments and Tariff Increases
The Power Division has expressed concerns that as more consumers transition to solar energy, the burden of capacity payments will increasingly fall on those who remain connected to the national grid. If the current pace of solar adoption continues, electricity tariffs for grid-connected consumers could rise by Rs. 2.50 per unit by 2034 to cover capacity payments to power producers.

The growing use of solar energy has already led to an 8-10% reduction in grid energy sales and demand, particularly during daylight hours. This decline is largely attributed to the increased use of solar systems. For example, a typical 10 kW net-metering system allows consumers to avoid paying the grid’s fixed cost of Rs. 20 per unit by relying more on solar power. On average, behind-the-meter solar installations result in avoided fixed costs of around Rs. 7 per unit.

In the fiscal year 2023-24, approximately Rs. 200 billion in grid fixed costs were shifted to non-solar consumers, leading to a tariff increase of Rs. 2 per kWh for these users. With continued solar imports, grid demand is expected to decline further, potentially exceeding a 10% reduction. Projections suggest this could result in a 17% increase in the base tariff.

Financial Impact on Non-Solar Consumers
For the current fiscal year, a 5% reduction in grid demand due to solar integration is expected to shift Rs. 131 billion in costs to non-solar consumers annually. If this reduction doubles to 10%, the cost burden on non-solar users could rise to Rs. 261 billion per year.