Financial Impact of Net Metering on the Power Sector in Pakistan

The regulations allow self-consumption of renewable electricity produced at a consumer's location and sale of excess generation to distribution companies (DISCOs). By installing a renewable distributed generation (DG) system and subscribing to the net-metering program, electricity consumers can reduce the amount of electricity they consume from the grid. Additionally, customers receive a monthly energy credit and a quarterly commercial credit in exchange for electricity exported to the grid. Despite the high electricity tariffs paid by consumers in Pakistan, the initial growth (2016-2019) in net-metering installations has been slow. At the end of 2019, only 2,981 licenses had been issued, adding 47.65 MW to the installed power generation capacity. To develop the net-metering market in Pakistan and accelerate proliferation of renewable DG technologies, the Sustainable Energy for Pakistan (SEP) project has been providing support through various interventions, including development of an online portal for processing of net metering applications, advisory and capacity-building support to the Alternative Energy Development Board (AEDB), DISCOs and the National Electric Power Regulatory Authority (NEPRA). Due to the multilayered interventions and continuous support provided by SEP, the speed of development of Net Metering has been accelerated with time. The number of licenses issued has crossed the figure of 9,000 with 166 MW as of now. Net-metering regulations in Pakistan are applicable to all 3-phase DISCO customers, a market made up of approximately 900,000 customers in 2018. Although net-metering regulations allow electricity generation from distributed solar and wind generators, all net-metered systems installed to date are rooftop solar PV systems. The net-metering program impacts Pakistan's power sector stakeholders in different ways: DISCO customers subscribed to net metering stand to benefit from the program by replacing relatively high-priced electricity from the grid with inexpensive renewable power and receiving compensation from their host DISCO for electricity exports to the grid. The revenues of DISCOs serving net-metered customers are shielded from the impact of net metering due to the tariff-setting mechanism in Pakistan. Instead, the overall impact of net metering on DISCOs' financials is passed on to electricity consumers via periodic, retroactive tariff true-ups. A comprehensive financial model was developed to simulate the impact of net metering under various DG deployment scenarios. The model assessed the financial impact of net metering on the following: 1) DISCO customers subscribed to net metering; 2) DISCO revenues and retail electricity rates; 3) DISCO customers not subscribed to net metering; and 4) wholesale electricity procurement. In each of these simulations, the model addressed residential, commercial, and industrial customers. Key findings of the financial impact analysis include: net-metered DPV can deliver substantial cost savings to all three customer categories enrolled in the program; net billing presents a more balanced and sustainable solution compared to net metering; DISCOs stand to benefit from any DG scheme, including the net-metering program if electricity demand is strong; and simulation results indicate that the commercial customer category may contribute the largest DG capacity increase by the end of year 10. To protect the grid and distribution networks from technical issues and manage the program growth, recommendations include: using the circuit hosting capacity as a limiting factor for the issuance of DG (including Net Metering) licenses; imposing Net Metering program term limit of 5 years; imposing program limits based on the program achieving the targeted number of enrolled customers for each category; incorporating Net Metering program in two phases; and requiring licenses for all DG installations (including solar), to the extent the user is connected to the grid.