Power demand is clearly struggling to pick up. January 2020 was the third month running, where year-on-year generation went down, although slightly. This is with a caveat – as December 2019 generation numbers never went public for some reason best known to the regulator.
January 2020 net power generation ex-KE at 7.7 billion units is same as January 2019. Inexplicably, the transmission losses shoot up to 5.7 percent, which is more than double the 4-year average of 2.5 percent. Even accounting for lower hydel contribution in January, the number is on a very high side, as hydel generation share was still better than 4-year January average of 8 percent. Could it possibly be due to higher share of coal-based generation? Whatever the reason, the system would do well to not lose these units before they even make it to the grid.
Now on to the mix itself. The story has been rather well documented as Pakistan has tried to make a gradual shift towards alternative fuels, from being heavily dependent on furnace oil in the past. But if the reader is wondering why all of a sudden, the oil refineries were not sending all those print advertisements pleading to be saved from closure – look at the generation numbers. There is apparently a ban of sorts on FO based generation, which the Minister was boasting of when November numbers came out.
Only that there is no ban. Furnace oil can make a surprise visit whenever it wants – and two (or three) months of absence is all what it took for FO to make a comeback with 0.8 billion power units. The 10 percent share in generation became 20 percent - that in the total fuel bill is at Rs11 billion. The average fuel cost on FO based generation at Rs13.77 per unit is almost double the average generation cost without FO.
Coal plants are running at full throttle and constituted one-third of the total power generation in January 2020. At 2.5 billion units, this was coal’s biggest monthly contribution, both in terms of share and absolute generation. At Rs5.9 per unit, the fuel cost is also significantly lower than FO and LNG.
Saving the refineries meant LNG plants were not required to generate anywhere near full capacity. From the highs of 3.6 billion monthly units, to under a billion, has meant that the take-or-pay agreements are well and truly in play, leading to billions being paid in capacity payments, for power that was never made.
If the oil prices are to remain anywhere close to the new lows of $30-40/bbl, a small hello to FO based generation may not look bad on the fuel bill. But for now, the focus should be to have the grid demand increase, so to make full use of the plants on disposal. It would hurt much less paying for capacity, where actual power is being pumped. The fuel price adjustment recommended by Nepra for January 2020 at Rs1.48 per unit – may never see the light of the day, given the current price freeze in works. The oil price movement could well lead to the accumulated FPAs vanish in just two months.