'Pakistan's energy challenges cannot be addressed through isolated interventions'

Pakistan’s energy challenges cannot be resolved through isolated policy measures, as sustainable reform requires simultaneous efforts to improve grid reliability, lower electricity costs, and accelerate renewable energy deployment alongside initiatives to bring industries back to the national grid, two research reports highlighted.

The Policy Research Institute for Equitable Development (PRIED) launched the two new energy monitors that examine key aspects of Pakistan’s energy transition and explore how reforms can contribute to a more reliable, affordable, and sustainable power sector.

The two studies focus on the Captive Power Gas Levy and the future of utility-scale solar development in Pakistan. Together, they highlight the need for coordinated reforms across the electricity, gas, industrial, and financial sectors rather than isolated policy measures.

Speaking at the launch ceremony, Rehan Bandukda, Member Provincial Assembly, Sindh, urged policymakers to prepare for the next stage of Pakistan’s energy transition.

“As battery costs fall and net metering spreads, businesses will increasingly generate their own power,” he said, adding that Pakistan must be ready for the resulting shift and its implications for excess generation capacity.

Dr Khaqan Hassan Najeeb, Economist and Former Advisor, Ministry of Finance, said, “The real transition is not from fossil fuels to renewables alone; it is from inefficient markets to competitive markets. Pakistan’s energy future will be shaped by an efficient integrated energy ministry, a strong unified regulator, smarter markets, and sound policy commitment.”

The first energy monitor examines the Captive Power Gas Levy, introduced in January 2025 under Pakistan’s reform commitments with the International Monetary Fund (IMF). The levy gradually increases the cost of gas supplied to captive power plants, encouraging industries that generate their own electricity to reconnect to the national grid.

The study examines the policy within the wider context of Pakistan’s power sector. Although the country has significantly expanded electricity generation capacity over the past decade, demand has remained much lower than installed capacity, leaving a large share of generation assets underutilised while fixed costs continue to place pressure on electricity tariffs.

The report explores how the levy is expected to increase electricity sales, improve the utilisation of existing generation capacity, and strengthen the financial position of the power sector by bringing industrial consumers back to the grid.

At the same time, it presents concerns raised during stakeholder consultations regarding industrial competitiveness, operational reliability, and production costs. It also examines the possible effects on Pakistan’s gas sector, where declining industrial gas demand could create additional financial pressures.

Rather than viewing the levy as a standalone reform, the study highlights the interconnected nature of Pakistan’s electricity, gas, industrial, and financial challenges. It concludes that encouraging industries to return to the grid should be accompanied by improvements in electricity reliability, affordability, and broader coordination across energy and industrial policy.

Muqaddas Ashiq, a researcher at PRIED who wrote the study, said, “Developing the captive gas levy in silos is a zero-sum game. By attempting to fix the power sector’s circular debt, we are simply bleeding the gas sector and inflating production costs. We need policy alignment, not policies that benefit one ledger at the direct expense of another.”

The second energy monitor examines the state of utility-scale solar development in Pakistan. Despite having some of the strongest solar resources in the region, utility-scale solar currently contributes less than 2% of grid-connected electricity. The report identifies regulatory uncertainty, financing constraints, transmission bottlenecks, and institutional barriers as key factors limiting investment in large-scale solar projects.

The study argues that expanding utility-scale solar offers an opportunity to strengthen Pakistan’s long-term energy security by reducing dependence on imported fuels and lowering exposure to international fuel price volatility and exchange-rate pressures. It also highlights international experience showing how competitive procurement and appropriate financing mechanisms have supported large-scale renewable energy investment.

The report recommends reforms that include institutionalising competitive reverse auctions for solar procurement, strengthening transmission infrastructure, improving project preparation and payment security mechanisms, and expanding blended finance approaches that combine concessional and commercial capital to encourage private investment.

Amina Shahab, Researcher at PRIED, said, “Pakistan’s utility-scale solar acceleration is lagging not because of a lack of sun, but because our policy objective is still focused on replacing fossil fuels instead of scaling renewables. Prioritising the battery transition is essential because storage turns solar from intermittent power into industrial power.”

Viewed together, the two reports argue that Pakistan’s energy challenges cannot be addressed through isolated interventions. Policies that encourage industries to reconnect to the national grid must be matched by efforts to improve grid reliability, reduce electricity costs, and expand access to affordable and clean electricity. Likewise, accelerating utility-scale renewable energy deployment can support lower generation costs over time, strengthen energy security, reduce dependence on imported fuels, and contribute to broader power sector reform.

The two energy monitors were launched at a policy dialogue bringing together policymakers, regulators, development partners, industry representatives, financial institutions, academics, and energy experts.

The discussion also brought together diverse perspectives from across the energy sector. Muhammad Umer Khan, Joint Director (Planning & Procurement) at PPIB, highlighted the complementary role of the Competitive Trading Bilateral Contract Market (CTBCM) and utility-scale solar, noting that their success will depend on bankable contracts, battery energy storage integration, ancillary services, and a grid capable of supporting the transition.

Addressing the financing dimension, Zainab Babar, Program Lead for Transition Finance at SDPI, underscored the importance of reducing investment risk through measures such as partial credit guarantees, concessional finance, currency risk mitigation, and stronger project preparation to improve access to international climate finance.

Offering an industry perspective, Asim Riaz, Energy Advisor at the All Pakistan Textile Mills Association (APTMA), said captive power had become “industry’s rational self-insurance against an unreliable and unaffordable grid”, stressing that improving the reliability and affordability of grid electricity should remain central to efforts to bring industrial consumers back to the national system.