Amir Saeed
Underutilisation of the country’s power generation capacity drives high electricity costs, reports WealthPK.
According to the National Electric Power Regulatory Authority’s State of the Industry Report 2024, the country's installed power generation capacity reached 45,888MW, but only 33.88% was utilised annually. This underutilisation results in consumers paying for 66.12% of unused capacity, contributing to high electricity costs. The report highlights inefficiencies such as transmission bottlenecks and governance lapses, exacerbating financial burdens on consumers.
Despite lower fuel costs, electricity tariffs remain high, prompting calls for urgent reforms to optimise generation and reduce consumer costs. Talking to WealthPK, Shafqat Hussain Memon, an energy researcher at Mehran University of Engineering and Technology (MUET), highlighted that the electricity sector in Pakistan grapples with a complex array of challenges that hamper its efficiency and sustainability.
“Despite an installed electric power generation capacity of 45,888MW, including the Karachi Electric, by the end of FY24, the average annual load served during this period was a mere 33.88%. “This mismatch reveals deep-rooted structural issues within the generation, transmission and distribution systems. The gap between available power and actual demand, combined with an outdated transmission network, results in inflated electricity costs and financial difficulties,” he noted.
“As is well known, the underutilisation of generation capacity and soaring electricity prices stem from several factors: overly ambitious expansion initiatives, poor integrated planning, inaccurate demand forecasts, policy lapses, poor governance and political instability. A significant contributor to this underutilisation is the mismatch between peak demand planning and the actual operational patterns of power plants,” Memon pointed out.
“Power facilities are typically designed to meet peak demand, which occurs only for a brief period each year, leading to substantial periods of underutilisation. Outdated transmission infrastructure and high technical losses further compound these inefficiencies. Furthermore, long-term agreements with Independent Power Producers (IPPs), often centered on rigid capacity payments, inflate operational expenses. These plants, even when inactive for extended periods, still require payment for unused capacity, intensifying the sector's financial strain,” Memon explained.
He mentioned that the same persistent issues are highlighted year after year in Nepra’s annual reports, yet the responsible government organisations consistently fail to take necessary corrective actions. “This calls for a strong will to make sincere, decisive and sustained efforts to implement corrective measures and bold reforms for a sustainable power sector in the country.” Memon further highlighted that the country’s reliance on imported fossil fuels, coupled with seasonal hydro variability, inflates generation costs and strains the grid, contributing to frequent power outages.
“Seasonal fluctuations in demand exacerbate the issue.” “For example, residential electricity consumption peaks during summer due to air conditioning needs, only to drastically drop in winter, leaving significant portions of capacity idle. By the close of 2024, the maximum demand peaked at 30,150MW, while the minimum demand stood at 7,015MW, revealing seasonal discrepancies that contribute to underutilization,” the energy expert noted. He further pointed out that domestic consumption, accounting for approximately half of total electricity usage, is a primary driver of these inefficiencies.
“This scenario deviates from global norms where industrial consumption typically dominates, further burdening consumers with costs and discouraging industrial expansion.” “The emergence of distributed solar energy, while beneficial in many respects, has introduced additional strain on the centralised grid system. As electric supply becomes unreliable, particularly in industrial sectors, many consumers opt for rooftop solar solutions, resulting in grid defection.
This shift saddles distribution companies (Discos) with operational and financial difficulties, exacerbating the circular debt crisis, which has ballooned to Rs2.6 trillion.” Memon lamented that the transmission system, already struggling with technical losses exceeding 17%, is inadequately equipped to manage demand. “With a maximum power evacuation capacity of 25,516MW, the sector's inability to efficiently deliver electricity is evidently clear.”
“The energy landscape is evolving with the rise of electric vehicles (EVs), electric cooking, and decentralised energy systems, altering consumption patterns. These innovations offer potential for demand diversification and decentralisation but pose challenges for grid management.” “Integrating distributed energy resources (DERs) necessitates power grid infrastructure with adequate power distribution network’s hosting capacity, alongside regulatory support, to ensure its integration into the national grid.”
“A solution to sector inefficiencies may lie in a competitive market framework, such as the Competitive Trading Bilateral Contract Market (CTBCM). This system enables participants to engage in bilateral contracts, fostering competition, enhancing flexibility, and providing a mechanism for real-time supply-demand balancing,” he suggested. “CTBCM could address generation-demand mismatches, particularly during peak and off-peak hours, while encouraging investments in efficient technologies and reducing fossil fuel dependence.
Moreover, it can facilitate price discovery, leading to improved resource allocation and potentially lower electricity costs over time.” “Addressing these systemic issues requires a multifaceted approach. Firstly, modernising transmission and distribution (T&D) infrastructure is crucial. Smart grid technologies can minimise technical losses, boost grid resilience, and facilitate better integration of renewable energy sources. This modernisation will optimise capacity utilisation and enhance electricity distribution efficiency, especially during fluctuating demand periods,” Memon noted.
Secondly, Memon emphasised that policy reforms are essential to align industrial energy consumption with available supply. “This might involve offering off-peak tariff reductions and promoting peak shifting to alleviate grid strain. Renegotiating inflexible IPP contracts and phasing out blanket subsidies would ease financial pressures on the sector, enhancing its sustainability.” “Additionally, prioritising the integration of distributed solar energy into the national grid is vital.
Investing in green energy technologies like solar and wind will not only decrease Pakistan's carbon footprint but also enhance its competitiveness in the global clean energy market,” the energy expert stressed. “Tackling the circular debt crisis is critical. Enhancing governance within Discos, improving billing and revenue collection, and ensuring cost recovery from consumers will help mitigate the sector's financial burden.” Memon concluded that Pakistan's power sector faces considerable challenges due to inefficiencies, outdated power network infrastructure, and an unsustainable circular debt crisis.
“Overcoming these obstacles requires a comprehensive strategy, including infrastructure modernisation, policy reforms and increased renewable energy investment.” “The introduction of competitive market frameworks like CTBCM holds significant potential for improving efficiency and aligning supply with demand. By implementing bold reforms and strategic investments, Pakistan can develop a more sustainable, affordable and reliable energy system, supporting economic growth and ensuring energy security for all,” Memon underscored.
Credit: INP-WealthPk