The season of “highest-ever” continues, as monthly electricity generation on the national grid recorded an all-time high of 15.7 billion units. This is 5.4 percent higher year-on-year, which can at best be called “steady” progress, especially considering the period in 2020 was ridden with Covid first wave. In a growing economy, electricity generation growth of 7 percent year-on-year, could be termed natural momentum, and not exemplary growth.
Most of the incremental demand has stemmed from industrial sector, largely as a result of abolishment of peak and off-peak tariff distinctions. This is a healthy sign for the financial health of the energy sector, as industries are the best payers with least losses. That said, increased grid generation may not necessarily be a sign of overall increased power consumption – or at least not as much.
Recall that the government has started to phase out captive power generation by curtailing gas supply, in order to have higher utilization of the grid supply, and rightly so. The demand growth of 7 percent year-on-year on the grid, thus becomes decent, and not a clear-cut sign of higher overall system. The 12-mnth moving average provides a smoother picture, and tells that significant momentum was lost in FY19 and then FY20, for different reasons, and that will take some catching up.
Now, on to the more critical aspect, i.e. the power generation mix. And that does not read a very good tale. Furnace oil-based generation at 1.6 billion units was the highest in 31 months (recall that Pakistan has time and again announced “zero” FO based generation during this period). The share in generation at 10 percent may not raise many eyebrows, as this may be short-lived. Recall the FSRU dry docking episode, and the resultant need to run plants on FO for a few days.
The nature of government’s own older plants meant FO based generation was going to be higher, in the absence of LNG. Consider that Jamshoro and Northern power units generated power at an average of Rs23 per unit - one-third higher than most other IPPs. Coal based generation did not go up, and remained lower than the highs achieved in March 2021, which raises questions on the authorities’ planning, given the circumstances around limited LNG availability.
The overall fuel cost of generation at Rs6.75 per unit is the highest in recallable memory and necessitates a monthly adjustment of Rs1.47 per unit. Nepra has not been too hard on non-compliance and has been content with warnings, allowing non-merit-based generation on provisional basis, month after month. The peak demand months of August and September would demand more discipline around merit order, or else consumers will continue to pay the price of inefficiency, even at significantly increased reference fuel tariffs.