Pakistan's electricity woes continue to deepen as the country contends with surging electricity generation costs, transmission bottlenecks and distribution losses.
Pakistan's electricity woes continue to deepen as the country contends with surging electricity generation costs, transmission bottlenecks and distribution losses.
The numbers paint an alarming picture: the total cost of electricity generation has ballooned from Rs2.866 trillion in FY24 to Rs3.278 trillion in FY25, with the average per-unit cost rising from Rs26.02 to Rs30.88. This has led to a Rs5 per unit hike in the base tariff, igniting public outcry and sparking political backlash, particularly against the Independent Power Producers (IPPs) set up under the China-Pakistan Economic Corridor (CPEC).
At the core of this politico-economic storm lies the steep rise in capacity charges, which have skyrocketed by 368 per cent -- from Rs0.417 trillion in FY18 to a staggering Rs1.952 trillion in FY25. The culprits? Of course, the shortsighted isolated approach to solving Pakistan’s electricity shortage crisis and a combination of currency depreciation and soaring global interest rates, exacerbating an already fragile energy sector. Compounding the crisis are the mounting dues owed to Chinese IPPs, delayed payments, and underutilized imported coal plants, which have seen utilization rates plunge to as low as 10 per cent, rendering them near-stranded assets. Global coal prices, driven higher by the Russia-Ukraine conflict, have only worsened the situation.
In an attempt to curb reliance on costly imported coal, the Ministry of Energy has floated a seemingly attractive solution: convert the idle imported coal plants to run on domestic Thar coal, projecting annual savings of $1 billion. The logic seems clear-cut -- invest $2 billion to convert the plants, save $1 billion annually, and redirect these savings toward debt servicing for Chinese IPPs. This, in turn, would boost the utilization of CPEC power plants, lowering per-unit capacity charges. A win-win, on paper at least.
But this proposal may turn out to be a case of jumping from the frying pan into the fire. History offers a sobering reminder. Take Tennessee Valley Authority (TVA) in the US in the 1930s, for instance. Initially hailed as a model for economic recovery through massive public infrastructure investment, it soon ran into environmental and fiscal woes, as the region became overly dependent on hydropower. What was seen as a silver bullet to the economic depression led to a new set of challenges, including ecological damage and over-reliance on a single energy source.
Likewise, the plan to shift Pakistan's energy generation from imported coal to domestic Thar coal, while alluring, faces severe infrastructural, logistical, and environmental challenges. Transporting Thar coal across the country would require vast new railway infrastructure, and expanding the Thar coal mine itself is currently unfeasible. To complicate matters further, Chinese stakeholders -- while keen to see their debts repaid -- are reluctant to foot the bill for either the conversion or the coal mine expansion.
Beijing's reticence is not just financial. China has broader strategic interests at play, notably the relocation of its manufacturing base to Pakistan's Special Economic Zones (SEZs) to skirt the European Union's Carbon Border Adjustment Mechanism (CBAM).
Then there are the ramifications for Pakistan's own export markets. The World Bank's CBAM exposure index already shows that Pakistan’s grid is 1.6 times more carbon-intensive than the EU’s. Any further reliance on Thar coal could tip the scales, triggering hefty carbon penalties on critical exports, including textiles -- a sector already facing stiff global competition. The supposed economic benefits of converting to domestic coal could quickly evaporate under the weight of these new levies.
Another common misconception is that switching to Thar coal will magically lower power tariffs. However, the numbers tell a different story. Thar coal power plants, due to their high capital costs, impose even greater capacity charges than those running on imported coal. For example, the Sahiwal Coal Power Plant (imported coal) has capacity payments (CPs) of Rs10.34 per KWh, while Thar-based ThalNova's CPs stand at Rs12.23 per KWh. Both are indexed to inflation and currency fluctuations. Thus, far from lowering tariffs, Thar coal could deepen the financial hole Pakistan finds itself in.
Beyond the economics, the environmental and social costs of expanded Thar coal mining loom large. High sulfur content in Thar coal poses significant environmental risks, including water contamination and the displacement of indigenous communities. Any large-scale expansion of mining activities would carry a heavy social toll. Thus, converting to Thar coal may seem politically expedient, but it could turn out to be a pyrrhic victory. As the country faces the dual pressures of economic recovery and climate responsibility, a pivot towards renewables offers a more sustainable path.
A more viable long-term solution for Pakistan's energy woes may lie in the domain of renewable energy. Repurposing CPEC power plants for solar energy generation could pave the way for a cleaner, more sustainable energy future. Upcoming initiatives such as the ‘Coal to Clean Credit Initiative’ (CCCI), which advocates for the early retirement of coal plants, especially newer ones, could be a step in the right direction.
Furthermore, effective immediately, the government should stop adding additional capacity to the grid, and long-term feasibility of capital-intensive plants such as Chasma-V and major mega hydro dams should be assessed. By redirecting resources toward early retirement of inefficient fossil-based plants, developing renewables powered distributed generation, modernizing the transmission grid and distribution side reforms, Pakistan can balance its economic and environmental imperatives. Balancing short-term fixes with long-term goals will require foresight and tough choices -- qualities that Pakistan’s policymakers must now summon in full measure.
Pakistan's innovative public policy solution to its electricity crisis must transcend short-term fixes and embrace a comprehensive, long-term approach focused on renewable energy integration, grid modernization, and regional cooperation.
A key aspect of this policy would involve the adoption of a progressive energy mix strategy that not only pivots away from high-emission coal but also capitalizes on Pakistan’s abundant solar and wind resources. Central to this vision is a robust investment in upgrading transmission infrastructure, enabling the smooth integration of distributed renewable energy sources. Further, the establishment of regional energy trade agreements, particularly with Central Asian countries, could offer access to cheaper hydropower, diversifying energy sources while reducing dependency on carbon-intensive fuels.
Pakistan can also lead innovation by leveraging international climate finance mechanisms, such as the Green Climate Fund, to secure funding for its transition. Additionally, reforming the electricity tariff structure to incentivize energy-efficient industries and demand-side management practices could help lower the burden on consumers.
By focusing on technological upgrades, renewable energy capacity, and smart grid solutions, Pakistan can position itself to overcome its current energy woes while aligning with global decarbonization goals.
