Power: Stagnant generation

Power generation in July 2024 at 14.4 billion units stayed virtually unchanged from the same period last year. To put it into perspective, electricity generation back in July 2020 when Covid restrictions were still in place in some form or the other, was also 14.4 billion units. Recall that Pakistan reported the lowest power generation in four years for FY23. On a 12-month rolling basis, monthly generation at 10.2 billion units is the lowest since July 2021. The system’s nameplate and dependable generation capacity in the meanwhile, has grown substantially.

What changed from the recent past in July 2024, was the monthly fuel charged adjustment trajectory. The Central Power Purchasing Agency has sought a negative 31 paisa adjustment in FCA – which is the first such instance since December 2022. Recall that the last fiscal year saw an average of Rs2.42/unit in monthly adjustments – despite resilient currency and no significant deviation in raw material fuel prices versus the reference costs.

Both the currency and international commodity prices have pretty much stayed the same for July as well. What has changed? It is the reference tariff that is now much closer to the ground reality. As highlighted in this space multiple times since the annual rebasing exercise was carried out in July – FY24 adjustments, all things constant, promise to be negligible. That is largely because the Power Purchase Price (PPP) assumptions for base tariff are based on a generation mix that is not pulled out of thin air unlike last year and is instead based on ground realities.

That said, there were still deviations from the reference generation mix, as imported coal-based power generation surpassed 1.1 billion tons – the highest in over a year. Lower than envisaged contribution from hydel sources (stemming from the closure of Neelum Jhelum), meant thermal source has to be relied upon. Power evacuation constraints often mean relying on more expensive fuel sources, as can be seen from lower than the optimal contribution from Thar-based coal generation.

Imported LNG-based generation had the largest share among thermal plants, even higher than imported and local coal, combined. It is also the most expensive fuel source outside of RFO, but contractual obligations as regards off-take of LNG mean the government has no option but to run the plants over cheaper alternatives. Even the most efficient LNG plant has a generation fuel cost higher than all other ex-FO thermal options.

FY25, in all likelihood, should see more of the same in terms of monthly and periodic adjustments. Meanwhile, the government would do well to make efforts to rationalize the lopsided net metering mechanism and also find ways to incentivize higher use cases of electricity.