Pakistan RE Law/Policy

Table of Contents

Last updated Jan. 30, 2024.

Electricity Sector Overview

Transmission: Electricity is transmitted by two entities: the National Transmission & Despatch Company (NTDC) and the privately owned and vertically integrated utility Karachi Electric (KE). KE owns its own transmission system for its area (Karachi, Hub, Vinder, Uthal, and Bela), and NTDC operates the transmission network for the rest of Pakistan. There are two interconnections between NTDC and KE, allowing KE to obtain power from the national grid when needed.

The result of the two-island approach, whereby the power system is split between the NTDC and KE subsystems, results in more expensive dispatch in the KE systems and hinders the benefits of demand-curve superposition.

Generation: Hydroelectric power is generated by the Water and Power Development Authority (WAPDA) which has control of the country’s major dams. GENCOs (GENCO I, GENCO II, GENCO III, and GENCO IV) are the state-owned generating companies, and Karachi Electric (KE) owns a few thermal plants within its network. Independent power producers (IPPs), special power producers (SPPs), and captive power producers (CPPs) generate the rest of the power and sell their excess electricity to NTDC and KE.

Distribution: There are ten publicly owned distribution companies (DISCOs) apart from KE: PESCO, TESCO, IESCO, GEPCO, FESCO, LESCO, MEPCO, QESCO, HESCO, and SEPCO. These companies distribute power in their respective areas under the NEPRA License that regulates the electric power supply in Pakistan.

The following graphic roughly illustrates Pakistan’s power sector institutional framework.

Source: SageJournals

The following charts illustrate Pakistan’s electricity mix:

Source: OurWorldinData.org. Click to access interactive graphs.

References

Summary of RE Laws/Policies

General

The main laws and policies governing RE in Pakistan are:

Other non-policy instruments affecting RE development include:

  • RE projects announced by the government
  • MOUs between Pakistan and other nations

Under Pakistan’s constitution, provincial governments are empowered to require electricity supply, levy taxes on electricity, construct power houses and grid stations and lay transmission lines, and determine tariffs for electricity distribution within their provinces.1The Constitution of the Islamic Republic of Pakistan (as modified up to Feb. 28, 2012), https://na.gov.pk/uploads/documents/1333523681_951.pdf. Disputes between the federal and provincial governments are resolved by the Council of Common Interests (CCI). Renewable energy policies and incentives are generally set at the national level with representation from the all the provinces at the CCI.2Raja Mohammed Akram & Co, Q&A: the legal framework for renewable energy in Pakistan, Lexology (July 29, 2022), https://www.lexology.com/library/detail.aspx?g=ca62fd16-924c-4845-bd19-212418e41f7d

Pakistan has been undergoing liberalization reforms since 1994, moving from state monopoly to a competitive market.3Maroof Mittha, Renewable Energy Policy in Pakistan: A Critique, Courting the Law (Apr. 19, 2021), https://courtingthelaw.com/2021/04/19/commentary/renewable-energy-policy-in-pakistan-a-critique/.

The RE Policy 2006, which gave renewable independent power producers (IPPs) tax and fiscal incentives, a guaranteed rate of return, and mandatory offtake, provided the legal and regulatory framework between 2006 and 2018. In 2019, the Alternative and Renewable Energy (ARE) Policy was introduced for all future projects. Under the ARE Policy 2019, public utilities can procure renewable energy projects through competitive bidding, government-to-government arrangements, and unsolicited projects.4Raja Mohammed Akram & Co, supra. The ARE Policy 2019 includes geothermal energy, hydrogen, synthetic gas (produced from non-fossil-fuel sources), solar power, and on-shore and off-shore wind among alternative energy sources, and excludes nuclear and hydropower.5Mittha, supra. ARE 2019 mentions another policy underway for small hydro.

When a public utility procures electricity from an IPP, the Central Power Purchasing Agency (CPPA) enters into the energy purchase agreement as an agent for distribution companies, with the Government of Pakistan (GoP) guaranteeing the payment obligations of the CPPA. The ARE Policy 2019 mandates the power purchaser to offtake all delivered energy generated by renewable plants for a certain period.6Raja Mohammed Akram & Co, supra.

There is no national legal and regulatory framework for selling environmental attributes.

In 2022, Pakistan published the Fast Track Solar PV Initiatives and Framework Guidelines. The initiative seeks to replace expensive imported fossil fuels with solar PV-based power generation and add approximately 6,000 MW of solar PV capacity.7Framework guidelines approved for Solar initiatives 2022 to promote local RE sources, Associated Press of Pakistan (Jun. 8, 2023), https://www.app.com.pk/national/framework-guidelines-approved-for-solar-initiatives-2022-to-promote-local-re-sources/.

Incentives

The RE Policy 2006 allowed investors a fixed rate of return through upfront tariffs and long-term energy purchase agreements with deemed generation and “take-or-pay” clauses. The ARE Policy 2019 offers similar incentives including exemption from corporate income tax and import duties, 100% foreign ownership with allowance for repatriation of dividends and disinvestment proceeds, protection against change in law and expropriation and international dispute resolution mechanisms. However, the must-purchase obligation of the market operator (CPPA) is shorter under the ARE Policy 2019.8Raja Mohammed Akram & Co, supra.

Additionally, renewable plants have “must-run” status in the merit order of central dispatch, and the State Bank of Pakistan (SBP) provides cheaper refinancing for loans to renewable projects under the SBP Financing Scheme for Renewable Energy.9Raja Mohammed Akram & Co, supra.

The government has established Feed-in Tariffs (FiT) as an incentive to attract investment for renewables, setting a fixed price to cover investment, guaranteed grid connectivity, and long-term purchase contract.10Mittha, supra.

Initial Critique of RE Laws/Policies

General

Pakistan’s challenges include lack of infrastructure (e.g. inefficient grids), currency risks, lack of consistent policy, red tape in the land registry and transfer process, political instability, PPA renegotiations in 2020, and security concerns.11Rafee Ullah, Challenges for Development of Renewable Energy in Pakistan, LinkedIn Pulse (May 3, 2023), https://www.linkedin.com/pulse/challenges-development-renewable-energy-pakistan-rafee-ullah/.

Incentives

Tax reforms introduced through the Finance (Supplementary) Bill 2021 in response to the IMF’s demands withdrew exemptions on renewable technologies, instituting a 20% tax on solar panel imports and wind turbines and a 12% increase in sales tax for imported EVs, which led to a rollback in demand and investment for renewables.12Khalid Hasnain quoting Zain Moulvi of Alternative Law Collective, Taxes on solar panels, electric vehicles slammed, Dawn (Feb. 2, 2022), https://www.dawn.com/news/1672743. Some exemptions, such as for the tax on solar panels, have been reinstated.13Removal of 17 percent GST on Solar Panels, Global Village Space (May 21, 2022), https://www.globalvillagespace.com/removal-of-17-percent-gst-on-solar-panels/.

Legal analysts say that the incentives and benefits required to attract potential investors for the target renewable capacity are minimal or insufficient to compete with fossil fuel-based energy sources.14Mittha, supra

The Role of Hydropower

Historically, hydropower has played a large role in Pakistan’s electricity sector. Hydropower is, however, controversial due to its significant ecological and social impacts. There is disparity in Pakistan’s domestic and international policies concerning the role that hydropower should play in Pakistan’s future in terms of renewables shares. Pakistan’s NDC, which sets an ambitious target of 60% share of renewable energy by 2030, includes hydropower in its menu of renewable energy sources.15Pakistan’s NDC, https://unfccc.int/sites/default/files/NDC/2022-06/Pakistan%20Updated%20NDC%202021.pdf. The ARE Policy 2019, on the other hand, states a target of 30% renewable energy from non-hydropower sources and states that a separate policy will be developed for small hydro, which has not happened yet.16ARE Policy 2019, https://cdn.climatepolicyradar.org/navigator/PAK/2019/alternative-and-renewable-energy-policy-2019_8c2ca91631c8bd78c70458de1eb25e15.pdf. In spite of the ARE’s move away from hydropower, the government is in fact still strongly emphasizing the role of hydropower in its electricity mix, especially to meet its NDC target.17Interview with Member of the Alliance, Alliance for Climate Justice and Clean Energy (ACJCE) (Aug. 10, 2023).

Net Metering vs Gross Metering Controversy

In May 2024, various media outlets reported that Pakistan had disclosed to the IMF its intentions to shift from net metering to gross metering for rooftop solar panels.18Shahbaz Rana, Rooftop net meter policy to end, The Express Tribune (May 19, 2024), https://tribune.com.pk/story/2467242/rooftop-net-meter-policy-to-end; Pakistan to replace solar net metering with gross metering: report, Aaj (May 19, 2024), https://english.aaj.tv/news/330361827/pakistan-to-replace-solar-net-metering-with-gross-metering-report; Qadeer Khan, Govt to shift from net to gross metering for solar panels amid IMF talks, Medium (May 20, 2024), https://medium.com/@qk8802785/govt-to-shift-from-net-to-gross-metering-for-solar-panels-amid-imf-talks-16ab12184636.

Under the current net metering system, a bidirectional meter measures the electricity consumed and generated, allowing users offset their electricity consumption with power generated by their rooftop solar panels. It is a financially viable model that also reduces the strain on the national grid.

Gross metering, on the other hand, works with two unidirectional meters that measure energy exported from the grid and energy imported from the grid respectively. The policy requires users to sell all the electricity generated by their rooftop solar panels to the grid at a fixed Feed-in-Tariff (FiT) rate and repurchase electricity for consumption at higher retail prices.

The media reports unsettled the solar panels market and social media channels. However, days later, Federal Minister for Energy Awais Ahmad Khan Leghari said that the government had no plans to retire the solar net metering policy.19Khalid Hasnain, No plans to scrap solar net metering policy: energy minister, Dawn (May 20, 2024), https://www.dawn.com/news/1834564.

Safeguards and Standards

In terms of legal/regulatory framework for mitigating ecological and social harm from forms of renewable energy such as large hydropower, there are little to no protections/safeguards for social impacts, and ecological standards are basic and outdated.20ACJCE, supra. Although some impact and feasibility studies are done prior to commencing projects, those studies have been critiqued as inadequate.21ACJCE, supra.

Community Ownership and Microgrids

The Net Metering Regulations 2015 allow households to set up solar panels on their rooftops or agricultural lands and sell into the grid what they produce, but the scope of the model is limited to households.22Net Metering Regulations 2015, https://www.nepra.org.pk/Legislation/Regulations/NOTIFICATION%20SRO%20892%20-2015.PDF. There are regulations for microgrid licensing, but various challenges hinder the viability of community-owned microgrids in Pakistan.23NEPRA Licensing (Microgrid) Regulations 2022, https://nepra.org.pk/Legislation/3-Reg/3.29%20NEPRA%20Microgrid%202022%20Regulations/S.R.O%20994%20(I)-2022%20dated%2006-07-2022.PDF; Why are there no microgrids in Pakistan? IGC (Sept. 20, 2017), https://www.theigc.org/blogs/why-are-there-no-microgrids-pakistan; ACJCE, supra.

The following articles, reports, and videos offer a more in-depth analysis and critique of the legal/regulatory framework for renewables in Pakistan’s electricity sector:

  • Powering Pakistan’s Future: Pathways to Optimize Affordable Electricity Generation, Renewables First (2023)
  • Renewable Energy Policy in Pakistan: A Critique by Maroof Mittha, Courting the Law (Apr. 19, 2021)
  • Power policies, challenges, and recommendations of renewable resource assessment in Pakistan by Zahid Hussain Hulio et al., Sage Publications Ltd. (Jan. 21, 2022)
  • Stocktaking Pakistan’s Renewable Energy Progress 2024: Opportunities and Challenges (Livestream)

Renewable Energy Targets

Renewable Energy Laws/Policies

General Policies

Grid Regulations

Institutional Framework

  • The Pakistan Council of Renewable Technologies Act
    • Info / PDF / Backup PDF
    • Mandates the establishment and describes the responsibilities of the Pakistan Council of Renewable Energy Technologies
  • Alternative Energy Development Board Act
    • Info / More Info / PDF / Backup PDF
    • Establishes the Alternative and Renewable Energy Development Board (AEDB) and its functions
    • AEDB is the authorized body to deal with procurement of electricity
    • Auctions must be done at the locations prescribed by the Indicative Generation Capacity Expansion Plan27Mittha, supra.

Incentives for RE Development

Contextual Laws/Policies

References