Costly coal-fired power agreements: Pakistan risks remaining trapped

ISLAMABAD: Pakistan risks remaining trapped in costly coal-fired power agreements even as households and industries rapidly shift towards solar energy, with experts warning that declining electricity demand from the national grid, mounting capacity payments and delayed policy reforms could deepen the power sector’s financial crisis.

They were speaking at a policy dialogue titled “From Coal to Clean: Towards a Phased, Just Energy Transition,” organised on the third day of the four-day Sustainable Development Conference, held by the Sustainable Development Policy Institute (SDPI) at Allama Iqbal Open University here on Wednesday. The overarching theme of this year’s conference is “Rethinking Development in an Age of Disruption.”

The discussion exposed a fundamental policy divide over Pakistan’s energy future: whether expensive imported coal plants should be retired early through international financing arrangements or converted to indigenous Thar coal to reduce fuel imports and preserve reliable generation capacity.

Chairing the session, former federal climate change minister Malik Amin Aslam said Pakistan’s biggest obstacle was not the absence of financing but a lack of political will to dismantle costly arrangements benefiting entrenched interests.

He questioned capacity payments to underutilised power plants and alleged that earlier electricity demand projections had been deliberately inflated to encourage investments by independent power producers (IPPs).

Aslam said consumers had effectively taken the lead in Pakistan’s energy transition by installing rooftop solar systems and battery storage, while the government remained burdened by long-term power purchase agreements.

He criticised restrictions on solar incentives and urged Pakistan to explore the Asian Development Bank’s Energy Transition Mechanism and other international financing arrangements for early coal retirement.

An SDPI official said seven Chinese-financed coal plants developed under the China-Pakistan Economic Corridor (CPEC) represented a major financial challenge, with declining utilisation, dollar-linked obligations and capacity payments placing pressure on the electricity system.

Muhammad Basit Gauri of Renewables First said imported coal plants were already becoming stranded assets as cheaper solar generation reduced their competitiveness.

Citing research on the Sahiwal coal power plant, he said negotiated early retirement could potentially avoid billions of dollars in future capacity payments. He proposed restructuring investor returns, buying out contractual obligations or repurposing existing sites for renewable energy and storage.

However, Ali Nawaz Leghari of the Private Power and Infrastructure Board defended the development of coal projects, saying they had helped overcome severe electricity shortages when alternative generation and transmission infrastructure were inadequate.

He said converting imported coal plants to Thar coal could reduce dependence on foreign fuel and generate substantial foreign exchange savings. Leghari argued that coal remained important for electricity supply during fuel disruptions and periods when renewable generation was unavailable, particularly without sufficient battery storage.

PRIED Chief Executive Officer Badr Alam challenged the government’s approach, arguing that inaccurate demand forecasting had created excess generation capacity while consumers continued facing high tariffs and unreliable supply.

He warned that converting imported coal plants to Thar coal could prolong fossil fuel dependence and create additional environmental pressures in coal-producing communities.

Badr Alam said growing rooftop solar adoption was shrinking grid electricity sales, leaving fewer consumers to bear fixed generation costs and potentially driving tariffs higher.

Yingie Chen of China’s Greenovation Hub said Pakistan-China cooperation on coal retirement would require bankable proposals, predictable regulations and credible arrangements to protect investors.

She recommended pilot projects linking renewable energy, battery storage and industrial electricity demand rather than relying solely on broad commitments to energy transition.

Dr Christoph Nedopil Wang of the University of Queensland said coal retirement negotiations should reflect the realistic future value of power plants rather than revenues guaranteed under existing contracts.

Referring to international experience, he said concessional financing, renegotiated power purchase agreements and reverse auctions could provide alternative pathways for retiring coal assets.

Michael Williamson of the United Nations Economic and Social Commission for Asia and the Pacific (UN ESCAP) said Pakistan faced particular difficulties because most coal plants were commissioned after 2015 and still carried substantial financial obligations.

He said a joint ESCAP-SDPI study examined repurposing coal plant infrastructure for solar and wind generation, battery storage and other productive uses.

Tom Wang, joining from China’s Shanxi province, warned that coal retirement could threaten livelihoods without adequate retraining and alternative employment. Referring to a survey of 9,000 coal-sector workers, he stressed the importance of protecting coal-dependent communities.

MNA Riaz Fatyana questioned continued IPP payments amid prolonged load shedding and urged the government to reduce electricity tariffs to stimulate consumption.

He also proposed tax relief for renewable energy equipment and small hydropower projects along Punjab’s canal network.

Copyright Business Recorder, 2026