Better mix alone is not the answer

Pakistan’s power generation mix is improving. So is the power generation. Much reduced load shedding for the domestic sector and almost zero load shedding for the industries is testament to the achievement. This government promised no load shedding in five years and an improved energy generation mix. Both these claims stand largely achieved. All the credit for that.

But this is not all what the government promised. It had promised energy security and energy affordability. What has been achieved can at best be termed as energy availability, which must not be confused with security and affordability.

The monthly power generation bill for March 2018 stood at Rs60 billion for 8.4 billion units at an average of Rs7.09 per unit as fuel cost component. The power generation is 12 percent more than the same period last year, but the average fuel cost is 25 percent is higher than March 2017.

The fuel cost component for March 2018 is also the highest in over three years for any given month – and 20 percent higher than the moving 12-month average. Add to that, the capacity payments that are likely to arise come peak summers, when hydel generating peaks, and energy affordability surely would remain at the backseat.

The cost of coal and LNG based generation has significantly increased from last year, by 53 and 22 percent respectively. And these two components now constitute 38 percent of total generation, versus only 8 percent in the same period last year. Granted, that the reduced reliance on furnace oil is the way to go, and the generation mix reads a much better picture than it did previously, but the costs have stayed north, and that could lead to more troubles.

And one does not have to look too far for the next trouble in line. That is the ailing transmission and distribution system, which continues to be incentivized for underperformance. Evidence suggests that as fuel cost component rises, the losses in the system go up. And with a huge backlog of payments on account of tariff differential and GST, it could only worsen. The only way out is bridging the gap between allowed and actual T&D losses in tariffs, without which, circular debt would remain a problem.

And that is where it could go all wrong, as merely having more capacity to generate power will not be a guarantee of it actually being transmitted and distributed. The generation mix is moving in the right direction, but it needs to be balanced with an equally good transmission and distribution system, and improved payment and recovery mechanism, without which, generation capacity, could well lead to higher capacity payments, without actual delivery of electricity.