The recently released power generation data by Nepra comes as a surprise. In October, 2018 there was a 5.9 percent fall in generation on a year-on-year basis which comes off across as puzzling because of the significantly more installed capacity available in the system.
Why then has there been lower generation? Is it an indicator of a fall in demand due to a slow-down in the economy? GDP growth forecasts have already been slashed and the LSM performance has been nothing home to write about as well. Or has there been more load-shedding to balance out the financial load of the power sector?
If it is the latter, the government would be better off generating electricity and maximizing the amount of energy sold given the huge quantum of capacity payments that will have to be paid off regardless.
The 23.7 percent month-on-month dip in generation is more plausible given that winter has arrived in most parts of the country and overall energy demand goes down significantly as domestic consumer demand wanes.
As far as the power mix is concerned, coal and R-LNG generation surged by 62 and 47 percent respectively as compared to Oct-17 whereas furnace oil generation continues to dwindle. The share of coal in the overall power mix stood at 12 percent, up from 7 percent in the same period last year whereas R-LNG based generation increased from 15 percent to 23 percent. The share of renewables including solar and wind continues to be paltry and there is a strong need to increase it in order to bring down fuel cost.
Furnace oil generation has dropped down to just 8 percent in Oct-18 as compared to 25 percent in the same period last year and marks the culmination of the government’s strategy to wean the power mix off FO based generation.
Affordable generation continues to be elusive with the fuel cost increasing by 10 percent in Oct-18 on a yearly basis. Fuel costs at the start of this calendar year amounted to Rs5.58/kWh and have since increased by almost 15 percent with power generation for the period going up by 10 percent. Higher gas prices for power producers are one factor for increasing fuel cost.
Even though lower efficiency FO based plants now occupy a much smaller part of the overall mix, they still continue to add to rising tariffs and should be further minimized. (Read: No end to furnace oil love affair published on November 09, 2018)
The government finally notified the long-pending increase in tariffs although it was less than what Nepra had originally proposed. Rising capacity payments and an increase in fuel cost does not bode well for the already enormous circular debt which looks set to increase further. The new government’s financial management skills will be put to the test in providing sustainable generation at affordable rates.
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