Pakistan’s Energy Paradox: Rising Capacity, Falling Consumption, and Soaring Costs

Pakistan’s Power Sector in 2025: Growing Capacity, Shrinking Demand, and Mounting Costs

Pakistan’s installed electricity generation capacity rose to 46,605 megawatts (MW) during the first nine months of FY2024–25—a 1.6% increase compared to the same period last year. But instead of easing pressure on the national grid or lowering electricity costs, this growth has intensified an ongoing crisis: rising capacity payments for idle plants and shrinking demand due to high tariffs and economic slowdown.

The Paradox of Excess Capacity

According to the Economic Survey 2024–25, the generation capacity rose mainly due to 2,813 MW added through net metering—a decentralized approach that allows users to feed unused solar energy back into the grid. However, the unintended consequence of this addition is a heavier financial load.

Consumers are now burdened with Rs2.5 to Rs2.8 trillion annually in capacity payments—costs paid to power producers even when their plants remain unused. These are fixed contractual obligations, which means even if Pakistan doesn’t consume that power, it must pay for it.

Government Response: Cutting Down Idle IPPs

In a corrective move, the government terminated Power Purchase Agreements (PPAs) with several Independent Power Producers (IPPs), effective October 1, 2024. The affected entities include:

• HUB Power

• Lalpir Power

• Pakgen Power

• Rousch Power

• Saba Power

• Atlas Power

This is part of a broader effort to reduce idle generation and pivot towards more sustainable energy development.

Energy Mix: A Gradual Shift Toward Sustainability

Despite thermal energy still dominating the energy mix at 55.7%, its share has been declining, replaced by:

• Hydel: 24.4%

• Renewable (solar, wind, etc.): 12.2%

• Nuclear: 7.8%

Out of the 90,145 gigawatt-hours (GWh) of total power generated, 53.7% came from hydel, nuclear, and renewable sources—marking a significant step toward cleaner energy.

Furthermore, 84% of upcoming energy projects are now focused on clean energy, underscoring the government’s policy shift toward sustainability.

Power Consumption Falls Despite Higher Household Demand

Total power consumption during July–March FY2025 fell 3.6% to 80,111 GWh, down from 83,109 GWh a year earlier. Key factors behind this decline:

• Higher electricity tariffs

• Energy conservation measures

• Off-grid solar adoption

• Sluggish industrial performance

Here’s a breakdown of consumption by sector:

While residential usage increased due to population growth and appliance use, industrial and agricultural demand dropped—a red flag for productivity and food security.

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Oil Sector: Demand Rises, Imports Surge

Petroleum product consumption rose 7.04% to 13.17 million metric tonnes (MMT) during July–March FY2025, driven largely by the transport sector, which consumed:

• 10.54 MMT, up 7.99%, making up 80% of total petroleum use

Meanwhile, industrial oil demand fell 7.35%, and power sector demand collapsed by 77.68% as the country transitions away from furnace oil to cleaner alternatives like:

• Hydropower

• Nuclear energy

• Thar coal

• Imported LNG

Notably, HOBC imports surged over 800% to meet growing demand for premium fuels, and jet fuel imports nearly doubled, reflecting a recovery in air travel.

Despite increased volumes, the petroleum import bill stayed at $8.4 billion, thanks to falling global prices and better procurement strategies.

Gas Sector: Infrastructure Growing Amid Rising Demand

Natural gas continues to play a central role, accounting for 29.3% of primary energy supply. With over 200,000 km of distribution pipelines and 10.7 million consumers, Pakistan is boosting both domestic production and LNG imports.

Two Floating Storage Regasification Units (FSRUs) currently supply 1,200 MMCFD of RLNG to meet urban and industrial needs.

Conclusion: A Sector at a Crossroads

Pakistan’s energy sector stands at a critical juncture. While generation capacity grows and the energy mix improves, inefficiencies in consumption, overcapacity, and costly idle plants continue to strain the economy. The government’s actions—terminating PPAs, encouraging clean energy, and reducing oil dependency—are necessary steps. But to make real progress, future policies must tightly align energy supply with realistic, efficient, and sustainable demand.