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In February, NEPRA, the electricity regulator in Pakistan, decided to end net metering for households with solar panels and replaced it with net billing. According to one article, “The notification effectively terminates the existing net-metering regime and replaces it with net-billing for all.
“As a result, earlier public pronouncements by officials and ministers that the terms of contracts with existing prosumers would remain unchanged until completion of their seven-year terms have proven incorrect. Under the new regulations, the existing registered prosumers will be shifted immediately to net-billing instead of net-metering.”
Utilities will charge households with solar panels as much as Rs 50/kWh of electricity (exclusive of taxes) but only pay them a pittance for the electricity they export to the grid: Rs 11/kWh.
This was a very ill-advised and unfortunate decision, based on the specious cost-shift argument that we have seen play out in several parts of the globe. I have debunked it several times. NEPRA’s decision has come under fire from members of the National Assembly National Assembly Standing Committee on Industries and Production “who questioned the rationale of the move which would ‘shatter the trust of the investors in the government policies’.”
According to another article, “PPP leader Sharmila Faruqui objected to Power Minister Awais Leghari ‘shifting the blame to net-metering users for burdening the national grid.’ These consumers are the ones who followed the government’s clean energy policy, she said, stressing that the government had made a U-turn on their policies. Now they are justifying it by blaming people who were at the forefront of your policy, Ms Faruqui said. She maintained that the Power Division was compensating for the cost incurred from line losses and transmission losses, their own inefficiency, inconsistency, corruption, line losses, and capacity payments from the people.”
Pakistan’s experience is in stark contrast to Puerto Rico’s, which decided late last year to preserve NEM. Why did it do so? It’s a case study worth diving into.
Policymakers and academics in Pakistan still have a window to study these international precedents and overrule NEPRA’s detrimental net-billing decision before permanent damage is done
Puerto Rico is a territory of the United States located in the Caribbean Sea. The per capita income of the 3.2 million people living in the archipelago is a lot lower than the rest of the US. Electricity prices are higher than the US average, and given the lower per capita income, the energy burden is much higher. To compound the suffering of the residents, the reliability of the electric grid is low and power outages and sometimes entire territory-wide blackouts occur frequently.
The energy predicament of Puerto Ricans was highlighted recently by the rockstar, Bad Bunny, who is a Puerto Rican. During his 12-minute performance at the Super Bowl in the US, which is the most watched TV event in the US, he showed the bad state of the electric grid in Puerto Rico.
Consequently, 175,000 households, or 10% of the archipelago’s household population, have installed solar panels. More importantly, nearly 160,000 of the solar households have paired their systems with batteries, resulting in a battery pairing rate of 91%, by far the highest in the globe.
Customers get their electrical service from a company called LUMA Energy. In its application to increase electric rate before the Puerto Rico Energy Board, the company called upon the regulatory body to end net metering.
One of the parties in the case, Solar United Neighbors, asked me to testify on their behalf in support of net metering. In my testimony, I stated that I lived in California and had installed solar panels at my house and paired them with a battery. I receive electric service on a three-period time-of-use rate. The peak period runs from 4 pm to 9 pm. My system is set up to charge the battery in the morning from the solar panels and to discharge the system during the peak period, whenever solar energy is insufficient to power the house, which often happens during the summer because of the air conditioning load.
My solar+storage system minimises my house buying energy during the peak period when the grid is constrained, which benefits all customers. In addition, the lights in my house stay on during a power outage. I have had several in the past few years.
With solar and storage, not only have my electric bills gone down substantially, but my house, in a small way, has lowered the need for upgrading the distribution and transmission system, benefiting all other customers. In addition, solar energy helps in the decarbonisation of the power system and helps mitigate climate change.
Puerto Rico has a tropical climate that requires customers to air condition their homes, resulting in higher electric bills than would otherwise be the case. The residential price of electricity in Puerto Rico is now about 25 cents/kWh, much higher than the US average of 17 cents. Electric bills are averaging $115 per month, higher than what most people can afford to pay in Puerto Rico.
The median family income for Puerto Rico is notably lower than that in the poorest U.S. state, Mississippi. It is approximately $26,000, just a third of the US national median household income, $79,000. The poverty rate in Puerto Rico is 41.6%, almost four times the poverty rate of 11.5% in the US. Without solar panels, it becomes very difficult for Puerto Ricans to live comfortably in their homes.
I stated that ending net metering will have bad implications for Puerto Rico. If it is applied retroactively to existing solar customers, it will represent a violation of an existing contract.
If applied to new customers, it will extend the payback period for those who were thinking of buying the solar system. It will raise the monthly payments for those who were thinking of leasing the solar system. In both cases, the net result will be a dramatic reduction in the number of households who install solar. This will impair Puerto Rico’s ability to meet its decarbonisation goals.
Furthermore, the solar industry in Puerto Rico generates more than a billion dollars a year, so a large contraction in the industry would lead to lost jobs and economic activity on the archipelago.
I cited what happened when California ended net energy metering (NEM) in 2023. That state accounts for 2 million households with solar panels, or 50% of the solar installations in the US, with only 12% of the population.
I provided some background on how the stage was set for ending NEM. It began with the California Public Utilities Commission putting out a proposal in December 2021. The Proposed Decision introduced a Net Billing Tariff (NBT) which contained three elements:
Soon afterwards, I debated the merits of this proposal with a professor from the University of California, Berkeley. The virtual debate was broadcast live and was very widely watched.
A modified version of the NBT was approved by the CPUC in December 2022. It only included the first provision for dramatically reducing export compensation. That alone resulted in a precipitous drop in new solar sales.
The impact of the NBT on residential and commercial installations, measured in MW, is shown below. The impact was dramatic in 2024. In 2025, the impact decreased because of the imminent ending of the US federal income tax credit. I would expect the lower numbers to return in a year or two.
Why did ending NEM in California dramatically slow down solar sales? Because export compensation accounts for a large share of the savings that accrue to customers. When the NBT lowered the price of exports by 80%, the household’s bill savings from solar installations fell dramatically, resulting in lower adoption rates.
I shared my own data as an example. I installed solar with one battery in December 2019. That installation was done during NEM 2.0. In December 2022, I published an analysis showing how ending NEM was likely to impact new solar installations. I concluded that if NEM 2.0 did not exist, I would probably not have installed solar panels or a battery. In December 2022, I published an analysis that explains why. In my article, I state: “Under net energy billing [which replaced NEM], export compensation will drop down by 80% in five years and then hold steady. My pre-solar bill was $200 a month. Under NEM 2.0, the post-solar-plus-storage bill is $50 a month, representing a savings of $150 a month. Using a rule of thumb, I am estimating that 60% of the monthly bill savings (or $90) from my solar-plus-storage system comes from reducing usage and 40% from export (or $60). Some 80% of the export savings ($48) will disappear, leaving me with just $12 of savings from exports.”
I challenged the assertion that NEM creates a regressive cost shift from solar to non-solar customers by citing the work of economist Richard McCann, who has shown that it does not create a cost shift in California.
Eleven energy experts, including former commissioners and utility executives, and well-known academics, researchers and consultants, and I reviewed McCann’s analysis and supported his findings in a letter to Governor Gavin Newsom.
It is also worth stating that solar customers used to be large users of electricity who overpaid their fixed costs for years. Viewed over their lifetime, solar users do not create a cost shift, even using the narrow analytical framework that is often put forward by utilities.
Later, draft legislation was introduced in the California Assembly, AB 942, to retroactively impose the NBT on existing NEM customers. I testified against it and the retroactive application has been annulled.
In my testimony before PREB in Puerto Rico, I cited the work of Gabel Associates which estimated that net metered solar customers provide a value of 32.90 cents per kWh to the grid, which is much higher than the net metering credit of around 24.12 cents per kWh that is provided to them. If broader local economic value and reduction in air pollution and climate change are included in the value calculation, the value that solar customers provide to society rises to 103.13 cents per kWh.
It is fair to say that in Puerto Rico, solar customers do not create a cost shift. In fact, since more than 85% of solar customers in Puerto Rico have installed batteries, the value that solar customers provide to the grid in Puerto Rico is likely to be higher than the value they create in California.
In my testimony, I also cited the case of Florida, which is called the Sunshine State. In 2022, legislation was passed that would have ended NEM. Governor Ron DeSantis, despite being a conservative, pro-utility politician, vetoed the bill, noting that “The amount that may be recovered under this provision [to redesign NEM] is speculative and would be borne by all customers.”
I also disputed the assertion by an opposing witness that not only should NEM be ended in Puerto Rico, but solar customers should be required to pay an additional monthly charge over and beyond what non-solar customers pay. This would amount to putting a tax on the sun. I stated forcefully that there was no reason to discriminate against solar customers, since they provide substantial value to the grid, not just to themselves.
What was the result? The solar parties in the case, SUN and SESA, reached a settlement with the other parties in the case excluding consideration of NEM in the electric rate case. This was a major win in the ongoing battle to defend solar in Puerto Rico.
“The agreement reached with LUMA Energy eliminates the possibility that the benefits of solar energy for Puerto Ricans will be negatively impacted in this rate review,” said David Ortiz, SUN’s senior program director. “This reduces energy costs and makes our energy service more reliable. We are pleased to know that people with solar systems will continue to receive fair credit for the electricity they generate.”
The decision comes after discussions took place between SUN, SESA and LUMA, in accordance with a clear mandate from the examining officer in charge of the review. “We are pleased to learn that LUMA is no longer attempting to use its rate review case to impose new discriminatory charges on people with solar systems,” SESA Executive Director P. J. Wilson said. “All LUMA customers, not just those with solar systems, benefit from net metering because it makes the electric grid more affordable, resilient, and reliable.”
SESA Public Policy Director Javier Rua added: “Today marks a major victory for the energy rights of all of Puerto Rico, as LUMA withdrew from its rate case any intention to impose new discriminatory charges on the more than 185,000 families and businesses seeking to save their lives and livelihoods with solar and battery energy.”
Rooftop solar has the potential to transform Puerto Rico’s failing energy grid. Widespread solar can help decrease the impact of frequent blackouts on the community. It can also decrease energy costs for everyone on the island.
But the battle is not over. The utilities, LUMA, acting on behalf of PREPA, the government utility that owns power plants, and the Federal Oversight and Management Board (FOMB) continue to create barriers that would limit solar. If approved, the average residential bill would rise by at least 40%. The Puerto Rico Energy Bureau (PREB), Puerto Rico’s independent energy regulator, is currently reviewing LUMA’s request.
Policy makers in Pakistan, including the members of the National Assembly, still have an opportunity to overrule the decision by NEPRA to end net metering. Pakistani academics and researchers who focus on energy issues may want to study what just happened in Puerto Rico, Florida and in California and share the lessons learned with policy makers.
The author is an economist based in the US. Since 1974, he has been writing regularly on political, cultural, social and economic matters, focusing mostly but not exclusively on Pakistan. He has also reviewed books, movies, operas, plays and international destinations.
The Friday Times is Pakistan’s first independent weekly, founded in 1989.TFT offers a diverse range of perspectives on national and international issues.
Copyright ©2026 The Friday Times. All Rights Reserved.
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