ISLAMABAD: The All Pakistan Textile Mills Association (APTMA) has strongly opposed the approval of the Indicative Generation Capacity Expansion Plan (IGCEP) 2025–2035 in its current form.
It has urged the National Electric Power Regulatory Authority (Nepra) to commission a dedicated team of top international and national economists and statisticians to develop a more robust, sector-appropriate demand forecasting model.
In a letter to the Nepra Registrar, APTMA Secretary General Shahid Sattar referred to the Authority’s public notice dated August 28, 2025, inviting comments on the Integrated System Plan (ISP) 2025–2035.
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APTMA’s response is structured in two main parts: (i) a fundamental critique of the demand-forecasting methodology, which it argues undermines the credibility of the entire IGCEP; and (ii) a set of broader observations and priorities that the ISP/IGCEP must address to realign national energy planning with economic realities — especially the urgent need for affordable and competitive power tariffs.
APTMA contends that the current IGCEP relies on an overly simplistic and flawed regression model that links grid electricity demand to broad macroeconomic indicators such as GDP and population growth. This, it says, rests on the assumption that electricity demand will rise proportionally with economic and demographic expansion.
However, this approach fails to account for substitution effects arising from captive power (gas or furnace-oil generators), rooftop solar (or distributed solar), gas-fired boilers, solar water heaters, electric stoves, and other decentralized energy sources, which increasingly serve as alternatives to grid electricity.
In omitting these, the model incorrectly absorbs their influence into the residual, attributing too much of the growth in economic activity to increased grid consumption. The result is a systematic overstatement of grid demand growth.
The econometric and statistical implications of this are as follows: (i) Endogeneity problem; when substitutes are omitted, their effects get absorbed in the error term. Since GDP and population growth also drive adoption of captive and solar among other non-grid sources of energy, the error term becomes correlated with the regressors, and (ii) this endogeneity correlation leads to biased and inconsistent estimates (in the statistical sense of the terms). The elasticity of grid demand with respect to GDP/population is exaggerated.
In Pakistan’s context, where non-grid sources of energy are growing rapidly, the structural bias leads to a systematic overestimation of future grid demand, APTMA added.
The Association further stated that the forecast for grid demand is too high because the model ignores alternative energy sources. This upward bias encourages excessive generation additions, which in turn produce inflated capacity payments, stranded assets, and heightened financial stress in the system.
Shahid Sattar said the IGCEP’s demand forecast is upward-biased by design. The econometric issue of endogeneity ensures that results are unreliable and, in practice, overestimated. This problem has been prevalent throughout the years, and its implications are visible in the massive stranded capacity on the grid and the resulting escalation of power tariffs. It is not a minor technicality but a fundamental flaw in the power sector’s demand forecast.
The same flawed methodology is also used to estimate demand for consumer tariff determinations, meaning that those forecasts, too, are systematically flawed and biased.
“The IGCEP itself acknowledges that the energy and power demand forecast provides the basis for all planning activities in the power sector. It is one of the decisive inputs for the generation planning (Planning Code (PC-4) of Grid Code 2023). This makes the flaw monumental because if the foundation is faulty, the entire edifice of planning collapses.
A biased demand forecast hence makes the entirety of the subsequent planning exercise unreliable, leading to mis-investment, excess costs, and inflated tariffs,” he continued.
The APTMA further stated that the IGCEP (as currently drafted) fails to confront the principal challenge crippling both the power sector and Pakistan’s economy: affordability. Unless affordability is made the central organizing principle of energy planning, the ISP/IGCEP will continue to reinforce the problems it purports to remedy.
Talking about the runaway escalation of capacity payments, the APTMA said that a decade ago, capacity payments in Pakistan were approximately Rs 2 per unit; today, they have ballooned to Rs17.06 per unit. They now consume over half of the consumer tariff and cumulatively amount to more than Rs6 trillion over the past decade, exceeding the total fuel cost in the system. Such levels are clearly unsustainable in a country already constrained by weak fiscal space, dwindling industrial growth, and limited affordability.
“No new generation addition should be justified without first reducing this burden to below Rs5 per unit. This ceiling must become a binding benchmark in all future planning and approvals. It is the only credible strategy to inject discipline into a planning environment long driven by megawatt targets, donor pressures, and short-term paradigms, often at the expense of consumer capacity to pay,” Sattar further added.
On demand stagnation, overcapacity, and stranded risk, APTMA stated that industrial demand in FY2025 declined by around four percent, and agricultural consumption plunged by more than one-third as farmers turned to diesel and solar alternatives.
National demand growth is stagnant, yet the IGCEP still projects an addition of nearly 20,000 MW in capacity. This mismatch leads to idler plants, steep fixed costs, and escalating circular debt.
The plan itself concedes that tariffs will rise to unaffordable levels yet continues its current trajectory. At a time when modular and least-cost solutions — such as utility-scale solar and battery storage — can be deployed swiftly once justified, committing to decades of capacity payments for underutilized plants is clearly imprudent.
The association is of the view that the Competitive Trading Bilateral Contract Market (CTBCM) has been formally launched (initial quota 800 MW) and is expected to grow over time. Large consumers -especially exporters- will naturally gravitate toward bilateral contracts or self-generation if centralized tariffs remain non-competitive.
Yet, IGCEP continues to assume that centrally dispatched demand will remain intact. By ignoring this shift, the plan risks overbuilding an oversized, overpriced system that consumers will opt out of, leaving stranded costs to be borne by fewer remaining consumers and further exacerbating capacity components in UOSC (Use of System Charges).
After sharing views on the draft IGCEP 2025-35, APTMA has submitted the following for the consideration of the Authority: The IGCEP 2025–35 should not be approved as submitted; (ii) the Authority is requested to sanction a dedicated team of top international and national economists and statisticians to develop a robust, sector-appropriate demand forecast model, one suited to a system serving over 250 million people and accounting for substitution, distributed generation, and endogeneity.
APTMA proposed that the revised plan should incorporate; (i) binding ceiling of Rs 5 per unit on capacity charges; (ii) conservative, realistic demand projections; and (iii) full integration of market reforms, demand-side measures, distributed resources, and provincial initiatives.
“We trust that the Authority will give due consideration to our submissions in the interest of ensuring a more affordable, efficient, and competitive power sector, and remain available to support or assist in any manner deemed necessary,” Sattar concluded.
Copyright Business Recorder, 2025
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