Inefficiencies hiking capacity charges highlighted

Business Recorder

10-05-2025

ISLAMABAD: National Electric Power Regulatory Authority (Nepra) Member (Technical) Rafique Ahmad Shaikh has highlighted inefficiencies in the country's transmission system, which resulted in the payment of Rs 69 billion in capacity charges to three coal-fired power plants despite extremely low utilisation and less relief in tariff for March 2025 under monthly FCA mechanism.
Shaikh made these observations in his two additional notes; i.e., on the Quarterly Tariff Adjustment (QTA) for the third quarter of FY 2024-25 whereas the second is on FCA adjustment for Discos for the month of March 2025. He also wrote a third additional note on delay in interconnection of the KE's system with NTDC due to which consumers of KE are not getting due relief in tariff.
As part of this adjustment, Nepra approved a reduction of Rs 1.55 per unit, providing a total financial benefit of Rs 52.6 billion to consumers of power Distribution Companies and K-Electric (KE) in their electricity bills for May, June, and July 2025 whereas a negative adjustment of Rs 0.29 per unit was approved for Discos consumers. For KE, a negative adjustment of Rs 3.64 per unit has been approved.
QTA & MTA: Nepra cuts tariffs for Discos and KE
According to Shaikh, the capacity claimed by Distribution Companies (Discos) for the third quarter amounted to Rs 362.395 billion, which is significantly lower than the reference figure of Rs 459.286 billion. During the same period, electricity sales stood at 19,968 GWh—down from the reference figure of 21,846 GWh.
He noted that typically, a decline in electricity sales leads to an increase in capacity charges due to the fixed-cost nature of these payments. However, this quarter witnessed the termination of certain Power Purchase Agreements (PPAs) and other adjustments related to Independent Power Producers (IPPs), which helped lower the overall capacity payments, resulting in a negative adjustment.
Shaikh emphasised that although the quarterly adjustment saw a significant decrease, improved governance and more efficient operations could have further boosted electricity sales and led to an even greater reduction.
To this end, he outlined several areas requiring urgent attention:(i) GENCO-II (Guddu Old), GENCO-III (TPS Muzaffargarh), and GENCO-I (Jamshoro Power Company Limited) collectively claimed Rs 1.237 billion in capacity payments— Rs 469 million, Rs 350 million, and Rs 418 million, respectively— despite generating no electricity during the quarter.
These plants suffer from high generation costs and low operational efficiency, and are unlikely to receive dispatch orders in the future due to the availability of surplus, lower-cost capacity in the system. Continued payments to these non-operational units place an undue burden on the power sector and end consumers. A strategic review is essential to rationalise these expenditures and enhance sectoral efficiency; and (ii) transmission constraints are also severely limiting the utilisation of several efficient and cost-effective power plants in the southern region, including Port Qasim, China Power, and Lucky Electric. These plants reported utilisation factors of just 1%, 10%, and 0%, respectively, yet collectively claimed Rs 69.09 billion in capacity charges— Rs 26.95 billion for Port Qasim, Rs 30.88 billion for China Power, and Rs 11.26 billion for Lucky Electric.
'Such inefficiencies highlight the urgent need to address transmission bottlenecks and reform dispatch practices to ensure optimal use of the country's available low-cost power generation resources,' he added.
Additional Note on FCA: In his additional note on Disco's FCA's determination for the month March 2025, he said serious efforts are being made across various forums to reduce electricity costs, several persistent issues— especially poor governance— continue to drive up electricity prices in Pakistan.
The following key challenges have been outlined to help guide relevant stakeholders toward building a more efficient and sustainable power sector: (i) power generation in March 2025 was 8.5% below the reference level, partly due to AT&C-based load shedding.
This AT&C based load shedding not only worsens public hardship but also results in underutilisation of 'Take or Pay' power plants, driving up costs. In March 2025, 'Take or Pay' thermal power plants, with a total capacity of 20,248-MW, operated at only 34.29% utilisation. Enhancing governance at the Disco level is essential to effectively eliminate aggregate Technical and Commercial losses; (ii) the continued outage of Steam Turbine Unit 16, ongoing since July 2022, at the Guddu 747-MW Power Plant resulted in Rs. 0.68 billion in losses for March 2025, raising total losses for FY 2024-25 (up to March) to Rs. 6.41 billion; (iii) operating the Guddu 747MW power plant in open cycle mode led to reduced output from this cost effective source, requiring the shortfall to be met through more expensive, marginal-cost plants. This shift added Rs 24 billion in extra costs in March 2025 alone, with total additional costs reaching Rs. 110 billion during FY 2024-25 (up to March).
Progress on resolving the damaged steam turbine issue requires accelerated efforts; (iv) Neelum Jhelum 969MW hydropower plant has been out of operation since May 2024. Its non-availability in March 2025 forced reliance on costlier alternatives, resulting in an additional Rs. 4.5 billion in costs compared to March 2024. The total financial impact for FY 2024-25 (up to March) has reached Rs. 28 billion.
Resolving the issue requires more concerted and focused efforts; (v) the HVDC infrastructure operated at only 32% utilisation in March 2025, while consumers continued to bear full capacity charges. Among other factors, a key reason for this underutilisation is the delayed completion of the Lahore North Grid Station. Efforts must be intensified to complete the task without any further delay; (vi) Transmission and grid system constraints led to losses of Rs. 0.62 billion in March 2025, bringing the cumulative impact to Rs. 12.31 billion for FY 2024-25 (up to March). Efforts should be intensified to quickly remove transmission constraints that are harming the sector's financial viability; and (vii) Part Load Adjustment Charges (PLAC) amounted to Rs. 2.6 billion in March 2025, bringing the total to Rs. 29.8 billion for FY 2024-25 (up to March). These charges are expected to rise further, as PLAC schedules for some power plants are still being finalized.
A study should be conducted to reduce PLAC through effective demand-side management.
He further stated that March 2025 FCA includes a negative prior period adjustment of approximately Rs. 3.29 billion. Excluding this, the FCA would have reflected a positive adjustment of Rs. 0.37/kWh. Prior period adjustments, whether positive or negative, are undesirable.
To minimise their occurrence and impact, invoicing, verification, and adjustment processes should be improved, with any such adjustments limited to a maximum period of not more than two months.
KE's FCA for February 2025: Member (Technical) stated that the successful enhancement of the interconnection between K-Electric and the National Transmission and Despatch Company (NTDC) to a safe operating limit of 1,600MW is a commendable step. However, efforts to further increase this capacity to 2,000MW and beyond— originally targeted for completion by June 2024— remained incomplete. In February 2025, the fuel cost in KE's generation mix stood at Rs. 20.01/kWh, significantly higher than NTDC's average of Rs. 8.23/kWh.
'If the interconnection capacity had been upgraded as planned, increased reliance on NTDC's lower-cost surplus power could have further reduced the Fuel Cost Adjustment, easing the financial burden on consumers,' he said adding that in light of the current surplus of economical generation within the NTDC system and the high cost of KE's internal generation, it is imperative that the interconnection upgrade be completed without further delay.
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