Rising Electricity Costs Expected This Summer Amid Water Shortages

The government has signaled that electricity prices might rise this summer due to a decrease in water levels available for hydropower generation, increasing reliance on more expensive imported fuels. This forecast was shared during a public hearing regarding the negative fuel cost adjustment (FCA) for electricity consumed in January.

At the hearing, it was disclosed that a negative FCA of Rs1.23 per unit is currently applicable for ex-Wapda distribution companies (Discos) for February, which will result in a minimal 77 paisa per unit reduction in March.

Waseem Mukhtar, Chairman of the National Electric Power Regulatory Authority (Nepra), questioned how the government plans to address the growing demand for electricity in the summer, considering the less-than-expected rainfall and snowfall this year.

The National Power Control Centre (NPCC) indicated that water storage in reservoirs is lower than expected, meaning that there may be a greater reliance on regasified liquefied natural gas (RLNG) for power generation, which is more expensive than hydropower.

In response to these concerns, Nepra has called for a briefing from the Wapda chairman to assess the anticipated hydropower output for the upcoming months.

The hearing also revealed that electricity demand in January was 4.4% lower than anticipated in the reference tariff and 2% lower than January of the previous year.

For the first seven months of FY2024-25, total electricity consumption decreased by 3.3%, with significant drops in both the industrial and agricultural sectors.

Rehan Akhtar from the Central Power Purchasing Agency (CPPA) linked the decrease in agricultural power usage to the switch from tube wells to solar power. He also noted that the fall in industrial power demand reflected wider economic challenges, as indicated by reduced industrial production.

The Power Division has proposed extending the negative FCA to domestic consumers who use up to 300 units per month, as well as agricultural consumers, and has submitted a formal request to Nepra to ensure that all consumers benefit from the reduction in fuel costs.

This marks the seventh consecutive month of fuel cost reductions, mainly due to the higher base tariffs set by Nepra, which saw a 20% increase from July 1, 2024. In January, 71% of the total electricity supply came from domestic sources, with nearly 15% generated at zero fuel cost.

According to the CPPA, 8,153 gigawatt-hours (GWh) of electricity were generated in January at a fuel cost of Rs88 billion, averaging Rs10.79 per unit. Out of this, 7,816 GWh were supplied to Discos at a total cost of Rs86 billion, averaging Rs11 per unit.