Govt proposes new industrial power tariff to curb shift from grid to solar

ISLAMABAD: The government has presented a new electricity pricing plan to the International Monetary Fund that would raise fixed charges for industrial consumers, particularly those using much less than their sanctioned load while increasingly relying on solar or other off-grid power sources.

The proposed framework, described by officials as a two-part industrial tariff policy, is aimed at improving recovery of fixed costs in the power sector as industrial demand from the national grid declines. The plan is based on lowering per-unit electricity rates for higher consumption while imposing heavier fixed charges on consumers with low grid utilisation.

According to the proposal, the government expects fixed costs to be spread over larger electricity sales, which it says could reduce the per-unit cost of power. Preliminary assessments cited in the plan indicate that additional demand of around 1,000 megawatts could emerge within six to 12 months of implementation, although the outcome would depend on market response and participation.

Policy under consultation

A Power Division spokesman confirmed that work on the policy is under way and said it could be implemented within two months. He said the proposed tariff would be optional rather than mandatory and that its main purpose was to encourage industrial electricity consumption and make better use of the existing power system.

Explaining the rationale, the spokesman said many industrial consumers keep a high sanctioned load or maximum demand indicator capacity but consume comparatively little electricity from the grid, even though the system must still maintain generation, transmission and distribution capacity for them. He said those infrastructure costs remain in place regardless of actual consumption.

The spokesman said industries using more than 50% of their sanctioned load could receive a reduction in the energy tariff of about one to two US cents per kilowatt-hour, lowering the effective tariff to roughly seven to eight US cents per kilowatt-hour.

"If an industrial consumer utilises more than 50% of its sanctioned load, it could benefit from a reduction in energy tariff of approximately one to two US cents per kWh, bringing the effective tariff down to around seven to eight US cents per kWh,"

He added that at higher utilisation levels, tariffs could potentially fall to nearly six US cents per kilowatt-hour, which the Power Division believes would improve the international competitiveness of Pakistan's industrial electricity prices.

Focus on fixed costs and industrial demand

Power Minister Sardar Awais Laghari recently shared the plan with the IMF. During recent budget discussions, the IMF also raised concerns about the rapid fall in industrial electricity demand from the national grid. The decline has been linked to high power prices, which have pushed consumers toward alternatives such as solar panels and gas-based generation.

Sources said the IMF has asked the government to provide periodic data on industrial consumption and the number of consumers that have left the national grid before it gives formal approval to the proposal. Asked about the lender's position, the Power Division spokesman said the finance ministry would be better placed to comment on any formal IMF view. He added that the IMF generally backs measures that support economic activity, industrial growth, energy sector efficiency and better use of existing infrastructure.

"Any tariff mechanism that increases industrial competitiveness, expands electricity sales and improves recovery of fixed system costs would broadly align with these objectives,"

Speaking on Mohammad Malick's show, Laghari said 75% of the cost of power generation was fixed, while only 25% related to electricity cost. He said the fixed-cost burden appears lower in high-consumption months but rises sharply when consumption drops.

One industrial consumer in Karachi received a bill of Rs8,158 for only four units of electricity, implying a per-unit cost of Rs2,040 because the bill included a Rs6,750 fixed charge. Under the new proposal, that burden would increase further for users with very low consumption relative to sanctioned load.

Initial rollout for industries

In its first phase, the policy would apply to industrial connections and could later be extended to commercial and residential consumers. The Power Division said continuous-process industries and other energy-intensive sectors were expected to be the first users of the tariff structure because they would have a stronger incentive to increase grid consumption.

The division also said the pricing model could affect industrial decisions on captive generation and solar investment, particularly if daytime grid tariffs move closer to the levelised cost of solar power. In that case, industries may opt to depend more heavily on the national grid for a larger share of their energy needs.

The spokesman said the tariff proposal is still being consulted on and finalised, and once it receives approval from the relevant authorities and regulators, implementation is expected without major delay.

The move comes as the government seeks ways to keep large-paying consumers connected to the national grid amid concern that a continued shift away from the system could deepen the financial strain on the power sector and weaken the prospects for privatising distribution companies.