Despite changes, Pakistan’s electricity industry faces poor capacity utilization: Source

According to The News, Pakistan’s electricity industry continues to confront considerable issues, with underutilization of production capacity continuing a major concern despite recent renegotiations of independent power producers’ (IPPs) power purchase agreements and the transition to a hybrid take-and-pay model.

According to a study published by the Pakistan Credit Rating Agency (Pacra), urgent reforms are required to increase efficiency, optimize capacity utilization, and provide cheap power in accordance with International Monetary Fund (IMF) regulations.

According to the study, Pakistan’s installed power generation capacity totaled 45,888 megawatts (MW) in FY24. However, only 33.9% of this capacity was used due to inefficiencies in generation, transmission, and distribution. These structural flaws have resulted in increased capacity payments and higher consumer tariffs, aggravating the sector’s financial burden.

The inefficiency of government-owned power facilities remains a serious problem, with fuel prices reaching Rs33.6 per kilowatt-hour. To address this, the government is working on growing renewable energy sources, notably solar electricity, with a particular emphasis on solarizing agricultural tube wells to relieve strain on distribution corporations (Discos), where recovery rates remain low.

The paper focuses on regulatory noncompliance, governance concerns among power suppliers, and exorbitant costs, all of which are driving consumers toward distributed generation, particularly rooftop solar systems. Pakistan’s energy mix remains significantly dependent on imported fossil fuels, such as re-gasified liquefied natural gas (RLNG) and coal. However, the country intends to switch to indigenous and renewable energy sources like as hydropower, Thar coal, wind, and solar in order to reduce prices and encourage ecologically benign electricity generation.

The report predicts a gradual phase-out of furnace oil by 2031, while the percentage of RLNG and imported coal in power generation is likely to fall to 2% and 8%, respectively. Meanwhile, the contribution of hydropower, wind, and solar energy is expected to increase dramatically, reaching 39%, 10%, and 10%, respectively, by 2031, accounting for 59% of total power output.

The country’s overall power consumption fell by 2.9% in FY24, with total utilisation at 86.2% of power generated. According to the research, this decline is due to chronic transmission and distribution losses.

During FY24, thermal power generation accounted for 50% of consumer-end rates, excluding taxes, making it one of the most costly electricity sources. Renewable energy, followed by hydropower, is the most affordable alternative for electricity generation in Pakistan.