Electricity Generation in 21st Century: Pakistan's Shift Towards Decentralization and Sustainable Energy Solutions.

The energy landscape in Pakistan, like much of the world, has undergone a profound transformation. Traditional centralized models of electricity generation are being challenged by newer, decentralized methods. This shift is driven by factors such as evolving government policies, rapid technological advancements, and, most importantly, the increasing demand for affordable, reliable, and sustainable energy.

In Pakistan, four key methods now define the energy market, each contributing to a more efficient and future-ready power sector. Let’s dive into these methods and the data that underscore their impact.

1. Government-Provided Electricity

Historically, governments have played a leading role in the power sector by building large-scale power plants through self-financing or government-to-government (G2G) arrangements. These projects often involve specialized Engineering, Procurement, and Construction (EPC) firms to design and commission the plants. A global example is China, which produced over 7,500 terawatt-hours (TWh) of electricity in 2023, primarily from coal and hydropower.

In Pakistan, the government has long been a key player in electricity generation, but large government-run plants are increasingly seen as slow to adapt to new, greener technologies. Capital-intensive and rigid, these projects are essential but are often less flexible in embracing the sustainable energy innovations needed for the future.

2. Independent Power Producers (IPPs)

To mobilize private sector investment, many countries, including Pakistan, introduced Independent Power Producers (IPPs) through public-private partnerships. The global success of the IPP model, which added over 100 GW of new capacity in the Middle East and Africa by 2022, has also been evident in Pakistan’s energy evolution.

In 1994, Pakistan launched its first Greenfield IPP project, Hub Power Company, a 1,600 MW plant managed by National Power of the UK. However, due to a lack of long-term planning, the country ended up with an oversupply of IPPs, exacerbating the financial burden on the state. Recognizing this imbalance, during my tenure as Chairman of the National Electric Power Regulatory Authority (NEPRA), I introduced the Indicative Generation Capacity Expansion Plan (IGCEP) in 2020. This plan introduced a 10-year, forward-looking capacity expansion strategy based on least-cost principles.

To complement the IGCEP, we also launched the Transmission System Expansion Plan (TSEP), the first integrated plan for both generation and transmission systems in Pakistan. Despite these reforms, IPPs have often been unfairly blamed for the country's high electricity tariffs, obscuring their positive contributions to energy security.

3. Liberalized Electricity Markets

During my time as NEPRA Chairman, it became clear that the IPP model, due to its "Take or Pay" tariff structures, was no longer viable. These contracts required the government to pay fixed capacity charges even if electricity was not purchased, creating an unsustainable financial situation. With Pakistan’s installed generation capacity now exceeding 45,885 MW—far above peak demand, which rarely exceeds 30,000 MW—the country faced the costly challenge of paying for unused capacity.

Learning from global examples, where competitive electricity markets have driven innovation and reduced costs, we launched Pakistan’s first Competitive Trading Bilateral Contracts Market (CTBCM) in 2022. The CTBCM aimed to open the wholesale electricity market to private players, allowing large consumers (using over 1 MW) to buy directly from producers. Although unresolved policy issues and high wheeling charges have delayed full implementation, CTBCM remains the most ambitious power sector reform in Pakistan’s history, with the potential to lower costs and foster greater market efficiency.

4. Self-Generation - End of Grid!

One of the most transformative trends in electricity generation is the rise of self-generation, driven largely by the falling costs of solar energy. The price of solar photovoltaic (PV) systems has dropped by over 80% since 2010, making solar power one of the cheapest sources of new electricity. In some markets, solar energy costs as little as $0.015 per kWh, making it an increasingly attractive option for businesses and households.

In Pakistan, self-generation is accelerating due to the country’s abundant solar potential, with solar insolation levels of 5-6 kWh/m2/day. The government’s support for Net Metering has led to the installation of around 2,200 MW of solar capacity in the formal sector. Meanwhile, informal solar installations are booming, with a recent Bloomberg article estimating that over 9,000 MW of rooftop solar capacity has been installed across Pakistan, without formal licenses. This silent solar revolution is pushing the country towards grid independence, and as battery storage costs are predicted to fall by an additional 50% by 2030, more and more consumers may opt to go off-grid entirely.

Conclusion

The future of electricity generation in Pakistan is being shaped by decentralization, innovation, and sustainability. Governments, businesses, and consumers are all playing pivotal roles in this transition, from traditional power plants and IPPs to competitive markets and self-generation.

As Pakistan continues its journey toward energy independence, it is crucial that the country embraces market-driven reforms like the CTBCM to ensure a more reliable, affordable, and sustainable energy future. Without the right policies and reforms, Pakistan risks moving toward a new energy era where consumers, frustrated with the existing grid, take control of their own energy needs—perhaps eventually queuing up to disconnect from the national grid altogether.

Tauseef H. Farooqi Former Chairman, National Electric Power Regulatory Authority (NEPRA)