What’s the deal with our solar policy?

In the intricate relationship between policymaking and economic stability, the story of local investors and consumers emerges as a moving tale of uncertainty and disappointment.

The saga surrounding net metering and solar deployment is a testament to the challenges that grassroots economic actors face in navigating a landscape characterized by volatile policies and regulatory inconsistency. Beyond mere critique, this discourse embodies a call to action for policymakers to prioritize consistency and foresight in their decision-making processes, with an unwavering commitment to protecting the interests of local stakeholders.

At the heart of this narrative is the volatility inherent in policy changes, as exemplified by the recent trajectory of government directives on solar panel taxation and net-metering incentives. When the current government came to power, it scrapped the 17 percent solar panel tax. It seemed like a win-win, making solar more affordable for ordinary people.

But now they are talking about cutting the money people get from selling extra solar power back to the grid. They want to cut it by 50 per cent, from Rs 22 per unit to just Rs 11. The move hits hard when you realise that regular electricity prices range from Rs 22 to Rs 65 per unit. The sudden change underlines the fragility of investor confidence in an environment plagued by policy unpredictability. It looks like the government is shifting its problems onto the common man.

The consequences of policy unpredictability are being felt acutely by net-metering consumers, many of whom are middle-class and have made significant financial sacrifices to adopt solar power. They have invested their savings and taken out loans to install net-metering systems in their homes, driven by the need to ease the burden of rising electricity costs. Initial optimism sparked by the government’s decision to scrap the 17 percent tax on solar panels has been tempered by a recent proposal to halve the compensation rate for exported solar power.

For these consumers, the prospect of a 50 percent reduction in income represents not only a financial setback, but also a discouraging blow to their aspirations for energy independence and financial stability.

The story becomes even more one-sided when we look at how international companies are treated compared to local ones. These large companies, known as IPPs, are given sweet deals by the government. Recent revelations have highlighted the preferential treatment given to IPPs, with a staggering Rs 2 trillion earmarked for power payments while power plants are dormant. This sum constitutes a significant portion of the government’s budget, underlining the scale of the fiscal burden borne by taxpayers.

This disparity is exacerbated by contractual agreements with IPPs that guarantee returns of up to 15 percent in dollar terms, which underscores the currency mismatch, along with extensive income tax exemptions covering the entire contract period. Furthermore, the concession terms extended to Chinese IPPs, entitling them to a 20 percent dollar rate of return, epitomize the asymmetric nature of government largesse in the energy sector.

Indeed, the need to recalibrate the IPP contracting landscape is clearly on the horizon, as evidenced by the overbilling and inefficiencies uncovered in recent audits. The upcoming expiration of existing contracts presents a clear opportunity to redress capacity gaps and renegotiate terms that better reflect prevailing economic realities.

In addition, there is a glaring inconsistency in subsidizing electricity consumption for select segments – 190,000 active and retired power agency employees consume 400 million units of electricity for free annually. While burdening net consumers with unilateral price cuts for exported units underscores the urgent need to foster a level playing field that nurtures domestic entrepreneurship.

Over the next few years, we face a critical challenge: rethinking the contracts we have with independent power producers (IPPs), the companies responsible for generating electricity. For too long, these companies have had a major influence on our energy sector, and it’s high time we redressed the balance. We need to ensure that ordinary people are not unfairly burdened by changes in government policy.

When we talk about new plans like the new solarization policy, it is important to remember that local people and businesses are a vital part of our economy. If the policy changes in an unpredictable manner, there is a risk that businesses may decide to relocate their operations outside Pakistan.

So what is the game plan? First, we need to negotiate fairer contracts with IPPs that truly reflect what is in the best interests of our country. Second, we need to actively encourage more local investment in the energy sector and make sure that large corporations do not monopolize all power. Whatever changes come, they must be fair to everyone and should not punish ordinary people for the government’s failures.

Ultimately, it comes down to creating an energy future for Pakistan that works for everyone. By listening to the concerns of ordinary citizens and making informed decisions, we can lay the foundation for a stronger, more resilient nation where everyone has an equal chance to thrive.

The author is an MPhil scholar at QAU and a young researcher

Development Intern (YRDI) at PIDE. Tweets/Posts

@Usamaabdulrauf