Power generation in May 2024 was the first monthly recording of a year-on-year increase in eight months – as the grid generation at 12.2 billion units went up 2.2 percent from a year ago. Only an optimist of the highest order would read this as any sort of reversal in fortunes. Context helps here. For one, May 2024 was both, the driest and warmest month in at least 60 years of recorded history, as per the Pakistan Meteorological Department. From last year, the mean temperatures are up 8 percent, and maximum daytime temperatures are up 12 percent. In that light, a 2 percent year-on-year increase does not instill much confidence.
Especially when it is coming off of a significantly low base. Recall that power generation in May 2023 had fallen to a 5-year low – and 16 percent year-on-year to 11.9 billion units. May 2024 generation is still a massive 2 billion units shy of May 2022 –and barely 4 percent clear of May 2020 – a period when the nationwide lockdown was in place during peak COVID-related restrictions. The 12-month moving average generation is down to 10.27 billion units – at levels last seen more than three years ago.
The fuel cost of generation at Rs112 billion stayed 42 percent clear of the reference cost for the month, necessitating another FCA adjustment of Rs3.41/unit. It has now been 15 consecutive months of positive fuel charges adjustment, despite very little deviation in actual fuel price and currency assumptions, and actual generation. The core reason why monthly adjustments have been persistent is the deviation from faulty assumptions used for reference generation for FY24 – where coal and LNG-based generation were referenced with no regard for ground realities.
Outside of fuel adjustments, generation from renewable sources such as wind and solar has been on the expensive side as well. Solar power during 11MFY24 has cost an average of Rs38.7/unit as the actual generation is less than half of what was envisaged in base tariff assumptions. Similarly, wind power has cost Rs47/unit to make way for a colossal capacity component of Rs175 billion.
The biggest drag has been imported coal-based power generation – costing a massive Rs96/unit, largely because the actual generation remained a fourth of the referenced generation at 16.5 billion units. The lofty fuel cost for most imported coal-based power plants results in them being low on merit order of dispatch, but the capacity payments are made regardless.
It is heartening to see the FY25 reference tariffs are based on much improved assumptions, closer to ground reality. For instance, RLNG-based generation for FY25 has been referenced at 22 billion units versus 6.6 billion units for FY24. Similarly, imported coal-based generation at 6.5 billion units is much more in line with ground reality than the 16.5 billion units referenced for FY24. All else constant, a much-improved generation fuel mix assumption will lessen the frequency and magnitude of positive monthly adjustments in FY25.