Assessing the Financial Impacts of Solarization on a Distribution Company in Pakistan: A Case Study

Abstract

This Research examined the financial effects of solarization and increased net metering on one of the Pakistani electricity distribution companies (DISCO), IESCO, and its consumers. The regression analysis was conducted using the financial data of IESCO, which was obtained from its audited annual statements. The data on net metering was taken from the National Electric Power Regulatory Authority (NEPRA) State of Industry Reports. In the cases where NEPRA ratified data was not available, the supplementary data from the Power Information Technology Company (PITC) was utilized. To assess utility-level financial stress, the study employed the Cost Recovery Ratio (CRR) as the primary indicator of financial performance, representing the ability of DISCO’s revenues to cover fixed system costs such as capacity charges and network operating expenses. Solar Offset (%), defined as the total displacement of grid demand due to exported plus the self-consumed solar generation, was used as the key independent variable. Regression analysis was applied to examine the association between Solar Offset (%) and CRR, with results interpreted as indicative rather than causal due to the regulated nature of the tariff in Pakistan. In addition, an accounting-based scenario simulation was conducted to assess how increasing solar penetration may affect both fixed-cost recovery and average tariffs for consumers of Last resort under a volumetric tariff structure. The regression results indicate a negative association between Solar Offset (%) and the Cost Recovery Ratio, suggesting that rising solar penetration weakens the ability of volumetric revenues to absorb growing fixed system costs. The simulation results further demonstrate that increasing solar adoption places gradual but persistent pressure on utility cost recovery while shifting a greater tariff burden onto remaining grid consumers. The research concludes with policy and regulatory recommendations to improve the financial sustainability of distribution utilities under rising levels of distributed solar generation.