Power generation: challenges aplenty

For the eighth month straight, power generation connected to the national grid went down year-on-year. This is now level with the record run of negative growth during peak Covid. How much of reduced generation is due to deliberate measures will only be known once demand and load numbers get public – and that happens with a considerable lag.

Anecdote suggests the forced part of generation reduction won’t necessarily be considerably altered from a year ago. Granted that Pakistan’s capacity to arrange imported fuel has been severely hampered from last year, but the dependable available capacity in times of seasonal slowdown in demand means the need to kill demand on fuel availability is not that great.

Electricity generation for Jul-Jan FY23 is down 7 percent year-on-year, whereas 12-month moving average is down to 11 billion units – lowest in 12 months. The 12-month moving average growth has now entered the negative zone – for the first time since Covid. It was rising by double digits as recent as May 2022. The slowdown coincides with the beginning of downturn in LSM index and the start of power tariff rationalization exercise.

The power system operator has not found it easy to run even the more efficient plants at optimal capacity, despite available capacity at most times. Coal was the fuel of choice for January – contributing 29 percent to total generation, as hydel’s share went down. Furnace oil plants were run, as has been the case for most Januarys – to better manage reduced load and frequency.

Both coal and RLNG based generation were down in excess of 20 percent year-on-year. Fuel availability and affordability in case of RLNG and affordability only in case of coal – were the main factors, as many plants slipped down the economic merit order of dispatch. As the commodity super cycle has now eased, and there are RLNG vessels available for Asian markets – Pakistan may still not rush, given the slowdown in demand, paucity of dollars, and increased capacity of Thar coal and nuclear plants.

Now that tariff increase will be notified sooner than later, it is likely to put further pressure on demand. Industrial tariffs are set to increase significantly as subsidies are being withdrawn. Domesticconsumers in the higher consumption slab are likely to be slapped with a high surcharge to cover for markup costs of PHL. Both industrial and domestic consumers in 300+ unit categories – are traditionally good payers, with least pilferage. A drop in demand from these categories is going to make it more challenging.