Outdated infrastructure, poor energy management, and financial constraints are driving the crisis
Originally published on Global Voices
Pakistan is currently facing a severe energy crisis characterised by electricity shortages and frequent load shedding or rolling blackouts, which has a detrimental impact on household activities, industries, and the overall economy. This crisis calls for an urgent need for sustainable energy-based solutions to address these challenges effectively.
The energy sector of Pakistan is heavily reliant on fossil fuels, which account for 59–64 percent of the country’s total energy supply. This reliance on oil and gas not only results in high costs but also makes the country more susceptible to global price fluctuations. Reliance on fossil fuels also leads to carbon emissions and environmental degradation, which ultimately increase climate change challenges within the country.
Despite having an installed capacity of 41,557 MW, Pakistan still struggles with a power shortfall. The demand for electricity stands at 31,000 MW, leaving a deficit of 9,000 MW. This highlights inefficiencies and challenges faced by the power sector and addressing these challenges is crucial.
Despite having a substantial grid capacity, Pakistan faces significant challenges in its power sector, resulting in frequent shortages. One major issue is transmission losses, which occur when electrical power diminishes as it travels through wires or cables due to resistance. In Pakistan, these losses are alarmingly high at 18–20 percent, compared to five percent in the USA and China, and four percent in Malaysia.
Another critical factor is transmission constraints, which limit the flow of electricity through specific parts of the power grid. These constraints arise when the available capacity of transmission lines is insufficient to meet demand. Pakistan’s grid has a capacity of 22,000 MW, which is 9,000 MW less than the demand.
Consumer-related issues also contribute to the power shortage. The government subsidises electricity at PKR 6 (US Cents 2) per unit, creating a circular debt. The unstable tariff structure, where the production cost of PKR 14 (US Cents 5) exceeds the selling cost of PKR 11, exacerbates the problem. Additionally, poor recovery rates, with only 80 percent of electricity costs being recovered and 20 percent of electricity being stolen from the grid, further burden the sector.
The main headquarters for WAPDA in Lahore, Pakistan. Image via Flickr by Omer Wazir. CC BY-SA 2.0.
Governance issues have compounded these problems. Prior to 1994, the Water and Power Development Authority (WAPDA) was responsible for both energy production and distribution in Pakistan. Following restructuring in 1994, WAPDA was divided into approximately 20 entities with different roles within the energy sector. This decentralisation has led to a lack of coordination among these new entities, posting new challenges and worsening the smooth functioning of the sector.
Pakistan’s failure to create substantial energy demand due to insufficient industrialization also plays a role in the energy shortfall. As a result, the per capita cost of electricity remains high. Pakistan's per capita electricity consumption is 478 kilowatt-hours (kWh), significantly lower than the USA's 12,702 kWh.
Mohammad Asad, who specialises in PhotoVoltaic Solar System and Renewable Energy, told Global Voices via WhatsApp:
The energy crisis in Pakistan stems from insufficient infrastructure, mismanagement, and heavy reliance on fossil fuels.
To address this, it is imperative for the government to prioritise the promotion of renewable energy sources like solar and wind power through initiatives like tax incentives, subsidies, and simplified regulations. Despite some positive steps like net metering policies and tariffs for renewable energy producers, challenges persist. For instance, the government's low buying rate for solar energy, acts as a deterrent to potential investors. A recent proposal to end net metering faced public backlash, leading to the reversal of decision. This underscores the need for consistent energy policies.
Bureaucratic hurdles and a lack of investment security further hinder renewable energy uptake. Overcoming these challenges will require the implementation of stable, long-term policies and incentives to drive Pakistan's transition to a sustainable energy future.
Laveet Kumar, who holds a PhD in Renewable energy, told Global Voices via WhatsApp:
Pakistan is currently grappling with a severe energy crisis marked by frequent power outages, gas shortages, and an overall imbalance between energy supply and demand. This crisis, driven by outdated infrastructure, poor energy management, financial constraints, and a heavy reliance on conventional energy sources which not only impacts the industrial productivity but also affects the daily lives of millions. In this context, recent policy changes such as the introduction of taxes on solar equipment and potential alterations to net metering are very concerning. Higher taxes on solar panels increase installation costs and slows down the sustainable energy transition.
Similarly, net metering which allows solar energy producers to feed surplus energy back into the grid for compensation proved to be a crucial incentive for solar users in Pakistan. Curtailing this policy would reduce the financial benefits of investing in solar energy, undermining efforts to enhance energy resilience and achieve environmental goals. To address these issues, the government should reconsider solar taxes, maintain net metering benefits, and implement subsidies and financial incentives to promote renewable energy. Additionally, improving the energy grid and resolving financial instabilities will also help in sustainable transition.
By addressing these policy gaps and fostering an environment that supports renewable energy, Pakistan can mitigate its energy crisis, ensuring a stable and sustainable energy future that supports economic growth and improves the quality of life for its citizens.
Pakistan's power policy, particularly the Private Power Policy (1994), has been criticised for its focus on energy production without adequately addressing the responsibilities of selling and distribution, which remain with the government. This policy gap has further complicated the efficient management and distribution of electricity in the country.
On April 27, 2024, reports revealed that the government was considering imposing a tax on solar panels, which led to widespread controversy across the country.
The Central Power Purchasing Agency (CPPA) suggested a tax on both residential and commercial solar installations, setting the rate at PKR 2,000 per kilowatt for systems with a capacity of 12 kilowatts or higher. This proposal would result in a potential tax of PKR 24,000 (USD 86) for a 12-kilowatt system.
However, a statement issued by the Power Division on April 28, 2024, rejected the fixed tax on solar power installations. Concurrently, the federal government is reviewing solar panel prices, possibly aiming to reduce them, which could offset the economic impact of the proposed tax.
This proposal still requires the President's approval and raises several uncertainties. Potential tariffs could discourage solar adoption and hinder Pakistan's clean energy initiatives. The absence of government justifications for the tax could lead to public debate and scrutiny.
Balancing the promotion of green energy with economic impacts remains a significant challenge. Although the government has its reasons for the proposal, it is essential to weigh the potential benefits against the possible drawbacks. Taxes on solar panels have produced mixed results globally, making it crucial to find a balance between clean energy use and economic impact.
