An opinion and policy analysis for audiences of the Financial Times, The Economist, and Foreign Affairs

The Regulatory Ambush Nobody Planned For

In late April 2026, a rare thing happened in Islamabad: a government ministry publicly rebuked its own regulator.

The Power Division formally requested the National Electric Power Regulatory Authority (NEPRA) to scrap the licensing fees and centralized approval requirements it had quietly imposed on small-scale solar consumers — those with systems of 25 kilowatts or below. Acting on directives from the power minister, the Division warned that the new regulatory architecture “could hinder efforts to promote renewable energy at the national level.” The Private Power and Infrastructure Board (PPIB) echoed the alarm. So did the Pakistan Solar Association and the Pakistan Alternative Energy Association, both of which formally objected during public hearings, arguing that the shift away from distribution companies would create “unnecessary bureaucratic hurdles for consumers.”

What makes this episode remarkable is not the disagreement — regulatory-ministry tensions are unremarkable in most democracies. What is remarkable is what it reveals: that Pakistan’s most consequential grassroots energy story of the past decade is now in genuine jeopardy, not from market failure, but from the architecture of its own regulatory state.

What Changed — and Why It Matters

To understand the stakes, one must revisit where Pakistan started.

The NEPRA Distributed Generation and Net Metering Regulations 2015 created a tiered system of elegant simplicity. Consumers installing systems above 25 kW needed a formal NEPRA license and paid associated processing fees. Those installing 25 kW and below — the residential rooftop, the small shop, the family business — only needed approval from their local distribution company (DISCO). The fees were zero. The friction was minimal. The result was an energy revolution.

By mid-2025, Pakistan had accumulated 6.1 gigawatts of cumulative net-metered solar capacity, up from a negligible 50 megawatts as recently as 2019. More than 283,000 consumers had become prosumers. In the first half of 2025 alone, 1.2 gigawatts of new rooftop solar was added — making Pakistan one of the fastest-growing distributed solar markets in the world, outpacing far wealthier nations in per-capita uptake velocity.

Then came the Prosumer Regulations 2025, notified in February 2026 as SRO 251(I)/2026. The new framework abolished the 25 kW exemption threshold. Every new consumer or prosumer — regardless of system size — must now obtain formal concurrence from NEPRA and pay a processing fee of Rs1,000 per kilowatt of installed capacity. For a standard 10 kW residential system, that is Rs10,000 upfront. For a 20 kW installation, Rs20,000. These are not trivial sums for middle-class households who turned to solar precisely because grid electricity became financially unbearable — tariffs rose 155 percent between 2021 and 2024, reaching Rs40–60 per unit by late 2024.

The buyback rate collapse compounded the damage. Under the old net-metering regime, prosumers received approximately Rs25–27 per unit for surplus electricity exported to the grid. Under the new net billing framework, that rate has been slashed to Rs8.13–11 per unit — a reduction of 60 to 70 percent in a single regulatory stroke.

The 2015 DISCO Model: A Case Study in Getting It Right

The 2015 framework was not a bureaucratic accident. It was a deliberate policy choice that reflected a sophisticated understanding of how distributed energy markets actually develop.

By delegating small-system approvals to DISCOs, NEPRA achieved two things simultaneously. First, it positioned the regulator where it belongs — overseeing the grid at scale, not processing tens of thousands of individual rooftop applications. Second, it reduced the time-cost barrier for ordinary consumers who lacked the technical knowledge or financial resources to navigate centralized regulatory processes. A Lahore family installing a 5 kW system did not need to engage with the federal regulator any more than a homeowner in Germany needs to petition the Bundesnetzagentur to install a heat pump.

The results vindicated the model. Pakistan’s rooftop solar growth was not driven by wealthy elites gaming the regulatory system — it was driven by middle-class households and small businesses responding rationally to an unaffordable grid. As electricity tariffs rose, solar panels became cheaper (falling 42 percent globally in 2023 alone), and the DISCO-based approval path remained accessible. That alignment of incentives, market signals, and regulatory architecture produced 6 gigawatts of grassroots generation in under a decade.

The Prosumer Regulations 2025 disrupt all three legs of that alignment.

Stakeholder Voices: An Unusual Coalition of Concern

What is politically significant about the current dispute is the breadth of opposition to NEPRA’s revised framework.

The Power Division — typically aligned with the regulatory apparatus — has broken ranks openly. The PPIB, which oversees private power infrastructure, has urged NEPRA to retain the earlier approval process. Industry bodies including the Pakistan Solar Association and the Pakistan Alternative Energy Association have raised formal objections. Consumer advocates have pointed out that households adopted solar as “a survival response to unaffordable tariffs,” not as a profit-generation scheme, making regulatory barriers “counterproductive” to the very constituencies the state claims to protect.

Even NEPRA’s own logic is internally strained. The regulator has acknowledged publicly that high electricity prices and taxes drove consumers toward solar — a diagnosis that makes the imposition of additional fees for solar adoption look less like coherent policy and more like institutional self-contradiction.

Global Context: The Road Not Taken

Pakistan’s regulatory reversal stands in sharp contrast to the direction of travel in comparable emerging economies.

India, facing similar tensions between prosumer growth and distribution company (DISCOM) revenue, adopted its Electricity (Promoting Renewable Energy Through Green Energy Open Access) Rules in 2022, explicitly simplifying approval pathways for systems below 500 kW and capping processing timelines. The result has been an acceleration of rooftop solar, particularly in states like Gujarat and Rajasthan, where prosumer frameworks now supply meaningful shares of peak daytime demand. Bangladesh, constrained by land scarcity and high grid costs, has leaned further into its Solar Home System program precisely because regulatory simplicity — not complexity — drives rural and peri-urban adoption.

In the European Union, the Renewable Energy Directive (RED III), adopted in 2023, codified the principle that member states must ensure “simplified administrative procedures” for small-scale renewables, explicitly warning against licensing regimes that create disproportionate burdens relative to system size. The EU’s experience is instructive: every additional administrative step for small prosumers correlates with measurable reduction in adoption rates among lower-income households — the segment that benefits most from energy cost sovereignty.

Pakistan is, uniquely, moving in the opposite direction at the precise moment global evidence points toward the need for regulatory simplification.

The 2015 Model Was Not the Problem

Let us be clear-eyed about what NEPRA’s revised framework actually addresses — and what it does not.

The regulator’s stated rationale centers on grid financial sustainability. The rapid growth of net-metered solar has reduced grid sales, created daytime supply-demand imbalances, and placed financial strain on distribution companies already burdened by 15–20 percent transmission losses, revenue collection failures, and bloated workforces. A decline of 3.2 billion kWh in grid electricity sales during FY2024 translated to a Rs101 billion burden on distribution companies — real costs that cannot be ignored.

But the policy response is misdiagnosed. The 25 kW threshold exemption did not cause DISCOs’ financial distress. DISCOs were financially distressed before rooftop solar was significant. Their structural problems — inefficiency, corruption, excess staffing, poor collection rates — predate the solar revolution by decades. Imposing licensing fees on a 5 kW rooftop system owned by a Karachi family does not fix circular debt. It does, however, signal to that family that the state views their energy self-sufficiency as a regulatory problem rather than a policy success.

More fundamentally, the argument that prosumers must be punished to protect non-solar consumers from cross-subsidization contains a logical flaw: the most effective way to reduce cross-subsidy burdens is to accelerate solar adoption broadly, not narrow it. Every additional household generating its own power reduces peak demand on a grid that the state cannot afford to expand fast enough to meet it.

The Power Division is correct. NEPRA should restore the DISCO-based approval pathway for systems 25 kW and below, eliminate the per-kilowatt processing fee for small consumers, and focus its regulatory energy on the real levers of grid sustainability: loss reduction, collection efficiency, and the renegotiation of expensive capacity payments to independent power producers.

Policy Recommendation: Restore, Refine, Accelerate

A credible path forward requires three steps.

First, NEPRA should immediately implement the Power Division’s request — restoring DISCOs as the approval authority for sub-25 kW systems and eliminating associated fees. This is not deregulation; it is proportionate regulation, calibrated to the actual risk profile of a 10 kW residential system.

Second, the government should invest in digitizing and standardizing DISCO approval processes, reducing approval timelines from the current 30–90 day average to under 15 days, benchmarking against India’s grid-connected rooftop solar portal.

Third, Pakistan should convene a formal stakeholder compact — including NEPRA, the Power Division, PPIB, DISCOs, and the solar industry — to develop a long-term distributed generation policy that addresses grid sustainability through efficiency reform rather than adoption suppression.

Pakistan’s solar revolution was not given to its citizens by the state. It was built by them, in spite of a broken grid, as an act of economic self-preservation. The least the state can do is not dismantle the regulatory framework that made it possible.

Conclusion: A Regulatory Crossroads

History will judge the coming months as a pivotal moment for Pakistan’s energy transition. The country has demonstrated, against considerable odds, that distributed solar can scale in a developing economy without heavy state subsidy — simply by keeping the path to adoption navigable. That is an accomplishment worth preserving.

The Power Division’s pushback on NEPRA’s licensing overreach is not bureaucratic infighting. It is a substantive policy argument about whether Pakistan’s clean energy future will be built on inclusivity or on a regulatory architecture that systematically disadvantages the consumers who need affordable energy the most.

The 2015 model was not perfect. But it worked. And in energy policy, as in most complex systems, working is a better starting point than starting over.

REFERENCES

1. The Express Tribune — Power Division urges NEPRA to scrap fees for solar users below 25 kW
2. pv Magazine International — Pakistan unveils new net metering rules for rooftop PV
3. The Friday Times — Pakistan’s Draft Prosumer Policy 2025: Restricting Solar Growth and Net Metering
4. Profit by Pakistan Today — NEPRA ends free solar setup, imposes Rs1,000/kW fee in major policy shift
5. Pakistan Observer — Govt pushes NEPRA to abolish fee, license for 25 kW solar users
6. TechJuice — Govt ends free solar licences, imposes fees for all solar installations
7. PhotoNews Pakistan — NEPRA Solar Licence: Off-Grid Users Exempt
8. Renewables First (think tank, Islamabad) — cited via pv Magazine for 6.1 GW cumulative net-metering figure