Is solar panel a good investment in Pakistan?

Solar panels are sprouting on rooftops of homes in Pakistan at an amazing speed.  Every day I see a new small or large house proudly displaying an angled load of some 10 or more panels . The residents hope that this investment will rescue them from the perpetual rise in their electricity bills and provide continued power supply during periods of load-shedding. The fear sparked by constant news of adding fuel surcharge and rising of tariffs on account of devaluation of rupee and the inflating circular debt makes a homeowner embark on a quest to find a solution to reduce/eliminate their electricity bill while keeping their addiction and dependency on high power appliances in large luxury homes built with low ceilings and huge glass windows.

And in most such homes, windows are habitually kept shut to prevent dust/noise, which also blocks out fresh air and natural light.  Notably, high electricity bills are usually on account of use of ACs during the peak summer months when the sun is hottest for about 4-5 months of the year or during the peak winter months with use of heaters for 1-2 months.  In other words, the highest consumption of electricity or high bills are experienced for 6 months in households with high use of ACs/heaters. 

Is solar panel a good investment in Pakistan?

Solar panels is a flourishing industry in Pakistan and becoming a household product at a micro level and alternative source of energy at large scale.  More than renewable energy, the key motive for this industry is profiteering and maximizing sales by projecting an idealized scenario at 100% efficiency of all inputs and processes. Any product which offers solution to a problem is indeed worth investing money in for what it offers.  At a large scale for a power generation company, solar panels do offer a solution for clean and cheaper energy albeit with a large initial investment.

But at the micro scale of household level, the solution is peculiar; it is about saving on the monthly electricity bills.  In order to save on monthly bills in the future, the consumer is expected to dish out Rs. 1-2 Million (for 6-10 kVa system) in the present and keep observing the saving on each monthly bill for several years until they actually start observing the savings after the investment has been utilized.  And not to forget the annual maintenance costs for the solar panels and weekly clean up from dust and bird droppings.

Solar System Equipment, Capacity, and Life

Most of the suppliers claim and guarantee the life of the solar panels to be 25 years, and power generation from an average installation with battery storage option to support continued functioning of lights, fans, and standard appliances including possibly 1-2 ACs (inverter based only) during the night and load shedding hours. Alternatively, a solar system may be installed without the battery storage to produce power and feed the production into the grid, rather than supporting the household requirements directly to make it independent and free from the local power supply company.  This is called net metering which is what most households are opting for and those who have installed solar panels do receive credit from DISCO/LESCO on a monthly basis based on the output, and do experience saving on the bills over a year. 

In general, people forget the initial expenditure or are not bothered about it, and have faith in the expenditure being paid off in 3-4 years.  This is what the seller counts on to make a sales pitch to the customer.  

Is solar panels worth it?

But are solar panels really the solution to save on high electricity bills?  Do they actually provide relief in the monthly electricity bills or is it an illusion of saving when people forget the initial expenditure involved in the installation and have an inherent fear of rising electricity bills. I am inclined to believe in the latter because there are no free lunches in the cost of living.  Consumers pay more one way or another.  When something is too good to be true chances are that it is and in the wish to escape costs, you may be spending more than saving without realizing it.

The need for solar panels in Pakistan has been created within the ever expanding middle class and urbanization of rural areas of a generation whose parents grew up with a single pedestal fan/electric heaters catering to entire households but managed to build fancy homes with glass windows and equipped with every possible appliance, every room equipped with ACs, and every bathroom with exhaust fans.  During the extreme weather of 4-5 months, electricity bills for an average household may reach Rs.100,000 or more due to continuous use of ACs and heaters.  

Cost of Solar System for Home

According to suppliers, a typical one kanal house has an average consumption of 10 KVa  (or 10000 units) in a year, making their total expenditure between 400-450K in a year with all applicable fees, and taxes .  A compatible solar system of 10-12 kWh capacity will require an initial investment of Rs. 2.0 Million, without the back-up batteries.  4 back-up batteries totaling Rs. 220,000 are needed to provide during hours of no sunlight.

Solar System Sellers vs. Consumers

The seller claims the batteries will last 4-5 years, whereas many people say the batteries need to be replaced every year or two years at best. In absolute terms based on 100% efficiency, this could mean several years to pay off the investment made today if no break down occurs and system operates at 100% efficiency.  So in reality one is paying several years of electricity usage in advance if your system operates at 100% efficiency with back up to supply your energy needs.  To benefit from this system, you will need to disconnect from the grid and use your own power generation counting on reliability and efficiency of the system.

Furthermore, the seller has alerted that that only inverter based ACs will run on the solar system because such ACs have lower consumption of electricity than conventional window or split ACs.  But their initial price is nearly twice as much and maintenance costs are also very high compared to split ACs.  So if you have split ACs, the first thing may be required is to buy inverter ACs at additional investment of perhaps Rs. 500,000-1,000,000 for 2-4 ACs. 

How does NET Metering Work

Another approach to utilizing solar panels is through the NET Metering system wherein a household installs solar panels without the battery system and connects it to grid directly and becomes a supplier of electricity to the Distribution Company (DISCO). 

However, the net metering system does not start from the time you install the panels.  There is a process of registration and obtaining the license and meter from the DISCO.  This could take 1-2  months or more.  Plus there is documentation and processing charges at WAPDA. The word on the streets is that 100s of applications are in waiting for registration and additional bribes are being demanded to get the license and meter. Furthermore, the compensation for the production starts from the 4 months of installation. The sun is at peak intensity during 4 months of the summer and this is when the highest use of power is observed.  So if you install the system in the summer, you may not see immediate benefit for the peak summer months of the first year of installation.

Return on Solar Panels Investment

With Net metering, the compensation in the bills starts in the fourth month after installation.  It is not known what happens with the first 3 months of power generation.  A typical one kanal house in DHA Lahore equipped with standard electric fixtures and appliances will require a minimum of 10-12 kWH system of 20 panels to support it with 5 Inverter ACs/heaters and other standard appliances.  Total cost of the solar system is Rs. 2.0 Million.

What the data says

The 12 months billing data of the sample house indicates total payment of Rs. 141,000 over a year, resulting in net saving of 300K in year if the average expenditure is projected at Rs.450K/year.  At this rate, the payback period for initial investment seems 7 years with a consistent output and performance.  After the first 7 years you may realize the benefit as a net gain up to 25 years of the promised life of the installed system if you continue to live in the same house and electricity rates remain the same.  At the best scenario of 5 years of payback period, it is like a loan of Rs. 2.0 Million given to your DISCO with a promised return over 5 years and observing return on investment after the 5 years. 

Terms and Conditions

In seeing the actual bills it appears the DISCO does not give credits for generating power in excess of consumption throughout the year. There seems to be a limit to carryover of credits.  The excess units exported to the grid are not carried over to the next billing month forever.  Nevertheless, the house is having a bill of 0 for 6 months and paying for 6 months with reduced bill taking into account the units exported to the grid. 

Yet another approach to financing your electricity needs is to save the same amount of investment in a fixed term deposit or savings account in the bank and expect to get at least Rs. 10,000-20,000 per month which could be set aside to pay electricity bills.  In this case your principal investment is safe and can be withdrawn anytime.  

Do Solar Panels Reduce your Electricity Bills?

In my view solar panels offer an illusion to saving you cost of electricity when you are paying the total price for the next 7 years upfront but without certainty that the product will meet your expectation and you will not continue to pay further. You are spending in the present to save in the future.  What you have spent today on installing the panels is for certain.  But saving in the future after the pay off period has passed is uncertain….whether the panels will last for 25 years as claimed and what kind of expenditure on maintenance will be incurred is uncertain…

So who stands to gain from the solar panels?  Respective DISCOs and the solar panel industry and traders in Pakistan are the real winners from this deal. For manufacturers and traders, profits are certain and paid upfront. The DISCOs receive excess clean energy into the grid system which is not compensated in total to the producer. 

Whether the relief to the consumers is offered seems merely an illusion.  At this rate of credit and compensation, It will take 7+ years to pay off for the initial investment, and it is yet to be seen if the panels will last and function with same efficiency beyond the first 7 year period. For the consumers, there is no escape from the costs of living. 

Alternative ways to save on electricity bills

As electricity supply is relatively reliable these days with 1-2 hours scheduled load shedding, most people are counting on UPS or generators for continuing supply of power.  A better approach would be to improve our habits to reduce consumption of electricity.  There is excellent guidance provided on the reverse of electricity bills which we ignore. In addition other measures such as keeping windows open to improve natural light and ventilation in all rooms including bathrooms also helps.  Only fan is sufficient during the day unless the temperature rises above 35C,   During such extreme heat waves, ACs at 26C or higher for a few hours provide sufficient cooling. Of course there will be dust with open windows.  This can be can be cleaned off, but keeping the windows shut will certainly require ACs which come with high electricity costs. 

And keeping the money in the bank may be a better option.  Of course the price of electricity will continue to rise in future and other policy changes may occur in due course.  In ideal scenario with all those mega site hydropower projects completed, we should see more supply in power and reduction of rates.