Pakistan’s power sector continues to face significant challenges, with underutilisation of generation capacity remaining a core issue despite recent renegotiations of independent power producers’ (IPPs) power purchase agreements and the shift to a hybrid take-and-pay model, The News reported.
A report by the Pakistan Credit Rating Agency (Pacra) underscores the need for urgent reforms to improve efficiency, optimise capacity use, and ensure affordable electricity, in line with International Monetary Fund (IMF) requirements.
According to the report, Pakistan’s installed power generation capacity reached 45,888 megawatts (MW) in FY24. However, only 33.9 per cent of this capacity was utilised due to inefficiencies in generation, transmission, and distribution. These structural shortcomings have led to increasing capacity payments and higher consumer tariffs, exacerbating the financial burden on the sector.
The inefficiency of government-owned power plants remains a major concern, with fuel costs soaring to Rs33.6 per kilowatt-hour (kWh). To counter this, the government is focusing on expanding renewable energy sources, particularly solar power, with a priority on solarising agricultural tube wells to ease pressure on distribution companies (Discos), where recovery rates remain low.
The report highlights regulatory non-compliance, governance issues among power suppliers, and excessive supplementary charges, which are pushing consumers towards distributed generation, particularly rooftop solar installations. Pakistan’s energy mix is still heavily dependent on imported fossil fuels, including re-gasified liquefied natural gas (RLNG) and coal. However, the country aims to transition towards indigenous and renewable energy sources such as hydropower, Thar coal, wind, and solar to lower costs and promote environmentally friendly electricity production.
The study forecasts a gradual phasing out of furnace oil by 2031, while the share of RLNG and imported coal in electricity generation is expected to decline to 2 per cent and 8 per cent, respectively. Meanwhile, the contribution of hydropower, wind, and solar energy is projected to rise significantly, reaching 39 per cent, 10 per cent, and 10 per cent, respectively, by 2031, collectively accounting for 59 per cent of the total power generation.
The country’s overall power consumption declined by 2.9 per cent in FY24, with total utilisation standing at 86.2 per cent of power generated. The report attributes this drop to persistent transmission and distribution losses.
During FY24, power generation from thermal sources accounted for 50 per cent of consumer-end tariffs, excluding taxes, making it one of the most expensive electricity sources. Renewable energy, followed by hydropower, remains the cheapest option for power generation in Pakistan.
