IMF pressures Pakistan to cut rooftop solar incentives, raise grid tariffs

The International Monetary Fund (IMF) has urged Pakistan to discourage rooftop net-metering power producers by slashing the buyback rate for excess electricity while increasing the grid supply price for solar users, a move that could significantly impact the country’s renewable energy landscape.

The IMF has proposed an exchange rate of one grid unit for every five to six units of solar power fed into the system, a drastic shift that could extend the payback period for rooftop solar investors from the current 1.5-2 years to as long as five years, potentially deterring future investments in solar energy.

The proposal emerged during recent technical talks between the IMF and Pakistan’s economic team, where the government shared details of its net-metering policy.

Islamabad had suggested reducing the buyback rate for rooftop solar users to PKR 12 per unit, down from the current PKR 27 per unit, while charging them PKR 45 per unit for grid electricity during nighttime hours.

IMF push to align tariffs

One of the IMF’s key concerns is that rooftop solar power producers — who install solar panels on their homes and sell surplus energy to the grid — are not contributing to capacity payments made to Independent Power Producers (IPPs).

Meanwhile, traditional on-grid consumers are paying significant capacity charges of PKR 19-20 per unit, which are embedded in their electricity bills to cover fixed costs of power plants, regardless of usage.

The net-metering system, which has gained traction in Pakistan as an incentive for renewable energy adoption, allows households and businesses to generate electricity and offset their bills by feeding excess power into the national grid. However, the IMF’s latest recommendations suggest a shift in policy that could slow down the expansion of distributed solar energy in the country.

Levy on captive power plants

The IMF has also directed Pakistan to immediately implement a one-month levy on captive power plants — privately owned generation units used by industries to avoid reliance on the national grid.

The Pakistani government had promulgated an ordinance imposing this levy but delayed its enforcement. The IMF has now demanded its collection without further delay.

GST exemption rejected

In a further blow to consumers, the IMF has rejected Pakistan’s proposal to eliminate General Sales Tax (GST) on electricity bills, which was aimed at reducing energy costs. The government had floated the idea of removing GST to provide relief to consumers amid soaring electricity prices, but the IMF declined to support the measure, citing fiscal concerns.

The IMF’s latest directives come as Pakistan struggles with mounting circular debt in the power sector and negotiations over continued financial assistance.