Ongoing Battle Over Power Production Persists
Electricity Generation Struggles to Gain Momentum, Despite Favorable Conditions
After a strong 22% increase in electricity generation in April 2025, the growth slowed down significantly in May with a mere 0.8% rise. Yet, the headlines were loud and triumphant, focusing on a semantically misleading 21% rise month-on-month, which isn't statistically meaningful in the power sector's analysis due to inconsistent seasonal demand between April and May.
A closer look at the data reveals that May 2025's power generation of 12.3 billion units was lower than the previous financial year (FY21), just 5% above the Covid-induced low of FY20, an insignificant 1% over FY19, and a whopping 13% lower than the peak of FY22, representing a 2-billion-unit deficit.
The cumulative generation for the first 11 months of FY25 stands at 110 billion units, the lowest since FY20, and 12% short of the record set by FY22. The 12-month moving average, now at 10.2 billion units, offers little solace, as this level was first reached way back in March 2021.
The apparently sluggish demand may not be solely driven by high tariffs. Even though May 2025 marked the second-warmest nights on record, average household consumption per connection has taken a 20-year low in 2024. The power sector's recovery seems to be fuelled not by a demand explosion, but the gradual return of captive power users to the national grid.
As the costs of gas and additional levies rise, captive power generation is becoming economically unfeasible for most industrial users, indicating a shift towards grid electricity as the more financially viable option. The government's intent is clear – redirecting scarce natural gas resources towards more efficient centralized power generation.
The actual power generation lagged behind benchmarks, with imported coal posting the greatest disparity. Although no coal was produced from imported plants in May 2025, the grid relied on them for almost 800 million units, primarily to offset shortfalls from wind, hydel, and nuclear sources.
Neelum-Jhelum remain offline, and the hydel prospects have been bleak due to an unusually dry season and the added concern of water aggression from India. The outlook for hydropower is bleak, forcing increased reliance on expensive thermal generation.
The Fuel Charge Adjustment (FCA) saw a positive shift in May 2025, snapping a long streak of negative revisions. However, this change has less to do with soaring fuel costs and more to do with significant deviations from reference generation figures.
While the generation plan for FY26 appears sensible and should help dampen future volatility, the wildcard remains demand resurgence. With solar gradually reducing daytime demand, the fate of the power sector heavily depends on the speed of industrial recovery, particularly among users transitioning back to the grid under the revised captive generation policy.
Insights:- Inefficiencies in the power sector outpaced growth, suggesting operational or infrastructural challenges that limit the effectiveness of increased generation volumes.- The recovery in investment is uneven, which may hinder sustained improvements or capacity expansions required for faster recovery.- Operational and financial improvements are concentrated in leading firms, but such gains may not translate into overall sectoral recovery due to systemic inefficiencies and capacity issues.- Higher costs related to fuel pricing adjustments and taxes partially offset the financial benefits, potentially limiting reinvestment ability and operational improvements across the sector.- Hydropower faces financial challenges due to the rising need to provide load balancing ancillary services as renewable energy penetration (wind, solar) increases, adding operational and cycling costs that are not adequately covered by traditional energy revenue streams.
- Despite the initial growth in electricity generation, the analysis of the power sector indicates operational or infrastructural challenges that limit the effectiveness of increased volumes, leading to a slowed growth in subsequent months.
- The recovery in investment within the power sector is not evenly distributed, which may hinder the sector's ability to sustain improvements or make the necessary capacity expansions for a faster recovery.
- While some operational and financial improvements have been observed in leading firms, these gains may not translate into overall sectoral recovery due to systemic inefficiencies and capacity issues, especially as volatility in fuel pricing adjustments and taxes partially offset any financial benefits. Additionally, the financial challenges facing hydropower, such as the need to provide load balancing ancillary services and increased operational costs, may limit the sector's growth and recovery.
