EXPLAINER: NEPRA’s rooftop solar reset, tariff turbulence & who pays the price?

Pakistan’s power sector is facing a defining moment as regulators, policymakers and consumers grapple with sweeping changes to rooftop solar rules and electricity tariffs; reforms that aim to stabilise a financially strained system but risk triggering political and economic fallout.

At the centre of the storm is the National Electric Power Regulatory Authority’s (NEPRA) decision to replace Pakistan’s decade-old net metering regime with a new “net billing” framework under the Prosumer Regulations 2026.

Under the previous system, rooftop solar users could offset the electricity they exported to the grid at nearly the same rate they paid for imported power. That one-to-one adjustment made solar financially attractive and accelerated adoption across urban Pakistan. More than 466,000 consumers signed up under the regime.

The new rules fundamentally change that equation. Surplus solar electricity will now be purchased at the National Average Energy Purchase Price (roughly Rs 10-11 per unit) while consumers will continue buying electricity from the grid at prevailing tariffs that can reach Rs 37-55 per unit, depending on usage slabs. Contract terms have also been shortened from seven years to five, and system capacity is capped at sanctioned load.

In parallel, NEPRA has approved approximately Rs 132 billion in new fixed charges for 28.5 million residential consumers, applied retrospectively from February. Fixed rates now range from Rs 200 to Rs 675 per kilowatt of sanctioned load, pushing effective per-unit costs up sharply, particularly for lower and middle-income slabs. For some lower consumption categories, average tariffs have risen by as much as 75 per cent.

The government argues these changes are necessary to address structural distortions in the power system. As solar adoption surged, higher-paying consumers reduced their net grid consumption, shrinking the revenue base from which distribution companies (DISCOs) recover fixed costs, including billions in capacity payments owed to independent power producers (IPPs). These payments must be made regardless of actual electricity generation.

At the same time, the tariff restructuring eliminates industrial cross-subsidies, reducing industrial electricity rates to enhance export competitiveness. Analysts estimate that while industrial tariffs may fall by 13-15 per cent, middle-income households could face increases of up to 50 per cent, with broader inflationary effects.

The backlash was swift. Lawmakers across party lines criticised the solar overhaul, prompting Prime Minister Shehbaz Sharif to intervene. In a high-level meeting, he directed the Power Division to file a review petition with NEPRA to safeguard existing contracts of current solar consumers. He said that the burden of 466,000 solar users should not be shifted onto 37.6 million grid consumers.

While the statement signals political sensitivity to public reaction, it raises a complex economic question.

If existing solar users are protected from lower buyback rates, industrial consumers are relieved of cross-subsidies, and subsidies are simultaneously being reduced under fiscal constraints, then where does the system recover its fixed costs? The burden can only fall on three entities: solar users, other grid consumers, or the state through higher subsidies.

Pakistan’s ongoing International Monetary Fund (IMF) programme limits that flexibility. The IMF has reduced power subsidies by Rs 143 billion and set a strict target to cap circular debt accumulation at Rs 400 billion this year. The programme emphasises cost-reflective tariffs, reduced cross-subsidies and improved recovery performance rather than continued reliance on taxpayer support.

In that context, the broader tariff restructuring, including fixed charges and lower solar buyback rates, aligns with IMF objectives. However, fully insulating existing solar users without offsetting adjustments could complicate revenue recovery targets.

There is also a longer-term policy dilemma. Protecting existing prosumers while making new solar installations less financially attractive risks creating a two-tier market. Early adopters retain favourable economics; new entrants face longer payback periods and regulatory uncertainty. That could slow rooftop solar expansion or push more consumers toward off-grid systems, weakening grid stability further.

The episode underscores a deeper structural challenge: Pakistan’s electricity system was designed around centralised generation and heavy fixed capacity payments. Rapid decentralised solar growth reduces energy purchases but does not eliminate system-wide fixed costs.

The current debate is therefore not simply about solar incentives. It is about how to redesign tariffs and grid economics for an energy transition that is already underway, while balancing fiscal discipline, consumer protection and system solvency.

Whether the review ordered by the prime minister results in minor adjustments or broader reform, one reality remains clear: someone must ultimately pay the full cost of Pakistan’s power system. The only question is how transparently, and how equitably, that burden is distributed.