Non-solar power 'penalty'

Non-solar consumers bear a Rs200 billion burden due to rapid solar adoption, with costs projected to rise.

The rapid adoption of solar energy in recent years has been heralded as a significant step toward sustainable energy and environmental stewardship. However, an unfortunate side effect of the transition has been the heavy burden that has been shifted onto non-adopting consumers.

A recent report by energy-focused consultancy firm Arzachel raises alarming concerns about the financial implications of the rapid transition, estimating that non-solar consumers bore a staggering burden of Rs200 billion in FY23-24. Given that solar adoption is not only cost-prohibitive but also strongly favours homeowners over renters and apartment dwellers, we must urgently and critically evaluate the equitable distribution of costs and the implications for our energy landscape.

Unfortunately, sharing the cost saving of solar energy adoption is a non-starter because it essentially entails a wealth transfer that would disincentivise new solar adoption by reducing potential savings for adopters. Meanwhile, IMF conditions have made it very hard to give subsidies to lower-income consumers. At the same time, the same conditions also mean the government must absorb the losses of power utilities, which are losing money due to excess capacity created by solar consumers reducing their demand on the national grid.

The report also projects another Rs131 billion will be shifted to non-solar consumers if there is a 5% fall in grid demand, with the cost shift doubling if there is a 10% reduction. This means that the burden on non-solar consumers will grow even more, unless the government can somehow absorb that cost or reduce grid prices. Of course, the best thing that policymakers could do is address power pilfering, but getting people to pay their fair share remains a bridge too far for the government. Barring that, tax policy reforms to reduce the overall cost of electricity for small consumers may well be the only workable solution, although this would also require effective widening of the tax net.