Solar Energy Surge Creates Divide in Pakistan Amidst Rising Electricity Costs

During the intense heatwave in Karachi this past April, entrepreneur Saad Saleem liberally used his air conditioning. Despite escalating electricity costs, he remained unconcerned, having invested $7,500 in rooftop solar panels as part of Pakistan’s burgeoning solar energy adoption.

Saleem’s purchase occurred two years prior, coinciding with preliminary bailout talks between the International Monetary Fund (IMF) and Pakistan, which was grappling with economic difficulties.

IMF Deal and Tariff Hikes

The agreed-upon deal mandated substantial increases in power and gas tariffs to bolster struggling suppliers within the heavily indebted energy sector. Consequently, Pakistanis now face electricity bills that are, on average, over 25% higher, leading to a surge in solar panel installations.

According to the UK-based energy think tank Ember, solar energy constituted over 14% of Pakistan’s power supply last year, a significant increase from 4% in 2021. This growth has propelled solar past coal as the nation’s third-largest energy source.

Reuters’ analysis of Ember data reveals that Pakistan’s solar share is nearly double that of China, a leading global supplier of solar panels and green technologies, marking one of the highest adoption rates in Asia.

Exclusion of the Middle Class

However, the rapid expansion of solar energy has largely bypassed Pakistan’s struggling urban middle class, who have been forced to reduce electricity consumption due to soaring costs. This is according to interviews with over two dozen individuals, including energy officials, consumers, and power-sector analysts.

A significant portion of the nation’s solar panels aren’t connected to feed surplus energy back into the grid. Therefore, the advantages of affordable and dependable power aren’t being shared broadly.

The shift of affluent Pakistanis with solar access away from the national grid has further burdened those reliant on expensive traditional power sources. Electricity providers, having lost their most profitable customers, have been compelled to raise prices for their dwindling customer base to cover operational expenses, according to Arzachel, an energy consultancy based in Karachi.

Financial Stress and Chinese Investments

Some observers attribute the energy sector’s financial strain to agreements between Pakistan and China, where Beijing financed billions of dollars in power generation contracts, many involving coal-fired plants. Pakistan is currently behind on numerous payments and has engaged in discussions with China to extend repayment timelines.

Nations such as South Africa are also experiencing widening energy disparities as wealthier residents embrace solar power. However, analysts are closely monitoring Pakistan due to the speed at which the country, with its 250 million residents, has adopted solar energy.

Haneea Isaad, an energy finance specialist at the Institute for Energy Economics and Financial Analysis in Islamabad, stated, “This could serve as a cautionary tale regarding the need for regulation and policy to adapt to technological changes and swiftly evolving economics.”

Pakistan’s Power Minister, Awais Leghari, acknowledged the energy divide in an interview, but also emphasized that tariffs have decreased substantially since June 2024, when the IMF approved reductions. He also highlighted the significant adoption of solar energy among rural Pakistanis, many of whom previously had limited access to the grid. Many non-urban Pakistanis have set up small solar systems to meet their power requirements, which are usually less than their urban counterparts.

“Pakistan has truly experienced a solar revolution,” he stated. “The grid will become cleaner every day, and this is an achievement for our nation, something we take pride in.”

The IMF did not respond to requests for comments.

The Energy Divide

Not far from Saleem’s upscale neighborhood, Nadia Khan has made significant lifestyle adjustments to reduce electricity expenses.

The homemaker’s apartment rarely uses air conditioning, and she has stopped ironing most of her family’s clothing due to the cost of electricity.

Khan’s family is among many cutting back: According to Renewables First, a Karachi-based consultancy, only 1% of paying consumers used over 400 units of power in 2024, down from 10% prior to the pandemic.

Like many apartment dwellers in Pakistan without the space for solar panels, Khan has been excluded from this energy transition.

Many apartment building roofs are used for water storage and sanitation purposes, while rental property owners have little motivation to invest in solar connections for tenants.

“We get some sunlight indoors, but I can’t figure out a way to go solar,” she lamented. “Why should people living in apartments have to suffer?”

Meanwhile, Pakistanis who own land have benefited from the influx of inexpensive, Chinese-made solar modules that have been shut out of Western markets by high tariffs.

Ember reports that China exported 16.6 gigawatts of solar capacity to Pakistan last year, roughly five times the amount in 2022.

Over the same period, the average cost per watt of exported solar module capacity decreased by 54%.

However, the majority of solar installations aren’t configured to send excess power back to the grid, which limits their benefit to the broader public. Syed Faizan Ali Shah, a renewables expert advising the government on solar adoption, notes that fewer than 10% of solar consumers sell excess power back to the grid.

Experts and government officials point to high costs and sanctioning delays. According to Ahtasam Ahmad, an energy expert at Renewables First, connecting a solar module to the grid typically takes three to nine months, deterring many from pursuing it.

Converting solar panel-generated power for transmission to the grid also necessitates equipment such as inverters, which typically cost between $1,400 and $1,800, about half the median household income in Pakistan.

Sunk Costs

The Pakistan conglomerate Interloop has installed numerous solar modules next to its cowsheds in Punjab province to power the cooling systems for its 9,300 livestock and chill their milk.

The investment in solar energy has proven profitable for Interloop, which typically recoups its solar installation expenses within three to four years. Faizan Ul Haq, Interloop’s energy manager, noted that basic operating costs are about three-quarters less than payments to the grid.

Interloop’s savings reflect a significant deficit in the accounts of Pakistan’s power companies.

Even as industrial groups and wealthier Pakistanis consume less grid power, suppliers’ costs have not decreased proportionately.

Fixed expenses, such as fuel contracts and transmission architecture upgrades, accounted for about 70% of supplier expenditures in the year leading up to June 2024, according to an Arzachel estimate.

To cover these costs, suppliers have raised prices for their remaining customers, who have already faced repeated increases as a result of the IMF agreement.

Arzachel data indicates that fixed costs of 200 billion rupees were transferred to non-solar consumers in the 2023-2024 fiscal year, resulting in them paying 6.3% more per kilowatt-hour than they otherwise would have.

Since then, solar panel imports have increased, suggesting that grid demand is likely to continue falling, which will force remaining customers to pay even more.

Ahmad of Renewables First concludes, “Pakistan’s experience illustrates a vital lesson: when governments fail to adapt quickly enough, people take charge.”