Solar Power Incentives on the Chopping Block in Pakistan

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Pakistan Grapples with High Electricity Costs: Taxes and Solar Power Under Scrutiny

Pakistan’s power sector faces a significant challenge: high electricity costs for consumers. In a recent meeting with the International Monetary Fund (IMF), Pakistani officials highlighted the impact of various taxes and subsidies on electricity bills. Here’s a breakdown of the key points:

The Burden of Taxation:

  • Pakistani consumers pay a staggering Rs.800 billion (approximately $4 billion) annually through various taxes levied on their electricity bills.
  • Officials estimate this translates to an Rs.8 per unit increase in electricity costs.
  • Eliminating all taxes on electricity bills is considered unrealistic, but a reduction of Rs.100-200 billion (approximately $0.5-1 billion) is proposed. This could provide some relief, lowering electricity bills by Rs.1-2 per unit.

Taxes Under Review:

  • The 17% General Sales Tax (GST) is a significant contributor, generating Rs.600 billion (approximately $3 billion) in government revenue. Removing this tax entirely is unlikely.
  • Other taxes, totaling Rs.100-200 billion, are deemed more negotiable. These could potentially be eliminated or reduced, offering some relief to consumers.

Seeking Alternatives:

  • The government is exploring ways to broaden the tax net by including sectors like retail, real estate, and agriculture. This could potentially offset the reduction in taxes on electricity bills.

Solar Power: A Mixed Bag:

  • Pakistan’s push for rooftop solar power has added 1938 MW of capacity to the national grid through net metering.
  • However, this has resulted in a revenue loss of Rs.100 billion (approximately $0.5 billion) for the power sector.
  • This loss has been passed on to consumers who haven’t installed solar panels, leading to a tariff increase of Rs.1.90 per unit.

Shifting Policy on Solar Power:

  • The government proposes a policy shift from net metering to gross metering.
  • Under gross metering, consumers with solar panels would receive a lower buy-back tariff (Rs.7.5-11 per unit) for the electricity they generate and feed back to the grid.
  • Additionally, they would be charged a significantly higher rate (Rs.60 per unit) for electricity consumed from the national grid during peak hours or nighttime.
A man with a solar panel. — Reuters/File
A man with a solar panel. — Reuters/File

Justification for the Policy Shift:

  • Officials argue that the current net metering system unfairly burdens the national grid.
  • Storing solar energy through batteries is expensive, and many rooftop systems rely on the grid at night.
  • Disconnecting from the grid entirely would require expensive additional battery storage for nighttime use, pushing the cost per unit to Rs.60 (approximately 30 cents).

The Challenge Ahead:

  • Striking a balance between promoting renewable energy and ensuring the financial sustainability of the power sector remains a key challenge.
  • The proposed changes in solar policy are likely to face scrutiny and debate from consumers and renewable energy advocates.

Looking Forward:

  • The IMF’s feedback on these proposed changes and potential alternative solutions will be crucial for Pakistan’s efforts to achieve affordable and sustainable electricity.

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