By Shahid Anwar
Pakistan’s power sector is no longer defined by a simple generation deficit. Instead, the critical challenge is maximizing the economic return on existing capacity. A substantial portion of the country’s generation assets remains underutilized, leaving consumers to bear elevated tariffs while the nation continues to debate further capacity investments. Pakistan requires a clear-eyed assessment of its true capacity requirements, operational bottlenecks, and the structural impediments preventing full utilization of its grid.
Paying for Unused Capacity
Federal Ministry of Energy records reveal that the government paid Rs. 2.935 trillion to Independent Power Producers (IPPs) between July 2025 and May 2026 (FY202526). These disbursements followed rates approved by the National Electric Power Regulatory Authority (NEPRA) or established contract agreements.
Beyond the absolute outlay, the broader issue is the systemic misalignment among generation assets, contractual terms, transmission infrastructure, and actual demand.
+-------------------------------------------------------------------------------+
| FY2024-25 Power Sector Metrics |
+------------------------------------+------------------------------------------+
| Thermal Utilization Rate | 42.5% of reference capacity |
| Renewable Utilization Rate | 36.6% average |
| Total Power Purchase Cost | Rs. 2,943.214 billion (excl. Iranian power) |
| Capacity Purchase Price (CPP) Share| 61% (Avg: Rs. 14.3 per kWh) |
| Energy Purchase Price (EPP) Share | 39% (Avg: Rs. 9.0 per kWh) |
+------------------------------------+------------------------------------------+
NEPRA attributed high capacity costs directly to surplus installed capacity paired with low plant utilization.
Capacity payments fund the fixed costs inherent to contractual arrangements made to attract past investments. These legal obligations must be honored. However, when fixed costs are distributed over lower generation volumes, the per-unit tariff increases, undermining commercial and industrial competitiveness.
Underutilization stems from multiple factors:
-
Contracted end-user demand
-
Aggested loss-based (AT&C) load shedding
-
Transmission network grid constraints and evacuation bottlenecks
-
Resource availability fluctuations affecting renewables
Addressing these challenges requires a unified approach across generation, transmission, distribution, demand management, and contractual frameworks. Expanding generation capacity yields minimal economic value if the transmission grid cannot transport electricity to demand centers.
Transitioning from Frameworks to Optimization
Pakistan possesses the institutional architecture needed to govern its energy sector:
-
NEPRA regulates tariffs, compliance, and plant performance.
-
Ministry of Energy provides policy oversight.
-
Independent System and Market Operator (ISMO) manages system operations and market dispatch.
-
Integrated System Plan (202535) and the revised Indicative Generation Capacity Expansion Plan (IGCEP) provide formal planning frameworks.
The current challenge is not an absence of planning frameworks, but the need for a dedicated optimization initiative.
Establishing a Power Capacity Optimization Task Force
Pakistan should establish a time-bound Power Capacity Optimization Task Force within its existing institutional framework. Rather than adding administrative oversight, the task force would leverage data from NEPRA, ISMO, and the Ministry of Energy to maximize the economic value of active assets.
Strategic Objectives of the Task Force
-
Asset-by-Asset Audit: Review actual vs. baseline capacity utilization, identifying plant-specific dispatch limitations.
-
Grid Bottleneck Resolution: Map transmission and distribution constraints that restrict power evacuation.
-
Contractual & Commercial Alignment: Identify viable adjustments to enhance system economics without violating valid investor rights.
-
Demand-Driven Capacity Modeling: Re-evaluate future capacity additions against actual grid limits and demand projections.
This initiative builds on recent structural adjustments. The Ministry of Energy cancelled 9,500 MW of unneeded power projects in 2025, while IPP renegotiations eliminated an estimated cumulative financial burden of Rs. 3.4 trillion, yielding consumer tariff relief.
OPTIMIZATION WORKFLOW
+-------------------+ +--------------------+ +--------------------+
| Asset-by-Asset | --> | Transmission Grid | --> | Public & Private |
| Generation Audit | | Constraint Mapping | | Contract Review |
+-------------------+ +--------------------+ +--------------------+
|
v
+-------------------+ +--------------------+ +--------------------+
| Dynamic Capacity | <-- | Industrial Demand | <-- | Plant Retirement / |
| Planning Model | | Incentive Program | | Restructuring |
+-------------------+ +--------------------+ +--------------------+
Public generation assets must face the same economic standards as private ones. Economically viable, reliable plants should remain operational; persistently underutilized facilities should undergo restructuring, fuel conversion, or orderly retirement.
Criteria for Future Capacity Additions
New capacity commitments should satisfy four core criteria:
-
Demonstrated Need: Clear, near-term load growth justification.
-
Grid Readiness: Verified transmission and evacuation infrastructure.
-
Least-Cost Standard: Selection based on lowest levelized cost of energy.
-
Utilization Mandate: Prioritizing full utilization of existing base and peak assets before adding new capacity, aligning with commitments under Pakistan’s IMF Extended Fund Facility.
Future investments must track verified demand expansion rather than building surplus capacity ahead of need.
Stimulating Productive Demand and Market Reform
High tariffs and unreliability prompt industrial and commercial consumers to reduce grid dependency. This shrinks the billing base, raising per-unit fixed costs for remaining grid connected users.
Reversing this cycle requires competitive power pricing and grid reliability to drive productive consumption across industry and agriculture.
The gradual rollout of the Competitive Trading and Bilateral Contract Market (CTBCM) offers a pathway forward. By allowing bulk power consumers to purchase power directly from generators, transparent market competitionbacked by adequate grid infrastructurecan improve procurement efficiency and lower overall costs.
Actionable Roadmap
The Task Force should deliver a public Power Capacity Optimization Plan containing:
-
Comprehensive plant-level utilization data
-
Mapped transmission constraints and required infrastructure investments
-
A clear timeline for correcting systemic supply-demand imbalances
-
Transparent metrics for evaluated capacity additions
Pakistans energy priority must shift from expanding generation capacity to maximizing the utility and cost-efficiency of its current power assets.
Shahid Anwar is an Economic Analyst, Business & Trade Advisor, and former Secretary General of the Federation of Pakistan Chambers of Commerce & Industry (FPCCI). He also served as Senior Director Research at the Institute of Cost and Management Accountants of Pakistan (ICMAP). Contact: shahid.anwar.writer.26@gmail.com
Disclaimer: This content is published strictly for educational, informational, and discussion purposes. While reasonable efforts are made to ensure the accuracy of the commentary, readers are encouraged to independently verify any economic data, historical references, or legal principles discussed. The image is AI-generated and is used for illustrative purposes only.
