The Great Grid Defection: Capital, Rent, and Cost of Keeping the Lights On

Eskom’s collapse in South Africa offers a grim preview of how infrastructure failure can weaponize inequality. When rolling blackouts plunged the country into darkness, a “dual energy economy” emerged. The wealthy insulated themselves, erecting fortresses of rooftop solar systems and chemical battery backups.

They effectively defected from the grid entirely. Conversely, the working class remained trapped, forced to absorb astronomical tariff hikes to keep a bankrupt utility afloat, while their own micro-businesses suffered in the dark. As the wealthy defect, they leave behind an increasingly penalized public grid reserved exclusively for the poor.

This is not a uniquely African phenomenon; it is a universal macroeconomic reality. When public infrastructure collapses, accumulated private capital ensures immunity, while the working class becomes the ultimate shock absorber.

Systemic poverty cannot be eradicated through artificial handouts; prosperity is built on reliable, productive infrastructure. When that infrastructure fails, the inequality gap widens permanently.

In Pakistan, we are living through a hyper-accelerated version of this collapse. Driven by commitments to curb catastrophic circular debt, the government agreed to new conditions for an urgent $1.2 billion IMF tranche this April.

The state officially committed to notifying a semi-annual gas tariff adjustment in July 2026, alongside an annual power tariff increase locked in for January 2027. Consumers are now legally obligated to pay an escalating premium for a grid that fails to reliably keep the lights on.

The root of this crisis lies in capacity payments. The state is bound by long-term sovereign contracts with Independent Power Producers (IPPs), guaranteeing payment for installed generation capacity regardless of whether the electricity is actually used. Because these payments are indexed to the US dollar, currency depreciation triggers an unsustainable rise in retail tariffs.

A dystopian loop has emerged: as electricity becomes prohibitively expensive, grid demand falls. Yet, because capacity payments remain fixed, the per-unit cost must rise further to maintain the system’s financial balance. Electricity is no longer priced on consumption; it is priced to sustain the idle machinery of contracted capacity.

This system functions as an efficient mechanism for rent extraction, deepening demographic inequality. At the top, an entrenched elite has structured a closed market that socializes financial risk while preserving guaranteed dollarized returns. Directly beneath them, the upper-middle class survives through rapid defection. By investing in solar systems and battery storage, they are increasingly abandoning the grid altogether.

The resulting burden falls on the middle and lower-income groups. Trapped in the formal economy, the middle class becomes an involuntary shock absorber. They are effectively forced to cross-subsidize both the idle capacity payments of the elite and the revenue losses from grid defection. Below them, the working poor are financially squeezed further, facing repeated tariff increases on electricity as well as inflation driven by higher fuel and transport costs.

Operating a commercial enterprise under the assumption that the national grid will provide reliable energy now risks insolvency. The state utility has effectively become a regressive tax mechanism designed to extract value from its captive consumer base. However, with global lithium-ion battery costs falling nearly 90 percent over the past decade, the economics have shifted sharply.

Pairing solar systems with battery storage now significantly undercuts the grid’s levelized cost of electricity. For businesses and households with capital, off-grid solutions are no longer an environmental preference; they are an economic necessity.

Yet this growing defection presents an existential challenge to the state. If the commercial sector and upper-income groups fully transition off-grid, the government will be left managing the consequences of its own structural misallocation. It will inherit a deteriorating, multi-trillion-rupee utility system supported only by the poorest segments of society.

This is not merely an infrastructural failure; it is a mathematical strain that risks pushing the power sector toward systemic breakdown. The warning is clear: either restructure the rent-heavy IPP framework or risk long-term financial instability in the national grid.