Peak power is getting pricier

Pakistan's electricity demand has surged back to life, but the cost of meeting this increased demand has skyrocketed. National grid generation rose 6 percent in July compared to the previous year, reflecting a noticeable uptick in demand. However, the rise in monthly consumption is relatively modest at 2.8 percent. This growth is most evident in the hourly demand profile, with the evening peak now significantly higher than in previous years.

The situation is exacerbated by the return of industrial consumers and the growing influence of solar power. The latter has reduced daytime grid demand, creating a more pronounced "duck curve" - a pattern where demand falls sharply during sunny hours and then rapidly increases once the sun sets. This steep evening ramp is now the most challenging aspect for the power system.

July generation was close to the target, a welcome improvement after the severe disruption caused by the reliance on rapid liquefied natural gas (RLNG). Hydropower generation reached nearly 6 billion units, accounting for around 40 percent of total generation - the highest monthly hydropower production ever recorded. However, RLNG's share remained below target at around 11 percent, and it has barely improved from the early months of the conflict, despite securing some LNG cargoes.

Importantly, imported coal generation surged by 144 percent above the reference, making up about 11 percent of the system's total output. This dramatic increase led to the highest monthly imported coal-based generation on record. The reliance on imported coal during peak demand hours is a costly affair, with the marginal generation cost climbing as high as Rs46 per unit in July, marking an all-time high.

This shift to expensive thermal generation during peak hours raises concerns about the sustainability of the power sector recovery. Higher electricity consumption is beneficial for the grid, improving utilization and spreading fixed costs over more units. However, the cost of meeting peak demand through expensive thermal sources is a significant concern. The July fuel cost adjustment is expected to exceed Rs2 per unit, adding pressure on consumers who have already seen several months of moderate adjustments.

The situation is expected to persist, with August and September typically seeing the highest electricity demand. However, the geopolitical disruption affecting LNG supplies and prices remains a threat. If RLNG remains constrained or expensive, the system may increasingly rely on alternative thermal sources during the evening ramp.

Meanwhile, the growing prevalence of rooftop and behind-the-meter solar power is altering the traditional demand profile, making it harder to predict and manage. Pakistan's power sector is navigating a new and challenging phase, where demand recovery is outpacing the flexibility of the generation system, particularly during the evening peak.