Pakistan has notified the International Monetary Fund (IMF) that it intends to terminate the net metering policy for rooftop solar panels and replace it with gross metering, resulting in the sale of expensive grid electricity to consumers.

According to a report by the Express Tribune, The move comes as part of ongoing negotiations with the IMF, during which Pakistani authorities have also disclosed their intention to seek $15.4 billion in energy debt restructuring from China, according to government sources.

The Ministry of Energy has briefed the IMF on the proposed changes to the solar panel policy, which currently allows consumers to reduce their reliance on costly grid electricity. Pakistan aims to discourage the use of solar panels by replacing net metering with gross metering.

This shift is primarily motivated by the impact of increased solar panel adoption on the revenues of power distribution companies, which now face competition from in-house power generation.

Under the gross metering policy, electricity generated by rooftop solar panels would be fed into the national grid. Owners of solar panels would then consume units from the grid, resulting in reduced monetary benefits for residential consumers. This new system would involve separate meters to measure in-house generation and consumption, as opposed to the current bidirectional meter that calculates both rooftop generation and grid electricity import during nighttime.

Growing numbers of Pakistan’s middle-class to wealthy individuals are turning to solar-based in-house power generation due to the skyrocketing cost of electricity. Factors contributing to the unaffordability of grid electricity include expensive power purchase agreements, inefficiencies in the power system, and rampant theft and leakages. The current average base tariff in Pakistan stands at Rs29.79 per unit, including Rs17 per unit in idle capacity charges. With additional surcharges, fuel price adjustments, quarterly adjustments, and taxes, residential consumers are compelled to pay up to Rs62 per unit for electricity.

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The IMF was also apprised of the impending significant increase in electricity prices scheduled for July, resulting from annual base tariff adjustments, quarterly adjustments, and monthly adjustments.

The Ministry of Energy’s focus on the additional impact of net metering (Rs1.90 per unit) on electricity tariffs rather than idle capacity payments (Rs17 per unit) has raised concerns. The latter payments directly benefit power plant owners and foreign investors.

Additionally, the ministry informed the IMF that the surge in solar power adoption has led to a decline in electricity demand, resulting in higher idle capacity payments and substantial tariff adjustments. During the first ten months of the current fiscal year, approximately 6,800 megawatts equivalent of solar panels have been imported.

However, it was also revealed that solar panels are being imported as a means to launder money from Pakistan, as previously briefed to the Senate Standing Committee on Finance.

The Ministry of Energy contends that due to reduced reliance on grid electricity, consumers utilizing rooftop solar panels are now classified as protected consumers, paying minimal electricity charges. Gross metering would also deny these solar consumers the benefits of protected category rates.

The IMF inquired about Pakistan’s plans to reduce electricity generation costs. The government indicated that it is finalizing debt restructuring with Chinese Independent Power Producers (IPPs) under the China-Pakistan Economic Corridor (CPEC).

The IMF believes that negotiating capacity payments with all power producers is Pakistan’s only option to lower electricity costs. However, the majority of these contracts were already renegotiated in 2020, except for CPEC plant contracts, which China has refused to renegotiate. The Ministry of Energy’s analysis suggests that a five-year debt restructuring would result in a Rs3 per unit reduction in tariffs, less than half of what the government plans to impose in July.

The IMF also identified idle capacity payments as a significant contributor to constant price increases and called for a review of the current captive power generation policy, which grants industrialists access to cheaper gas for in-house electricity production. There is a possibility that captive gas may be discontinued from July onwards, compelling these industries to shift to expensive grid electricity.