Government Updates IMF on Solar Power Policy Changes

Pakistan’s Power Division recently had a meeting with an International Monetary Fund (IMF) to discuss changes in the country’s solar power policy. The main focus of discussion was on two key issues: reducing the heavy tax burden on electricity bills and reforming the existing net metering system for rooftop solar panels.

Tax Burden on Electricity Bills

• The Power division highlighted the powerful impact of various taxes included in electricity bills. These taxes, tataling around Rs. 800 billion annually, increase electricity costs by Rs. 8 per unit.
• Eliminating all the taxes was considered unrealistic. However, officials proposed reducing them by Rs. 100- 200 billion per year, which could bring down electricity costs by Rs. 1-2 per unit.
• The government aims to achieve this by hiking the tax net to other sectors like real estate, retail and agriculture, decreasing reliance on taxes collected through electricity bills.
• While the 17% General Sales Tax (GST) contributes to a great extent to government revenue (Rs. 600 billion) and is unlikely to be removed, other taxes can be targeted for reduction.

Changes to Solar Power Policy

• The existing net energy billing system, where owners receive credits for excess solar power transferred to the grid, has added nearly 1938 MW of electricity to the national system.
• However, this has created a revenue shortfall of Rs. 100 billion, resulting in a tariff increase of Rs. 1.90 per unit for consumers without solar panels.
• To solve this imbalance, the government plans to introduce a gross metering system:

-Buyback tariff for solar energy fed into the grid will be reduced to Rs. 7.5- 11 per unit ( down from Rs 21), reflecting the declining cost of solar panels.

-Consumers with rooftop solar will be charged Rs. 60 per unit for electricity drawn from the national grid during night or peak hours.

• Under gross metering, consumers receive compensation for the overall solar energy they generate and export to the grid. However, they also pay the standard retail tariff for any electricity consumed from the grid.

Benefits of the New Policy

• The new policy aims to create a more sustainable solar power system.
• The decreased buyback tariff reflects the lower cost of solar panels, ensuring a fair price for the government.
• By charging a higher price for grid electricity during peak hours, the policy highlights the limitations of the national grid during these times.

Challenges and Considerations

• The accomplishment of the new policy depends on ensuring a smooth transition for existing solar panel users.
• Consumers need clear guidelines and information about the changes and the potential impact on their electricity bills.
• The government must invest in grid modernization to better integrate and manage the increased contribution of rooftop solar power.

     Overall the Pakistan government’s discussions with the IMF demonstrates a commitment to making electricity more affordable and promoting a more sustainable solar power sector in Pakistan. The proposed changes aim to strike a balance between encouraging solar energy adoption and ensuring the financial health of the national grid. The success of this policy relies on effective communication, improvement in infrastructure and smooth transition for existing solar users.