Pakistan’s power sector no longer faces simply a shortage of electricity. It now faces a more difficult question: how to get greater value from the generation capacity it already has. A significant part of that capacity remains under-utilized, while consumers continue to bear high electricity costs and the country still considers additional generation investments. What Pakistan needs now is a clear assessment of how much capacity is actually required, what is preventing existing capacity from being fully utilized and where the real bottlenecks lie.

 According to Ministry of Energy documents, the federal government paid Rs. 2.935 trillion to independent power producers (IPPs) during the first 11 months of FY2025-26, covering July 2025 to May 2026. Billing for June was still incomplete when the figures were compiled. The Ministry clarified that payments were made at rates approved by NEPRA or specified in agreements with power producers. [Ministry of Energy, Power Division] The figure is substantial, but the real issue is not simply how much Pakistan pays power producers. It is whether the country’s generation capacity, contractual commitments, transmission network and electricity demand are properly aligned.

NEPRA’s Performance Evaluation Report for FY2024-25 provides an important indication of the problem. Thermal power plants operated at an overall utilization rate of 42.5% against reference capacity, while renewable energy plants averaged 36.6%. NEPRA reported total power purchase costs of Rs. 2,943.214 billion, excluding electricity imported from Iran. Of this, 61% was Capacity Purchase Price and 39% Energy Purchase Price. The average Capacity Purchase Price was Rs. 14.3 per kWh, compared with Rs. 9.0 per kWh for Energy Purchase Price. NEPRA attributed the elevated capacity cost mainly to excessive installed capacity and low utilization of existing plants. [NEPRA, Performance Evaluation Report of Operational Power Plants FY2024-25]

These figures need to be understood carefully. Capacity payments are not simply payments for electricity that was never generated. They are linked to fixed costs associated with committed generation capacity under contractual arrangements. Investors made those investments on the basis of contractual agreements, and legitimate contractual obligations cannot simply be ignored. But contracts do not eliminate the economic question. When fixed costs are spread over a smaller volume of electricity because available capacity is under-utilized, the cost burden on each unit consumed becomes higher. That........

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