Power sector: Pakistan's average surplus capacity to cross 4,000MW

Report forecasts annual capacity payments may surge to Rs1,466b in 2025

LAHORE: The annual average capacity surplus of Pakistan’s power sector is likely to increase 15% against projected demand because of over-commitment of power generation projects.

The surplus will translate into annual average of more than 4,000 megawatts, according to a report launched by the Energy Institute of Lahore University of Management Sciences (LUMS).

The report, titled “Pakistan’s Electricity Outlook 2020-25”, critically reviews the challenges faced by the country’s power sector and also assesses the implications of continuing business as usual. It explores the scope and feasibility of an alternative set of options in order to correct the current course.

The report stated that a decade of crippling spells of load-shedding pushed for a 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 about how to alleviate the financial consequences of the past decisions and transform this critical sector into a vibrant contributor in order to realise the nation’s dream of progress and prosperity.

Independent, objective and dispassionate analysis of different courses of action and potential choices is considered an indispensable prerequisite for taking informed policy decisions for any country.

Pakistan’s Electricity Outlook 2020-25 has been prepared precisely to serve this longstanding need. It is a pioneering effort and will be the institute’s flagship publication in the future, said National Transmission and Despatch Company’s former managing director Fiaz Ahmad Chaudhry.

Chaudhry, who launched the report and is currently serving as the institute’s director, said 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 few other plausible alternative choices, and explores the extent of their sensitivity to the study’s key assumptions.

The results are then used to make a set of recommendations that will be extremely useful for the public and private decision-makers in taking informed decisions on various activities in the electricity supply and delivery business in the country.

The outlook estimates the capacity surplus will exceed annual average of 15% against projected demand in the country as a result of over-commitment by the generation projects, translating into more than 4,000MW of annual average surplus.

The results also reveal that the annual capacity payments will inflate from Rs568 billion in FY19 to Rs1,466 billion in FY25.

Consequently, the average generation cost per kilowatt-hour will increase from Rs10.87 in FY19 to Rs12 in FY25, a 10% increase in just six years and 67% rise since FY16.

The study finds that though the energy component (variable cost) of generation will decrease gradually with addition of new lower-cost generation and rising demand, the capacity component (fixed cost) will continue to rise significantly and become more than 60% of the generation cost by 2025.

Although the above generation capacity has already been committed, the government can still act to ameliorate its adverse consequences considerably by stimulating energy demand by offering tariff incentives to the electricity consumers, particularly those in the productive sectors of the economy, Chaudhry said.

“This will lower the average generation cost, thus providing much-needed relief to the electricity consumers.” 

Published in The Express Tribune, January 31^st, 2020.

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