In 1812, Frederick Winsor, a madcap entrepreneur, invented the public utility. The idea behind his Gas Light and Coke company, which would supply residents of London, was that instead of each household buying its own energy—bags of coal, bits of firewood—the stuff would be piped directly to them from a central location. More customers, with differing patterns of demand, would allow power plants to be used more efficiently. It was a natural monopoly: scale would spread the cost of the gasworks, the pipes and so on across large numbers of customers, each spending less than they would individually to consume just as much. The idea of “energy as a service” spread across the world.
But cheap solar power is now breaking the model. Last year Pakistan became the world’s third-biggest importer of Chinese solar panels. Many were destined for the roofs of commercial and industrial outfits or farms, to replace diesel generators. Pakistan has sky-high energy prices, a legacy of expensive contracts to pay for capacity from often Chinese-built coal plants. The adoption of cheaper, cleaner solar power is a welcome development. At the same time, however, it leads to a vicious cycle. The costs of running the grid and paying for coal power fall on fewer people, who then have more reason to opt out, undermining the economics of the whole enterprise.
South Africa has seen a similar development. “Load shedding” by Eskom, a state-owned energy firm, cuts off users when there is insufficient electricity to meet demand. This has led to a solar boom, causing financial problems for municipal governments, which have to buy increasingly expensive power from Eskom to sell on to consumers. By November they had unpaid bills of 95bn rand ($5bn, or 1.2% of GDP) with the firm. In Lebanon, where the state energy company limited electricity generation to a couple of hours a day in 2019, the amount of installed solar power rose from 100 to 1,300 megawatts from 2020 to 2023. Rooftops in Beirut’s richer neighbourhoods are covered by dark panels.
Even in America, high energy prices and blackouts after natural disasters have persuaded people to go off-grid. Seyyed Ali Sadat and Joshua Pearce, both of Western University, have found that in parts of five states a mixture of solar panels, batteries and diesel generators is a cost-effective alternative to relying on the grid. And prices of such systems are falling by around 9% a year, they estimate, owing to cheaper batteries and solar panels.
For optimists these trends present a vision straight from the green movement of the 1970s. Back then, Amory Lovins, an energy analyst, coined the term “soft energy path” to describe a future in which power would be renewable, decentralised and small-scale. “An affluent industrial economy could advantageously operate with no central power stations at all,” he wrote. Libertarians cheer the shift, too. Technological change is making electricity markets more “contestable”, says Lynne Kiesling of the American Enterprise Institute, a think-tank. The possibility of disconnecting, even if unused, means that natural monopolies face the threat of defection.
Daylight robbery
Yet there are drawbacks to the change. One concerns efficiency. Over its lifetime, a solar farm’s per unit cost of energy comes to around a quarter of that from rooftop solar, estimates Lazard, a bank. There are economies of scale in installation and maintenance. On top of this, lots of self-generated power will ultimately be wasted.
Moreover, the upfront cost of quitting the grid typically makes it a viable option only for the rich. Since wealthier Pakistanis can pay for their own solar systems, poorer ones are forced to bear more of the costs of the grid or do without electricity altogether. In Lebanon the lack of regulation has made the country “a dumpster of low-quality solar systems and batteries”, says Jessica Obeid of the Middle East Institute, a think-tank. The small firms that crop up to install them go bankrupt and cannot provide maintenance.
Policymakers are now attempting to come up with solutions. “You can make solar play nice with the grids,” says Jenny Chase of BloombergNEF, a research firm. Pakistan’s problems emerge from its legacy of high-cost coal power and the way in which customers are charged: fixed costs arising from transmission and distribution are paid back through hourly prices, which do not flex much according to demand. For the moment, few people have energy-storage systems, which means that they use the grid as backup rather than disconnecting altogether. As a consequence, those who are able to afford a solar system can free ride, enjoying their own electricity when the sun shines and making use of the grid for artificially cheap power when it sets. Residential consumers also enjoy “net metering”, gaining credit for supplying electricity during daytime when it is less valuable. Eliminating such incentives would help spread the cost of maintaining the grid in a fairer manner.
Yet the best solution would be for energy firms to respond to the competition and sort themselves out. In Pakistan they often fail to make consumers pay their bills. In South Africa, as Eskom has at last managed to curtail blackouts, the solar boom has slowed down. Although decentralised energy production may be destabilising, it does mean that providers have an incentive to improve. Rooftop solar offers an alternative to a monopoly that can no longer be considered natural.
© 2025, The Economist Newspaper Limited. All rights reserved. From The Economist, published under licence. The original content can be found on www.economist.com
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