The energy sector faces unsustainable tariffs and more than Rs 2.8 trillion in circular debt. Experts
Saturday 21 December 2024
Islamabad (News InternationalNew - 21st December, 2024) The transition to a variable energy pricing model is crucial to address the shortcomings of Pakistan’s energy sector, which is facing unsustainable tariffs and a circular debt of over Rs 2.8 trillion. Speaking to Wealth Pak, Shafqat Hussain Memon, an energy researcher at Mehran University of Engineering and Technology, said that the variable energy pricing model is in line with the modern principles of 4D energy, which include decarbonization through clean energy sources, democratization through competitive prices, reduction of technological losses, and digitalization through smart grids.
He said that key strategies for implementing the variable energy pricing model include aligning supply and demand by addressing the apparent discrepancy between Pakistan’s installed capacity of 43,400 MW and industrial consumption of just 11,000-12,000 MW. This misalignment requires incentives to foster industrial development and create innovative demand. He said that the current weak power network incurs considerable economic costs due to the inability to efficiently transmit electricity from cheap generation sources located in the south to demand centers in the north, so the variable energy pricing model should be coupled with investments in modernizing the power network through digitalization and smart metering. He suggested that it is very important to address regional tariff imbalances. Despite low energy costs in some regions, high taxes and inefficiencies lead to uncompetitive tariffs. The variable energy pricing model can ensure fair charges to consumers based on local generation dynamics. Furthermore, as solar installations are expected to reach 22.7 GW by 2024, energy systems can reduce their dependence on the grid. The variable energy pricing model of the grid can incentivize the integration of renewable energy while ensuring that solarization policies are not burdened by solar-disadvantaged consumers. Governance reforms are also necessary. The country’s competitive trade bilateral agreement model is an advantage. Lifting can foster a multi-buyer market that encourages competition and attracts investment but requires strong policy reforms, power network modernization, and consumer-focused initiatives.
Obaidullah Khan, Program Associate at Renewable First, said that by piloting a variable energy pricing model and ensuring regulatory preparedness while addressing consumer protection concerns, the government can create a resilient and equitable energy ecosystem that not only mitigates the current crisis but also unlocks long-term economic and environmental benefits. It can significantly reduce energy costs and increase economic competitiveness by encouraging efficient consumption patterns while reducing pressure on the grid during periods of high demand. He said that the current “take or pay” framework requires distribution companies to ensure the availability of electricity throughout the year to match the approved load. This leads to over-purchase of generating capacity, much of which is not used during unused hours. As a result, high capacity payments for idle assets increase electricity rates, eroding consumer affordability and industry competition. The variable pricing model incentivizes energy use during periods of low demand while peak hours. California's time-of-use pricing model discourages consumption by offering lower rates during periods of abundant solar power while charging higher prices during the evening. Although Pakistan has partially implemented time-of-use pricing, it currently applies uniform demand periods across the country and ignores regional variations in peak demand patterns.
He said that to fully utilize the benefits of the variable pricing model, Pakistan should conduct a comprehensive analysis of regional demand patterns and adopt a more cost-effective pricing approach. This requires strong consumer awareness campaigns to ensure acceptance, as well as modern technologies such as smart meters for real-time pricing. Furthermore, redesigning the tariff structure to reflect regional consumption patterns will encourage shifting load shifting to off-peak hours. By implementing a well-designed variable pricing model, Pakistan can improve the utilization of power generation assets, reduce capacity payments for underutilized plants, and stabilize electricity tariffs. Ultimately, it can enhance economic competitiveness by reducing energy costs for industries, as well as reduce energy costs for industries.
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