Watt’s Going On? Unpacking Pakistan’s Soaring Electricity Prices

Pakistan has been facing a power crisis for many years, and the country’s electricity prices have been rising steadily. Despite increasing installed capacity and diversifying the generation mix, prices are still on the rise. The power regulator said in a recent press release: The revised national average tariff for the FY2023-24 has been determined as Rs29. 78/kWh, which is Rs. 4.96/kWh higher than the previously determined national average tariff of Rs24. 82/kWh.

Regarding capacity payments, a news article from April 2021 states that honest power consumers are likely to pay an additional Rs1.1 trillion to independent power plants (IPPs) including idle generation companies on account of rising capacity payments. The capacity payments have continued to increase and are expected to touch a high of Rs1.6 trillion in 2023. Another news article from July 2022 states that capacity payments of roughly Rs. 900 billion (which are expected to increase to Rs 1.5 trillion in 2023) can only be met if a substantially wider base load consumption of power is established.

There are several reasons why electricity prices in Pakistan are high. One of the main reasons is the country’s reliance on imported fuel, which is expensive and subject to price fluctuations in the international market. According to a recent news article, fuel costs account for around 70% of the total cost of electricity production in Pakistan. Additionally, Pakistan’s power sector has been plagued by inefficiencies, including transmission and distribution losses, theft, and corruption. Transmission and distribution losses account for around 18% of total electricity generation. The remaining costs include administrative expenses such as salaries and wages for employees.

Another factor contributing to high electricity prices is the government’s inability to recover the full cost of electricity production from consumers. The government has been subsidizing electricity prices for years, which has led to a significant revenue shortfall for power companies.

Another factor contributing to high electricity prices is the government’s inability to recover the full cost of electricity production from consumers. The government has been subsidizing electricity prices for years, which has led to a significant revenue shortfall for power companies.

Read Also: How To Reduce Electricity Bills?

According to a recent news article, Pakistan’s total electricity generation capacity during July-April 2022 increased by 11.5% to reach 41,557 MW from 37,261 MW during the same period last fiscal year.

Out of this capacity, 34% was generated from oil-based sources, 29% from gas-based sources, 26% from hydropower sources, 6% from coal-based sources, and 5% from nuclear sources. The country’s renewable energy capacity was only 5%, with wind and solar energy accounting for most of it.

According to the World Bank, solar and wind power should be urgently expanded to at least 30% of Pakistan’s total electricity generation capacity by 2030, equivalent to around 24,000 Megawatts.

Expanding renewable energy can make electricity cheaper, achieve greater energy security, reduce carbon emissions, and help Pakistan save up to $5 billion over the next 20 years. Pakistan has tremendous potential to generate solar and wind power. Utilizing just 0.071% of the country’s area for solar photovoltaic (solar PV) power generation would meet Pakistan’s current electricity demand. However, despite a number of successful projects, the installed capacity of solar and wind energy in Pakistan is just over 1,500 Megawatts. To achieve such targets, a massive and immediate expansion of solar and wind is required through competitive bidding which would decrease prices. Efforts to reduce power generation from uneconomic thermal plants (in particular heavy fuel oil) and continued investment in hydropower must continue as well. Therefore, it is clear that solar energy can play a significant role in reducing electricity bills in Pakistan. To achieve the target given by World Bank, Pakistan has launched several initiatives such as the Alternative Energy Development Board (AEDB) and the National Energy Efficiency and Conservation Authority (NEECA). These initiatives aim to promote renewable energy projects and improve energy efficiency in the country.

Pakistan’s energy sector has historically suffered from high electricity tariffs and circular debt, which has gradually built up as a result of poor planning over the years. Base load plants should have local fuel such as indigenous coal, hydro, nuclear, and long-term contract RLNG to reduce energy purchase prices and subsequently capacity purchase prices. Additionally, investment in transmission networks is required to remove bottlenecks so that Economic Merit Order (EMO) is not violated. Furthermore, preferential addition of renewable energy in the national grid can help reduce overall average tariff.

With these policy recommendations in mind, it is possible to make Pakistan’s power sector more affordable for end consumers and increase power consumption per capita.