In the midst of all the IPP “negotiations” and attempts to “reform” the power sector – the biggest problem in the equation, that is the system demand from the grid, keeps getting trickier. No amount of cost-side measures will put an end to what has now become a significant affordability issue unless ways are found to bring back demand. There is more than one way to do that, but the results may take a long time to come.

Here are the latest numbers on power generation. September generation on the grid went down 6 percent year-on-year to 12.1 billion units. It was down 17 percent year-on-year in August. The cumulative 1QFY25 power generation is down 8 percent year-on-year to 39 billion units – the lowest in five years. This is 12 percent lower than the reference power generation for the same period which stands at 44 billion units. September’s generation is the lowest for the month since September 2018. The 12-month moving average monthly generation fell below 10 billion units for the first time in 44 months. August of 2018 had a higher 12-month moving average than September 2024. This is the extent to which the grid demand has fallen – and will take some doing to rebound.

The reference power generation for 1QFY25 is slated at 44 billion units in the Power Purchase Price (PPP) used for the reference base tariff. The actual generation of 39 billion net units should cause headaches and could possibly take the sheen off the groundwork done on account of IPP negotiations. The monthly Fuel Charges Adjustment (FCA) came down on the negative side for the third straight month, largely due to a more realistic set of assumptions used for the generation mix. One must not forget that the reference fuel prices for FY25 are significantly higher than last year. While the monthly adjustments may be under control, the periodic adjustments could well shoot up, as the capacity charge component will likely go up in unit terms, as the demand goes down.

It is hard to fathom that Pakistan’s domestic, commercial, and industrial electricity demand remains stuck to six years ago – even after accounting for purchasing power erosion and a monumental rise in tariffs. There are more people around, the use case is anecdotally higher, industries are still running (if not growing), and captive generation is significantly lower than five years ago. So, what gives?

Look no further than the rather absurd rooftop solar net metering policy that incentivizes power generation, which the grid buys at very lucrative rates. There have been suggestions to alter the policy to gross metering, but nothing has surfaced on that front as yet. The affluent class is having the cake and eating it too, while those stuck in the middle consumption slabs, have nowhere to go. Every unit that is not generated on the grid costs more to those who cannot move to solar. The policy needs a rethink soon. Without addressing the demand concerns, all efforts to improve transmission, reengineer IPP contracts, privatize discos, and end the single-buyer model – will only deliver half-backed results.