February 2022 grid power generation was up by 11 percent year-on-year to 8 billion units on gross basis. On a 12-month moving basis, the growth also closes in at 11 percent to 11.1 billion units generated in a month. Some view this as phenomenal, but one must not lose sight of the fact that the growth is only coming back to what had become a norm before August 2018. Nonetheless, it is a good sign to see electricity demand steadily rising, even if there is also an element of reduced supply of gas for captive power purposes, leading to higher reliance on grid.
The electricity generation mix has been in sharp focus. The rapid decline in the share of hydel based generation has come at the worst possible time, when thermal energy commodity prices have skyrocketed. February’s share of 18 percent from hydel power generation is the lowest for the month in at least last seven years. This comes at the back of lowest ever monthly generation, both in absolute and share terms last month.
The longer it takes for the hydel based generation to get back to the curve, the more problematic will the cost equation become. In recent history, hydel’s loss has more times than not been covered by RFO or diesel-based generation. There is not much natural gas in the system to burn for power generation, as evident from the ever-dwindling share.
The onus then shifts to somewhat more energy efficient imported fuel dependent thermal power plants. Coal is fast becoming the fuel of choice, as Pakistan (and the rest of the world) struggles to arrange imported LNG. Last two months have seen coal’s share in power generation shot up to one-third, and at 20 percent on a 12-month trailing basis.
The problem with coal these days is it is extremely pricey. The commodity price spiral has outpaced the growth witnessed in oil or gas prices. Coal, just in the last 30 days has gone costlier by over 60 percent and is four times higher than the same period last year. On the other hand, imported gas continues to remain a much sought-after commodity – with suppliers backing out as big players in Europe grapple for more gas, at whatever rates.
Imported RLNG for March 2022 has been priced at $17.1/mmbtu excluding GST, 25 percent higher month-on-month. And there was only a solitary cargo on spot rates arranged for the reference month, which goes on to show, LNG, even at long-term deal rates will continue to be mighty expensive in the next two to three months. The impact of oil over $100/bbl is yet to kick in Ogra prescribed prices. Expect LNG to cross $20/mmbtu sooner than later.
All of this promises a lofty fuel cost bill and higher incidences of monthly fuel charges adjustment. Recall that monthly adjustment has already been sky-high, going as high as Rs5.9/unit for January 2022.
Another Rs4.9/unit increase has been sought by the system operators for February 2022. More of the same is in order for the remainder of FY22. All this while, the government’s relief package to the tune of Rs5/unit is in play, which will definitely lessen the impact on the end consumer. But the meter is surely ticking.