Low utilization of renewable energy plants , high capacity payments push up Pakistan’s power costs

ISLAMABAD: The National Electric Power Regulatory Authority (NEPRA) has warned that low utilization of power plants, combined with an excess of installed capacity, significantly drove up per-unit electricity costs in FY 2024–25, largely due to high capacity payments. The regulator highlighted that improving system efficiency and maintaining a balanced generation mix are essential to reducing tariffs.
In its Performance Evaluation Report of Operational Power Plants for FY 2024–25, NEPRA reviewed plant utilization, generation costs, and system efficiency under both CPPA-G and K-Electric (KE).
During the year, thermal plants operated at 42.5 percent utilization against reference capacity, while renewable plants averaged 36.6 percent. The underutilization of installed capacity pushed up per-unit costs, as fixed capacity payments remained high regardless of actual generation.
Total power purchase cost — excluding electricity imports from Iran — stood at Rs 2,943.214 billion. Of this, 61 percent comprised Capacity Purchase Price (CPP) and 39 percent Energy Purchase Price (EPP). The average CPP was Rs 14.3 per kWh, while EPP averaged Rs 9.0 per kWh. Elevated CPP reflected surplus capacity and low utilization, while EPP was driven by reliance on costly imported fuels such as RLNG, RFO, and imported coal.
In contrast, indigenous fuel-based plants — including nuclear, Thar coal, and local gas — offered significantly lower generation costs but remained underutilized.
Uch Power and Uch-II plants, operating on dedicated gas fields, generated electricity at around Rs 13.4 per kWh. However, their utilization stood at 80.9 percent and 71.6 percent, respectively, despite availability above 92 percent. Though ranked high in the Economic Merit Order, their limited dispatch reduced potential cost savings and increased reliance on expensive imported-fuel plants. NEPRA also warned that depletion of the Uch gas field could threaten long-term sustainability.
Similarly, Thar coal-based plants operated at an average utilization of 72.9 percent despite their competitive cost. Under-dispatch of these indigenous plants led to greater use of imported fuels, raising consumer-end tariffs through monthly adjustments.
The report noted that Lucky Electric Power Company Limited’s transition from imported to Thar coal depends on adequate coal supply and timely completion of the Thar Rail Link Connectivity Project being executed by Pakistan Railways. While the first segment is expected by mid-2026, the second segment — including a branch line and unloading facility at Port Qasim — remains pending approval. Delays could force continued reliance on imported coal.
Transmission bottlenecks further restricted dispatch of cheaper southern generation to northern demand centers. Prolonged outages of the Neelum Jhelum Hydropower Plant and the Guddu 747 MW unit also weakened cost efficiency.
Renewable energy plants faced curtailments due to intermittency and evacuation constraints, resulting in Non-Project Missed Volume payments exceeding Rs 13 billion. Fluctuating demand and renewable variability also caused thermal plants to operate at partial loads, adding Rs 44.6 billion in partial load adjustment costs during the year.
Overall, NEPRA noted that high fixed costs, low plant utilization, inefficient dispatch, and transmission constraints collectively contributed to elevated tariffs and financial stress in the sector.
Within the KE system, average utilization remained at 34.6 percent, with heavy dependence on imported fuels keeping generation costs higher than the national grid. Although the interconnection between the National Grid and KE was energized in July 2025 — enabling transfer capacity of up to 2,000 MW — KE’s “Take-or-Pay” RLNG supply agreement for BQPS-III and related part-load charges continue to influence its generation mix.
NEPRA concluded that long-term sustainability requires aligning generation capacity with actual demand, prioritizing indigenous fuels, accelerating transmission upgrades, restoring non-operational low-cost plants, and carefully evaluating future capacity additions.
A balanced generation mix and enhanced system efficiency, the regulator emphasized, are critical to reducing electricity costs, improving reliability, and ensuring a financially sustainable power sector.