Power sector faces underutilisation challenges: report

KARACHI: The core issue of Pakistan’s power sector -- underutilisation of generation capacity -- remains unresolved despite renegotiations of independent power producers’ (IPPs) power purchase agreements (PPAs) and a shift from a ‘take-or-pay’ to a ‘hybrid take-and-pay’ model, according to a recent study.

“There is an urgent need for comprehensive reforms to enhance efficiency, optimise capacity utilisation, and ensure a reliable, affordable power supply to support sustainable economic growth while aligning with the International Monetary Fund (IMF) requirements,” stated the Pakistan Credit Rating Agency (Pacra) in its latest report on the power sector.

Per the report, Pakistan’s power sector is a crucial driver of economic growth and industrialisation. However, it continues to grapple with structural inefficiencies, mounting circular debt, high tariffs, and macroeconomic instability, particularly in generation, transmission, and distribution.

Despite an installed capacity of 45,888MW in FY24, low utilisation rates (33.9 per cent) and operational constraints in transmission and distribution have resulted in rising capacity payments and increasing consumer-end tariffs.

“The inefficiency of government-owned power plants is another key issue, with fuel costs reaching Rs33.6/kWh. The government is promoting alternative renewable energy, particularly solar power, to harness its vast potential. A key focus is on solarising agricultural tube wells to reduce the burden on distribution companies (Discos), where recovery rates remain low,” the report noted.

It also highlighted governance issues among power suppliers, regulatory non-compliance and excessive supplementary charges, which continue to burden consumers and accelerate the shift towards distributed generation, particularly rooftop solar. Pakistan’s energy mix remains heavily reliant on imported fossil fuels such as coal and re-gasified liquefied natural gas (RLNG). However, the country is targeting a transition towards indigenous and renewable energy sources, including hydropower, Thar coal, wind and solar, to generate low-cost, environmentally friendly electricity.

The report projected that furnace oil will be phased out by 2031, while electricity generation from RLNG and imported coal will decline to 2.0 per cent and 8.0 per cent, respectively. At the same time, electricity generated from hydropower, wind and solar is expected to increase significantly. Their contributions, currently at 28 per cent, 4.0 per cent, and 1.0 per cent, respectively, are projected to rise to 39 per cent, 10 per cent, and 10 per cent, bringing the total share of renewable electricity to 59 per cent by 2031.

Pakistan’s overall power consumption declined by 2.9 per cent year-on-year in FY24, reaching 86.2 per cent of total power generated, which the report attributed to transmission and distribution losses.

During FY24, the average cost of power generation from thermal sources accounted for 50 per cent of the consumer-end tariff, excluding taxes. Renewable energy, followed by hydropower, remains the cheapest source of electricity.