By March 2024, Pakistan’s overall installed electrical capacity reached 42,131 megawatts (MW). This includes contributions from various sectors: hydroelectric for 25.4%, nuclear for 8.4%, renewables for 6.8%, and thermal for 59.4%. Even though these multiple sources form an extensive energy portfolio, independent power producers (IPPs), which account for approximately half of the nation’s electricity production, are often seen as a key factor behind elevated electricity prices.
Independent Power Producers (IPPs) have turned into a considerable financial strain because they all run thermal facilities. According to the original pacts, the government pledged to compensate these IPPs in U.S. dollars according to their installed capacities, irrespective of actual power usage. Later deals exacerbated this issue by raising both per-unit fees and commitments for capacity payments even more. Consequently, customers currently shell out anywhere from Rs 2.5 trillion to Rs 2.8 trillion each year to IPPs that generate zero units of energy but still get hefty payouts thanks to poorly structured contracts.
Two decades ago, Pakistan experienced significant power shortages, with daily blackouts ranging between 10 to 15 hours. Back then, depending on Independent Power Producers (IPPs) appeared essential for addressing the electricity deficit due to insufficient facilities. Nevertheless, as global trends swiftly shift towards renewable sources, Pakistan remains considerably behind, generating merely 6.8% of its energy through renewable means—a proportion notably smaller compared to other developing nations. To improve this situation, authorities should proactively encourage the adoption of solar panels along with various alternative renewable technologies.
Considering the substantial financial damage inflicted by Independent Power Producers, the government must conduct an audit of capacity payment mechanisms and contemplate closing facilities that have been running since 1994.
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