Decline in Pakistan’s Electricity Demand: A Closer Look

In a significant development for Pakistan’s energy landscape, the national grid witnessed a sharp decline in electricity demand in August 2024, plummeting by 17.4% compared to the same period last year. This reduction translates to a consumption level of 13,179 gigawatt-hours (GWh) and reflects a broader trend influenced by various economic and environmental factors.

Factors Behind the Decrease

Several key factors have contributed to this notable decrease in electricity demand:

1. Rising Electricity Prices: The first two months of the fiscal year 2024-25 saw a nearly 9% drop in power generation, totaling 28,059 GWh, a decline from 30,798 GWh during the same period last year. A significant factor in this reduction has been the recent increase in base electricity prices, which rose by Rs7 per unit in July. This hike has led consumers to adopt energy conservation practices to manage escalating bills.
2. Lower Industrial Consumption: Continued sluggishness in industrial production, particularly within large-scale manufacturing industries (LSMI), has directly impacted power consumption. As industrial activity wanes, the demand for electricity from the national grid diminishes accordingly.
3. Temperature Fluctuations: A dip in temperatures following the end of a prolonged heatwave has also contributed to decreased energy consumption. With cooler weather, the need for air conditioning and cooling systems has lessened, resulting in lower electricity usage.
4. Rooftop Solar Adoption: The growing trend of installing small, low-cost rooftop solar power systems, especially in residential areas, has further reduced reliance on the national grid. Consumers are increasingly turning to solar energy as an alternative, driven by both cost concerns and environmental awareness.

Implications for Future Costs

The decline in energy consumption is expected to have significant implications for electricity pricing. As demand decreases, fixed capacity charges—essentially management costs that remain constant regardless of usage—will likely increase in monthly bills. This shift will make electricity even more expensive for end-users, prompting further discussions about energy pricing strategies in the country.

Experts predict that while power consumption may remain subdued in the short term, there could be a gradual recovery around March-April 2025. This anticipated revival in demand aligns with expectations of an uptick in industrial production as inflation rates stabilize.

Changes in Fuel Costs and Generation Mix

Interestingly, despite the overall drop in demand, fuel costs for power generation have seen some fluctuations. In August, the cost of fuel for power generation decreased by 9.3% to Rs7.49 per unit compared to the previous year. This reduction is attributed to increased reliance on low-cost energy sources such as nuclear, coal, and hydroelectric power, which often have zero fuel costs.

• Hydroelectric Power: In August, hydroelectric power emerged as the largest contributor to the energy mix, generating 5,362 GWh, accounting for nearly 41% of total production.
• Nuclear Energy: Following hydroelectric power, nuclear plants generated 2,190 GWh (16.5%), while RLNG (re-gasified liquefied natural gas) contributed 2,106 GWh (16%).
• Local Coal: Power production from local coal stood at 1,306 GWh (10%).

Despite these positive contributions, concerns linger over the government’s continued reliance on imported RLNG, which is considerably more expensive than domestic coal. This over-dependence on RLNG, driven by low industrial demand, may not be sustainable in the long run.

Rising Fuel Costs

While some fuel costs have decreased, others have seen substantial increases:

• The cost of bagasse, a biomass fuel, skyrocketed by 109%, reaching Rs12.40 per unit.
• Local coal costs surged by 75%, climbing to Rs12.3 per unit.
• Nuclear power fuel costs rose by 27%, now at Rs1.5 per unit, while the price of RLNG in power production increased by 9% to Rs25.8 per unit.

Conversely, the price of imported coal dropped by 21%, falling to Rs15.8 per unit from Rs20.2 per unit in August 2023. This complex web of rising and falling fuel costs highlights the challenges faced by the energy sector in balancing affordability with sustainability.

Looking Ahead: A Tentative Recovery

As Pakistan navigates its energy challenges, analysts predict that the current low demand levels may persist for a while. However, expectations for a rebound in industrial activity around early 2025 remain hopeful. Lower inflation rates, dropping back into single digits as of August, may encourage a recovery in production levels, which could ultimately drive up electricity demand.

Additionally, the central bank’s decision to cut its key policy rate by a cumulative 450 basis points over the past three months—bringing it down to 17.5%—is expected to make bank financing cheaper. This could incentivize businesses to ramp up production, further boosting electricity demand.

Conclusion

The 17.4% drop in electricity demand in Pakistan for August 2024 highlights a multifaceted issue involving rising prices, reduced industrial activity, and changing consumer habits. While the immediate implications suggest higher costs for consumers and ongoing challenges for the national grid, there is cautious optimism for a recovery in the coming months. As the government navigates its energy strategy, focusing on a balanced and sustainable approach will be crucial for ensuring reliable and affordable electricity for all.