Electricity demand from Pakistan’s national grid saw a significant decline of 17.4% in August 2024 compared to the previous year, dropping to 13,179 gigawatt-hours (GWh). This decrease is attributed to rising electricity prices, reduced industrial consumption, and cooler temperatures following the end of the recent heatwave.
The reduced energy consumption is likely to lead to increased capacity charges—fixed management costs—in monthly bills, making electricity more expensive for consumers in the upcoming months.
In the first two months of the current fiscal year (2024-25), power generation fell nearly 9%, totaling 28,059 GWh, down from 30,798 GWh in the same period last year. This trend suggests a growing shift towards small, cost-effective rooftop solar power systems, particularly in residential areas, which has decreased dependence on the costly national grid.
Fuel Costs Decline Amid Shift in Energy Sources
Fuel costs for power generation decreased by 9.3% to Rs7.49 per unit in August compared to the previous year. This reduction was achieved by increasing the use of low-cost energy sources such as nuclear, coal, and hydroelectric power, which incur no fuel costs, while decreasing reliance on more expensive fuels like furnace oil and diesel.
However, costs could have been further reduced if the government had opted for more coal instead of imported RLNG (re-gasified liquefied natural gas), which is a pricier option. According to Muhammad Awais Ashraf, Director of Research at AKD Securities, the availability of RLNG in the system, driven by low industrial demand, prompted its use for power generation.
The recent Rs7 per unit hike in base electricity prices, effective from July, has made electricity more expensive, prompting consumers to adopt energy conservation practices. Bilal Ejaz, a research analyst at Ismail Iqbal Securities, noted that this price increase was a significant factor in the reduced power consumption observed in August.
Declining Industrial Demand Impacts Consumption
Another significant factor in the decline of power consumption has been the ongoing slowdown in industrial production, particularly in large-scale manufacturing industries (LSMI), during July and August. This downturn has directly impacted the national grid’s energy consumption.
Ashraf also pointed out that many individuals and businesses, particularly in the informal sector, are rapidly installing off-grid solar systems to mitigate their reliance on costly grid electricity, further contributing to the drop in demand.
He anticipates that power consumption will likely remain low in the coming months but may improve around March-April 2025 as large-scale manufacturing is expected to recover. A revival in industrial output is anticipated as inflation trends downward, with the central bank recently reducing its key policy rate by a cumulative 450 basis points over the past three months to 17.5%, making bank financing cheaper for businesses.
Hydroelectric Power Dominates Production
In August, hydroelectric power generated the largest share of electricity, accounting for 5,362 GWh, or nearly 41% of the total production. This was followed by 2,190 GWh (16.5%) from nuclear power, 2,106 GWh (16%) from RLNG, and 1,306 GWh (10%) from local coal. Contributions from local gas, imported coal, solar, and wind ranged from 0.7% to 7.2% of the overall energy mix.
Changes in Fuel Costs
The cost of bagasse, a fuel used in power generation, surged by 109% to Rs12.40 per unit in August. Local coal costs also increased sharply by 75%, reaching Rs12.3 per unit. The fuel cost for nuclear power rose by 27% to Rs1.5 per unit, while RLNG costs climbed by 9% to Rs25.8 per unit. Conversely, the price of imported coal fell by 21%, dropping to Rs15.8 per unit compared to Rs20.2 per unit in August 2023.