Pakistan’s ‘battery revolution’ needs market reform, not another subsidy

Pakistan’s electricity sector is witnessing a quiet revolution. Between January 2024 and June 2026, the country imported more than 6 GWh of lithium-ion batteries, with monthly imports rising to 652 MWh in April 2026, according to the latest commentary by the Policy Research Institute of Market Economy (PRIME). The data confirms what many consumers already know: battery storage is rapidly becoming an integral component of Pakistan’s emerging distributed energy system.

Against this backdrop, the proposal reportedly advanced by the Adviser to the Power Division, Syed Faizan Ali, to introduce Time-of-Use (ToU) net billing with an additional compensation of Rs18–22 per kWh for electricity discharged between 5 pm and 10 pm deserves serious attention. It represents one of the first attempts by policymakers to recognise battery storage as an active participant in the electricity market rather than merely a backup power source.

PRIME has welcomed this initiative in its recent Prime Comment #44, “Turning Pakistan’s Battery Boom into a Grid Asset”, arguing that battery storage can transform millions of privately owned batteries into valuable grid resources capable of reducing evening peak demand and improving overall system efficiency.

The think tank also reminds readers that in its April 2026 Prime Plus edition, PRIME  had advocated accelerated investment in Battery Energy Storage Systems (BESS) as part of Pakistan’s response to regional geopolitical tensions and growing concerns over energy security.

The proposal is intellectually attractive. It recognises a simple economic truth: electricity stored during periods of abundant solar generation becomes considerably more valuable when discharged during the evening peak. Properly designed price signals can therefore encourage consumers to invest in storage while simultaneously reducing pressure on the national grid.

The underlying economics are difficult to dispute. The policy conclusions, however, deserve far closer scrutiny. Pakistan’s electricity crisis has never been merely a shortage of technology. It has always been a crisis of institutions.

For decades, governments have attempted to resolve structural failures through new incentives while leaving untouched the governance failures that created those problems in the first place. Capacity payments, guaranteed returns, fuel subsidies, cross-subsidies, circular debt financing and administratively determined tariffs all originated as seemingly sensible policy responses. Over time, they evolved into a complex web of distortions that now define Pakistan’s power sector.

The battery revolution should not become the latest chapter in this history. The most immediate question concerns the proposed compensation itself. Every additional rupee paid for exported battery electricity ultimately has a source. If the payment is financed through higher consumer tariffs, ordinary electricity users subsidise battery owners. If financed through public resources, taxpayers assume another fiscal obligation.

Unless the proposed payment reflects demonstrable savings through lower capacity utilisation, reduced reliance on expensive peaking generation, avoided transmission investments and lower fuel imports, it risks becoming another subsidy disguised as reform.

The second issue concerns Pakistan’s peculiar electricity economics. The country simultaneously suffers from surplus installed generation capacity and shortages during particular hours of the day.

Consumers continue paying enormous capacity charges even when power plants remain idle. Before introducing payments for battery discharge, policymakers should demonstrate whether distributed storage actually reduces these fixed obligations or merely shifts electricity from one time period to another while capacity payments continue unchanged.

This distinction is fundamental. If batteries merely redistribute electricity without lowering total system costs, consumersmay simply end up paying twice: once for idle generating plants and again for battery incentives.

PRIME’s analysis correctly highlights the dramatic increase in battery imports. Nevertheless, imports alone cannot determine public policy. Customs statistics reveal the volume of batteries entering Pakistan but not how they are ultimately deployed.

Many imported batteries are likely destined for residential solar systems, telecommunications infrastructure, commercial backup systems, electric vehicles and industrial facilities rather than grid-support applications.

Policy requires greater precision. Residential battery storage serving a single household differs fundamentally from utility-scale storage capable of providing ancillary grid services. The regulatory treatment, compensation mechanisms and operational obligations cannot be identical. Perhaps the most important omission concerns the electricity market itself.

Time-of-Use pricing presupposes the existence of a reasonably competitive electricity market where prices reflect actual system conditions. Pakistan, however, continues to operate largely through administratively determined tariffs, long-term power purchase agreements and regulatory pricing decisions.

Introducing another administratively determined premium without competitive price discovery risks creating fresh opportunities for regulatory arbitrage instead of improving market efficiency. The proposal also raises important questions of distributive justice.

Battery storage remains concentrated among relatively affluent households and commercial consumers who have already invested in rooftop solar systems. Additional payments for exported electricity may transfer resources from ordinary grid-dependent consumers to wealthier “prosumers” capable of producing electricity themselves.

A sound public policy must ask not only whether incentives improve efficiency but also who ultimately pays for them. Fiscal sustainability presents another challenge.

Pakistan’s public finances remain under extraordinary pressure. Circular debt continues to impose significant costs upon the national exchequer while electricity subsidies consume scarce fiscal space. Every new incentive introduced into the power sector should be accompanied by transparent estimates of its medium-term fiscal consequences. Without such analysis, even economically desirable policies may produce unsustainable budgetary commitments. The environmental dimension deserves equal attention.

Large-scale deployment of lithium-ion batteries inevitably raises questions concerning recycling, disposal, fire safety and hazardous waste management. Pakistan presently lacks a comprehensive legal and regulatory framework governing battery end-of-life management. Encouraging rapid battery adoption without simultaneously addressing environmental responsibilities merely postpones another policy problem for the future.

Cybersecurity also enters the equation. As distributed storage becomes increasingly integrated with smart meters, digital communication systems and automated dispatch mechanisms, cybersecurity standards become an essential component of electricity regulation rather than an afterthought. The broader lesson extends beyond batteries.

Pakistan’s remarkable solar revolution demonstrates that citizens and businesses are increasingly solving their own energy problems because the formal electricity system has become prohibitively expensive and unreliable. International observers have correctly described this transformation as one of the world’s most significant examples of consumer-led energy transition rather than state-led planning.

Public policy should seek to complement—not constrain—this transition. However, complementing it requires institutional reform before financial incentives.

Instead of focusing exclusively on battery compensation, policymakers should simultaneously pursue wholesale electricity market reforms, transparent transmission pricing, competitive procurement of ancillary services, financially sustainable distribution companies, rationalisation of cross-subsidies and genuine regulatory independence. Only then can battery storage compete on equal terms with alternative technologies providing flexibility to the electricity system.

PRIME deserves credit for initiating this important conversation. Its emphasis on integrating distributed battery storage into national energy planning reflects the realities of Pakistan’s rapidly changing electricity landscape. The proposal identifies a genuine opportunity that policymakers should not ignore. Nevertheless, technological progress cannot substitute for institutional reform.

Pakistan’s battery boom should become an instrument for building competitive electricity markets rather than another justification for administratively determined incentives.

The challenge is not simply how to reward batteries for discharging electricity between five and ten in the evening. The real challenge is constructing an electricity market in which every source of flexibility—battery storage, demand response, pumped hydro, flexible generation and smart consumption—competes under transparent rules reflecting genuine economic costs. Only then will battery storage become not another subsidy layered upon an unreformed electricity sector but an integral component of a modern, efficient and financially sustainable energy system.

Pakistan’s battery revolution has arrived. The question is whether policymakers will use it to reform the market—or merely add another layer to its existing distortions.

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Dr. Ikramul Haq, Advocate Supreme Court, Adjunct Faculty at Lahore University of Management Sciences (LUMS), member Advisory Board and Visiting Senior Fellow of Pakistan Institute of Development Economics (PIDE), holds an LLD in tax laws. He was full-time journalist from 1979 to 1984 with Viewpoint and Dawn. He also served Civil Services of Pakistan from 1984 to 1996.