Key Takeaways
- Pakistan’s power generation grew by 4.4% year on year in September.
- Imported coal usage doubled, while RLNG generation fell sharply.
- Fuel cost adjustments rose by 44% year on year, pushing up electricity prices.
Pakistan’s power generation increased by 4.4% year on year in September, but the cost of generating electricity is rising rapidly. The country is increasingly relying on imported coal to meet its energy needs, with the fuel mix showing a significant shift from liquefied natural gas (RLNG) to coal.
In September, imported coal generated 2.15 billion units, more than twice the volume recorded a year earlier. This shift is concerning as the use of coal is becoming a major cost driver, with a unit cost of around Rs17.2, significantly cheaper than oil-based generation but indicative of growing dependence.
RLNG generation, which historically provided flexibility to the power system, saw a sharp decline, generating just 800 million units, down from 1.6 billion units in the same period last year. The cost of RLNG generation increased to around Rs40 per unit, nearly double the rate a year earlier, due to limited cargo availability and elevated international prices.
Nuclear generation also remains below potential, with delays and technical issues at individual plants restricting output. This has led to a system increasingly reliant on alternative thermal sources, such as imported coal, to meet demand, even as hydel generation provides seasonal relief.
The most surprising development in September was the highest level of HSD-based generation since February 2022, reaching its highest level. At Rs62 per unit, HSD was the most expensive fuel source, highlighting the challenges when the system has to meet demand without sufficient access to cheaper generation.
Overall generation was broadly in line with the reference level, but the fuel mix showed substantial deviations. Imported coal was well above the reference, while RLNG remained sharply below it. Meeting the expected volume of demand has therefore come at a much higher cost, with a nearly 44% year-on-year increase in overall fuel costs.
The fuel cost adjustment for September reached Rs2.56 per unit, the highest requested adjustment since June 2024. The final amount allowed by the regulator is likely to be lower, but the adjustment could still come close to Rs2 per unit. This increase is expected to be passed on to consumers, pushing up electricity prices.
The coming winter may offer less relief than usual. Lower cooling demand will reduce pressure on the system, but it will not necessarily resolve the fuel problem. Domestic gas supplies will face competing demands, and expensive imported fuel could remain necessary to support generation. Nuclear availability and the timing of hydel inflows will also be crucial.
The underlying problem is not simply that electricity costs are rising; it is the growing reliance on imported coal and the reduced use of RLNG, which historically provided flexibility to the power system. This shift is likely to continue, driven by the increasing cost of RLNG and the limited availability of domestic gas.
