Pakistan’s power sector continues to grapple with structural inefficiencies that are driving up electricity tariffs and straining public finances, according to the National Electric Power Regulatory Authority’s (Nepra) Annual Report on the Performance of Power Plants for FY2024-25. The regulator has pointed to surplus generation capacity, low utilisation of plants, high fixed costs and inefficient dispatch as persistent challenges undermining the sector’s financial sustainability.
The report states that high fixed costs combined with underused assets have significantly increased the cost of electricity for end consumers. Nepra emphasised that expanding generation capacity without a rigorous financial and economic assessment has resulted in excess installed capacity that is not fully utilised, leading to higher capacity payments and mounting pressure on the federal budget.
During FY2024-25, thermal power plants operated at an average utilisation rate of 42.5 percent, while renewable energy plants recorded an average utilisation of 36.6 percent. This underutilisation, alongside surplus capacity, pushed up per-unit electricity costs primarily because of elevated capacity purchase payments. Total power purchase cost during the fiscal year, excluding electricity imported from Iran, stood at Rs2.943 trillion. Of this amount, 61 percent comprised capacity purchase price (CPP) and 39 percent energy purchase price (EPP). The average CPP reached Rs14.3 per kilowatt-hour, while EPP averaged Rs9 per kilowatt-hour.
The regulator noted that the high CPP was largely a consequence of surplus capacity and low plant utilisation. Meanwhile, EPP remained elevated due to reliance on imported fuels such as regasified liquefied natural gas, residual furnace oil and imported coal. In contrast, generation sources based on indigenous fuels — including nuclear energy, Thar coal and local gas — offered substantially lower costs but were not dispatched to their full potential.
Among the more economical plants, Uch Power and Uch-II Power Plants, which operate on dedicated local gas fields, reported generation costs of around Rs13.4 per kilowatt-hour. However, their utilisation factors were 80.9 percent and 71.6 percent, respectively, despite availability factors exceeding 92 percent and 95 percent. Although ranked high in the economic merit order, their limited dispatch curtailed potential savings and increased reliance on higher-cost imported fuel plants, contributing to higher monthly fuel price adjustments.
Nepra also warned that depletion of the Uch Gas Field poses a risk to the sustainability of these relatively low-cost plants, underscoring the need for proactive fuel management. Similarly, Thar coal-based plants, another low-cost indigenous option, operated at an average utilisation of 72.9 percent despite their competitive energy costs. Their underutilisation resulted in greater dispatch of expensive imported-fuel plants.
The report further highlighted operational constraints affecting the transition of Lucky Electric Power Company Limited from imported coal to indigenous Thar coal. The shift depends on coal supply from Thar mines and completion of the Thar Rail Link Connectivity Project by Pakistan Railways. While Segment-I linking the Thar coalfield to the main railway network is expected by June or July 2026, Segment-II — covering the branch line and coal unloading facility at Port Qasim — has yet to begin construction. Delays could force continued reliance on imported coal and limit the effective use of completed infrastructure.
Transmission bottlenecks also restricted the transfer of cheaper electricity from the southern region to demand centres in the north, increasing dependence on costly generation sources. Prolonged outages at the Neelum Jhelum Hydropower Plant and the Guddu 747MW unit further reduced cost efficiency. Renewable projects faced curtailments due to intermittency and evacuation constraints, resulting in non-project missed volume payments exceeding Rs13 billion. Additionally, fluctuating load patterns and intermittent renewable supply led to part-load operations of thermal plants, adding Rs44.6 billion in partial load adjustment costs.
Nepra confirmed that drawing up to 2,000MW from the national grid is technically feasible under the current configuration. However, K-Electric’s operational and commercial arrangements, including its Take-or-Pay RLNG Gas Supply Agreement for Bin Qasim Power Station-III, continue to shape its generation mix and power drawl decisions.
The regulator concluded that long-term sustainability requires aligning capacity additions with actual demand, prioritising indigenous low-cost fuels, accelerating transmission upgrades, restoring non-operational low-cost plants and conducting thorough economic evaluations before approving new projects. Without systemic optimisation and improved dispatch efficiency, electricity tariffs are likely to remain elevated, placing continued financial stress on consumers and the broader economy.
Follow the PakBanker Whatsapp Channel for updates across Pakistan’s banking ecosystem