Pakistan’s hidden capacity charge is transmission congestion

The country measures what it pays generators, but not what it loses when the grid cannot deliver the cheapest available electricity. A national congestion ledger would turn an invisible systems failure into an investable reform agenda.

Pakistan’s electricity debate has become fixated on capacity payments, and understandably so: consumers are paying for generation that is not always used, tariffs have risen, grid demand has weakened and circular debt continues to accumulate. But the argument usually stops at the power plant’s invoice. The more consequential test is whether the system can move the cheapest available electricity from where it is produced to where it is needed.

When it cannot, Pakistan pays a second capacity charge – one that is not separately named on the bill. Efficient plants are held back, more expensive units are dispatched closer to load, renewable energy is curtailed, industries face interruptions, and consumers pay for both the unused cheap capacity and the costly substitute. This is the hidden capacity charge of transmission congestion.

The bill we do not publish

The distinction matters. A contractual capacity payment compensates a generator for making capacity available under an agreed power-purchase contract. Congestion cost is different: it is the economic loss created when the network or system-operating arrangement prevents least-cost dispatch. The first is visible in invoices. The second is scattered across fuel-cost adjustments, out-of-merit generation, renewable curtailment, technical losses, load-shedding and foregone industrial output.

That distinction matters because transmission congestion converts an accounting debate into a system-performance debate. If the grid cannot deliver least-cost power, consumers still pay for capacity on paper while the economy pays again through higher dispatch costs, curtailment and lost production. Treating congestion as a measurable charge would give Pakistan a clearer reform target than another round of contract-by-contract argument.

NEPRA has repeatedly identified transmission constraints as a barrier to optimal dispatch. More pointedly, in a July 2026 determination on national-grid use-of-system charges, the regulator recorded a cumulative loss of around Rs60 billion from out-of-merit generation caused by system constraints. That figure is important because it puts a rupee value on a problem usually described in engineering terms. But it is still only the portion the accounting system can see; it does not fully capture curtailed renewable energy, unserved load, damaged industrial output or the higher risk premium faced by investors who cannot rely on evacuation.

The problem is not simply that Pakistan has built too few transmission lines. It is that generation and transmission have too often been planned as separate bureaucratic exercises. Power plants acquire contracts, financing and political sponsorship; the network is expected to catch up later. By the time a corridor becomes binding, the country is already paying capacity charges on the plant and higher operating costs because its output cannot reliably reach consumers.

This is why renegotiating generation contracts alone cannot cure the power sector. Even if a plant’s capacity charge is reduced, the system still wastes money whenever cheaper output is trapped behind a constraint. Conversely, a well-chosen network or flexibility investment can lower the delivered cost of power without reopening a single contract. Pakistan’s reform debate therefore needs to move from the price of individual assets to the cost of serving load across the whole system.

International evidence shows why counting kilometres of new lines is not enough. The US Department of Energy’s July 2026 draft National Transmission Needs Study found that about 85,000 circuit-miles were added or rebuilt between 2016 and 2024, yet congestion still cost roughly US$11 billion in 2023. Most of that cost was concentrated in only 5 percent of hours. The lesson for Pakistan is not to copy the US grid, but to recognise the pattern: a small number of locations and hours can create a disproportionately large bill, and targeted transmission, storage, demand response or operating changes may outperform indiscriminate network expansion.

Pakistan would not be starting from scratch. In the United States, organised power markets such as PJM use locational marginal pricing to make congestion visible by time and location, while PJM’s market data publishes binding transmission constraints and shadow prices. Great Britain’s National Energy System Operator publishes forward-looking, constraint-cost forecasts for major transmission boundaries and also releases constraint breakdown data explaining why balancing actions are taken. Australia’s Congestion Information Resource consolidates information on constraint risk, and AEMO’s constraint reports track constraint-equation performance, congestion patterns, pricing and dispatch impacts. Pakistan does not need to copy any one model wholesale; it can borrow the common principle that congestion should be measured, priced, published and used to rank the next rupee of grid or flexibility investment.

Create a national congestion ledger

Pakistan should begin by making the hidden charge visible. The system operator and regulator should publish a monthly national congestion ledger that records non-dispatched least-cost generation, out-of-merit dispatch, redispatch cost, renewable curtailment, unserved energy, binding corridors, transformer overloads and the duration of each material constraint. It should also identify the 10 costliest bottlenecks, estimate their rupee impact and show whether the cost came from fuel substitution, curtailment, unserved demand or network limitations.

This does not require Pakistan to implement full nodal pricing tomorrow. The system operator already possesses dispatch, plant-availability and network data. It can use that data to estimate internal nodal or zonal shadow prices: the marginal rupee value of relieving a particular constraint at a particular time. Even if the retail tariff remains uniform for now, publishing these values would show policymakers where an additional megawatt of transfer capability, storage or flexible demand is worth the most.

A congestion ledger would also change the quality of investment decisions. Transmission projects should be ranked by the total value they create: avoided fuel and redispatch cost, lower curtailment, reduced unserved energy, improved resilience and access to cheaper future generation. A line that looks expensive as an engineering asset may be cheap compared with 10 years of non-dispatch from efficient plants. Conversely, a politically attractive line may have little economic value if the same constraint can be relieved more quickly or more cheaply through topology changes, dynamic line ratings, reactive-power support, batteries or demand response.

The ledger should be independently auditable. Constraint codes, dispatch instructions and curtailment events must be time-stamped and linked to the relevant network element. The regulator should reconcile the system operator’s calculations with plant invoices and fuel-cost adjustments. Without such discipline, every institution will continue to define the problem in a way that protects its own performance: generators will blame the grid, the grid will blame plant availability, and distribution companies will blame demand. A common dataset is the beginning of accountability.

Plan the system, not a sequence of assets

The Indicative Generation Capacity Expansion Plan and transmission plan should therefore be co-optimised under common scenarios for demand, hydrology, fuel prices, distributed solar, storage and industrial load. Pakistan’s demand profile is changing rapidly as high tariffs push households and businesses towards rooftop solar and self-generation. Planning transmission against yesterday’s demand curve risks building the wrong corridors while neglecting the evening ramp and the nodes where new solar is already straining distribution networks.

Storage must enter this calculation as infrastructure, not as a fashionable solar accessory. A battery at a constrained node can provide fast balancing, defer a network upgrade, absorb curtailed energy and support the evening peak. Industrial demand response can achieve a similar result if consumers are paid to shift load during the few hours when congestion is most costly. Procurement should specify the service—response speed, duration, location and availability – rather than prescribe a preferred technology.

The same logic applies to market reform. A competitive wholesale market cannot function if all locations are treated as economically identical and network access remains uncertain. Prices must reveal scarcity by time and location, while regulated network charges must reward availability, loss reduction and timely connection. Uniformity may be politically convenient, but hidden locational costs do not disappear; they return as subsidies, capacity payments, circular debt or load-shedding.

That makes a congestion ledger a necessary pre-step for CTBCM and any proposed auction of capacity, even for those who remain sceptical about how much these reforms can deliver. In practice, CTBCM’s impact is likely to be modest unless it confronts the legacy costs embedded in wheeling charges, cross-subsidies and already-contracted generation capacity. If most capacity is already locked in, and if network charges continue to socialise past decisions rather than reveal the cost of serving load at particular locations, competition will remain little more than a footnote, let alone the foundation of a genuine market. A ledger would not solve those problems by itself, but it would expose where the system is actually constrained, where capacity has economic value, and where auctions or bilateral trading would merely repackage existing obligations.

Pakistan does need more transmission investment, but the answer is not another undifferentiated list of projects. It is a transparent system that measures constraints, assigns them a rupee value, compares wires with non-wire alternatives and holds planners accountable for delivery. The first reform should therefore be simple: publish the cost of the grid’s 10 largest bottlenecks every month. Once the country can see its hidden capacity charge, it can begin to reduce it.

Nor should Pakistan pretend that the massive cost of upgrading the system can be met by tinkering at the margins. A credible reform programme must decide upfront who pays for legacy obligations, domestic-sector subsidies and cross-subsidies, rather than hiding them in wheeling charges, uniform tariffs or future circular debt. Tariff redesign, aligned much more closely to cost of service, is the reform nobody seems eager to own; yet sector financial sustainability will remain elusive unless prices, subsidies and network charges are made transparent enough to show who is being served, what it costs to serve them and who is paying the difference. If those costs remain buried, new transmission investment will struggle to attract finance, competitive supply will be distorted before it begins, and every market signal will be asked to carry political decisions it was never designed to bear.

That transparency would also improve financing. Development partners and private investors are more likely to fund a corridor, battery or grid-enhancing technology when the avoided cost is visible, the beneficiary is identifiable and performance can be verified. Instead of asking lenders to finance another generic transmission programme, Pakistan could procure solutions to defined constraints and tie payment to transfer capability or congestion relief actually delivered. That is how an engineering problem becomes a bankable reform platform.

Transparency is therefore not a technical add-on to market reform; it is the condition that makes market reform credible. CTBCM, capacity auctions and bilateral contracting can only discover value if the system first reveals where power can actually move, where congestion destroys least-cost dispatch, and where new capacity or flexibility would lower the delivered cost of electricity. Without that visibility, Pakistan risks designing a market around legacy obligations and hidden subsidies. With it, the country can begin to turn competition from a slogan into a disciplined process for reducing the true cost of serving load.