Average per kWh electricity generation cost to increase 10 percent in FY2024-25: LUMS report

The average per kWh electricity generation cost in the country will increase from Rs10.87 in FY2018-19 to Rs12 in FY2024-25, showing a 10 percent increase in just six years and a 67 percent increase since FY2015-16 while the annual capacity payments of power sector inflate from Rs568 billion in FY2018-19 to Rs1,466 billion in FY2024-25.

This was revealed in a report on Pakistan's Electricity Outlook 2020-25 prepared by Lahore University of Management Sciences Energy Institute. The study finds that though the energy component (variable cost) of the generation cost will decrease gradually with new lower-cost generation additions and rising demand, the capacity component (fixed cost) will continue to rise significantly and become more than 60 percent of the generation cost by 2025.

Director LUMS Energy Institute Dr Faiaz Ahmed Chaudhry while giving briefing to selected group of journalists said that after taking a critical stock of the current issues and challenges facing the power sector, the Outlook assesses the implications of continuing on a business-as-usual trajectory, and explores the scope and feasibility of an alternative set of options to correct the current course. It concludes by offering a set of practicable recommendations that the government can use to ameliorate the adverse impacts.

A decade of crippling spells of load shedding pushed for quick-build and arguably excessive capacity additions in the recent past, the power sector now faces a new, and no-less serious, challenge a period of expensive capacity surplus. Decision-makers in the country are in a fix on how to alleviate the financial consequences of the past decisions and transform this critical sector into a vibrant contributor to realizing nation's dreams of progress and prosperity.

He also said that independent, objective, and dispassionate analysis of different courses of action and potential choices are considered an indispensable pre-requisite for taking informed policy decisions for any country. Pakistan's Electricity Outlook 2020-25 has been prepared precisely to serve this long-standing need. It's a pioneering effort in the country and will be the Institute's flagship publication in the future.

Through a realistic production modeling of the country's power system, the Outlook studies the technical, financial, and security implications of a baseline scenario along with a few other plausible alternative choices, and explores the extent of their sensitivity to study's key assumptions. The results are then used to make a set of recommendations that will be extremely useful for public and private decision-makers in taking informed decisions on various activities in the electricity supply and delivery business in the country.

He further said that the Outlook estimates that capacity surplus will exceed 15 percent annual average against the projected demand in the country as a result of over-commitment of generation projects - translating into more than 4,000 MW annual average.

Although, the above generation capacity in the system has been already committed, the government can still act to ameliorate its adverse consequences considerably by stimulating energy demand by offering tariff incentives to electricity consumers, particularly to those in the productive sectors of the economy. This will lower the average generation costs, thus providing a much-needed relief to electricity consumers in the country. He discussed existing problems faced by the energy and power sector in Pakistan and their solutions.

Speaking at the event Dr Fiaz Ahmad Chaudhry, Director LUMS Energy Institute, highlighted the past, present and forecasted electricity supply and demand scenarios in Pakistan. He pointed how the country's energy sector oscillated between oversupply and undersupply phases throughout the history and also highlighted the years when the issues pertaining to the circular debt of the power sector emerged.

He was of the view that during the last four years we saw that government take many ad hoc decisions to bridge the generation shortfall. Ten GW of capacity was added and another 17 GW is under development. The Outlook intends to identify the potential financial implications of past decisions. Using a production simulation model, it analyzes the sector's health from 2019-20 to 2024-25.