In its most recent research, Electricity 2025 — Analysis & Forecast to 2027, the International Energy Agency (IEA) found that Pakistan’s industrial sector is paying almost twice as much for electricity as China, India, and the US.
Although Pakistan’s issues aren’t expressly mentioned in the report, it goes into great length about the kinds of issues other regions encountered, where average electricity prices were 18% lower than in the South Asian economy.
Pakistan’s average industrial power prices in 2024 were 13.5 cents per kWh, which was far more than the US and India’s 6.3 cents, China’s 7.7 cents, and the EU’s 11.5 cents. According to the research, industries are leaving Europe due to high energy costs, which may be a reflection of Pakistan’s economic difficulties.
Through 2027, it is anticipated that the world’s power demand would increase at a rate of 4% per year due to growing industrial production, data centre growth, and electrification. However, Pakistan’s high electricity costs continue to be a major barrier to export competitiveness and economic progress.
The paper also notes that wholesale power prices decreased by almost 20% on average in 2024 compared to 2021 in the US, UK, India, and the EU. This was mostly consistent with the decline in the price of energy commodities worldwide. With the exception of the US and the Nordic region of Europe, prices in these areas are still much higher than they were before to COVID-19.
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Several factors contribute to the high industrial electricity costs in Pakistan:
- Dependence on Imported Fuel:
Pakistan relies heavily on imported fossil fuels, such as oil and liquefied natural gas (LNG), for power generation. Fluctuations in global fuel prices directly impact electricity costs.
- Inefficient Power Plants:
Many of Pakistan’s power plants are outdated and inefficient, leading to higher production costs. The inefficiency results in higher fuel consumption and increased operational costs.
- Transmission and Distribution Losses:
Pakistan experiences significant losses in its electricity transmission and distribution network due to outdated infrastructure and theft. Higher tariffs are frequently imposed on consumers as a result of these losses.
- High Capacity Payments:
The government has agreements with Independent Power Producers (IPPs) that include high capacity payments, which are fixed costs paid to power producers regardless of the actual electricity generated. These payments contribute to the overall high cost of electricity.
- Debt and Circular Debt:
The power sector in Pakistan is burdened with circular debt, which arises from the inability of power distribution companies to recover costs from consumers. This debt cycle leads to financial strain and higher electricity tariffs to cover the shortfall.
Addressing these issues requires comprehensive reforms in the energy sector, including investment in renewable energy, upgrading infrastructure, and improving governance.