PAYNE INSTITUTE COMMENTARY SERIES: COMMENTARY

By Morgan Bazilian and Debabrata Chattopadhyay

August 3, 2026

Pakistan has become one of the world’s largest importers of solar panels. This was driven by converging crises of collapsing grid affordability, unreliable power supply in many parts of the country, a ballooning fiscal trap in the power sector, and a glut of cheap Chinese manufacturing capacity. The result is one of the most consequential energy transformations underway in any developing economy, and one that carries particular significance given the war with Iran.

The Roots of the Solar Boom

Pakistan’s power sector has accumulated a “circular debt,” the shortfall between what distribution companies collect and what they owe generators. That debt reached PKR 2.4 trillion, about $8.6 billion, by June 2024, according to NEPRA’s State of Industry Report 2024. As a result, 30 to 35% of the average electricity tariff now consists of non-energy financial adjustments, charges for inefficiency and debt repayment rather than actual electricity consumed. Capacity payments to power plants alone exceeded PKR 2 trillion, about $7 billion, in 2024, because take-or-pay contracts built under the China-Pakistan Economic Corridor committed Pakistan to paying for generation capacity regardless of whether the electricity was actually used.

Grid electricity prices rose by approximately 155% between 2021 and 2024. Subsidies were withdrawn under IMF conditions, fuel cost adjustments were passed to consumers, and volume based pricing meant higher consuming households faced a punishing rate. For many middle class urban families and agricultural users, the economics of staying on the grid stopped making sense.

At the same time, China’s solar manufacturing sector was producing panels faster than the world could absorb them. The average price per watt for panels imported into Pakistan fell from $0.35 in 2017 to roughly $0.08 by 2025. Pakistan had also exempted solar PV imports from duties and sales taxes, until 2025, when the federal government imposed a 10% GST on new imports, partly to encourage domestic manufacturing.

This combination of unaffordable grid power and panels priced below $0.10 a watt produced a consumer response of unusual scale. High consumption residential customers, along with commercial and industrial customers, pay well above 10 US cents per kWh, up to 18 US cents per kWh, compared with a rooftop solar cost of roughly 5 US cents per kWh. Pakistan imported 17 GW of solar panels in 2024 alone, twice the volume imported the previous year. By August 2025, cumulative solar panel imports had reached approximately 50 GW, making Pakistan the third largest market for Chinese solar panels globally. Net-metered rooftop solar capacity had reached 5.3 GW by April 2025, a near tenfold increase in two years.

That 5.3 GW figure is dwarfed by an estimated 19 GW of non-net-metered installations and 8.3 GW of off-grid systems, which together exceed Pakistan’s peak grid electricity demand in FY2024. Pakistan is, in effect, building a parallel electricity system beneath the official one.

The adoption pattern is uneven in instructive ways. In the residential sector, solar uptake rises sharply with income: only 38% of low expenditure households have adopted solar, compared with 88% of high expenditure households. In agriculture, the pattern runs in the opposite direction: farmers with lower monthly electricity expenditures show the highest adoption rates, around 85%, because their need is for operational reliability rather than cost optimization. Diesel powered water pumps are expensive to run and prone to supply disruption. Industrial and commercial uptake has been driven by the need to avoid downtime caused by outages: unreliable power supply, combined with the high cost of grid supply, has generally been the key driver for these customers.

Most distribution companies also miss NEPRA’s reliability benchmarks by a wide margin. LESCO’s reported System Average Interruption Duration Index reached about 2,983 minutes, roughly 50 hours, in FY2024-25, and PESCO, QESCO, SEPCO, HESCO, and K-Electric perform considerably worse.

The Energy Security Argument

Pakistan sources 99% of its LNG from Qatar and the UAE via the Strait, and monthly cargo arrivals collapsed from a normal range of 8 to 12 shipments to just two in March 2026. By 2026, following rapid solar adoption, LNG accounted for approximately 10% of Pakistan’s electricity generation, sharply reduced from earlier levels but still the marginal fuel for peak demand. Pakistan’s Power Minister confirmed in March 2026 that about 74% of electricity generation now comes from local sources.

Pakistan’s situation has been substantially cushioned by its solar build out. LNG consumption had been falling for three consecutive years as cheap panels displaced fossil fuel generation. Mild weather and elevated solar output have, for now, provided relief from what could otherwise have been a catastrophic supply void. The same properties that give distributed solar its security value also create systemic problems.

When affluent households install solar and reduce their grid consumption, the fixed costs of the grid must be recovered from a smaller, relatively poorer consumer base. By December 2024, the government estimated that net-metered consumers had shifted a burden of $563 million, PKR 159 billion, onto other consumers, and REN21’s Pakistan snapshot projected this could reach $48.34 billion by 2034 if the net-metering framework were left unchanged. It has not been left unchanged. In February 2026, NEPRA replaced net metering with a “net billing” system under its Prosumer Regulations 2026, ending the one-to-one offset that let solar households neutralize their bills and requiring utilities to purchase surplus power at the national average energy purchase price rather than the retail tariff. Power Division projections under the new framework put the cumulative cost shift at roughly PKR 545 billion by FY2034.

DISCO transmission and distribution losses averaged 17.55% in FY2024-25, well above NEPRA’s allowed limits, and collection rates vary widely. Existing thermal plants, many built with sovereign guarantees and dollar-indexed capacity payments, must still be paid whether they generate electricity or not. As grid demand falls, per unit costs for remaining grid users rise, which incentivizes more defection, which raises costs further, a dynamic often called a utility death spiral. As rooftop and small embedded solar penetration rises, Pakistan’s distribution companies face severe stress on already dilapidated networks: reverse power flows, transformer burnouts, and overloaded feeders that lengthen outage times and require serious investment.

Yet, Pakistan had certified only 689 PV installers by early 2025, against more than 143,000 installations recorded over the preceding eight months, according to NEPRA data. Systems installed without qualified technicians may perform poorly or fail within years, leaving poorer households who have made significant financial commitments with depreciating assets.

Pakistan has, largely through market forces rather than central planning, built a substantial buffer against fuel import vulnerability. Its solar adoption has outpaced almost every comparator, including neighbors with far larger economies and energy bureaucracies that have far more resources. Still, it needs a long-term plan that encompasses grid modernization, flexible tariff design, storage integration, and a financing architecture that extends solar access to the 38% of low income households currently unable to participate have all lagged, even as the government moves to rein in the fiscal costs of a boom it did not plan.

ABOUT THE AUTHORS

Morgan Bazilian
Director, Payne Institute and Professor of Public Policy, Colorado School of Mines

Morgan Bazilian is the Director of the Payne Institute and a Professor of public policy at the Colorado School of Mines. Previously, he wD.as lead energy specialist at the World Bank. He has over two decades of experience in the energy sector and is regarded as a leading expert in international affairs, policy and investment. He is a Member of the Council on Foreign Relations.

Debabrata Chattopadhyay
Senior Energy Specialist, World Bank

Debabrata Chattopadhyay is a Senior Energy Specialist with the World Bank where he led the power system planning group from 2014-2022. He has been a Director of Deloitte Australia and a Principal with Charles River Associates between late 2000 and 2012. He was a Senior Lecturer /Associate Professor with University of Canterbury in New Zealand between 1997-2000. Deb holds a Ph.D. in power systems, a master’s degree in development economics, a CFA, and a bachelor’s degree in engineering. His research interests include electricity planning/operation and market design.

ABOUT THE PAYNE INSTITUTE

The mission of the Payne Institute at Colorado School of Mines is to provide world-class scientific insights, helping to inform and shape public policy on earth resources, energy, and environment. The Institute was established with an endowment from Jim and Arlene Payne and seeks to link the strong scientific and engineering research and expertise at Mines with issues related to public policy and national security.

The Payne Institute Commentary Series offers independent insights and research on a wide range of topics related to energy, natural resources, and environmental policy. The series accommodates three categories namely: Viewpoints, Essays, and Working Papers.

Visit us at www.payneinstitute.mines.edu

FOLLOW US

DISCLAIMER: The opinions, beliefs, and viewpoints expressed in this article are solely those of the author and do not reflect the opinions, beliefs, viewpoints, or official policies of the Payne Institute or the Colorado School of Mines.