Pakistan’s electricity sector debate has become a debate about trust in the public sector. Consumers see rising bills, industry sees weakening competitiveness, and policymakers see a power sector whose costs keep rising through tariffs, subsidies and circular debt. The public anger is justifiable and has intensified sharply. But the deeper problem is not only that electricity has become expensive, but also that the current bill itself no longer explains what consumers are actually paying for.
Over the last three to five years, many consumers have seen electricity bills rise sharply. At the same time, consumer behaviour has changed. Households and businesses are reducing grid consumption, installing rooftop solar, shifting usage where possible and treating the grid as a backup service. This is rational behaviour for individual consumers, but it creates a difficult system problem: a large portion of Pakistan’s power-sector cost remains fixed even when the number of units sold by the grid falls.
The clearest example is capacity payments. Pakistan must pay generators for keeping capacity available under long-term contracts, even when that capacity utilisation is not optimal. Transmission and distribution networks also require investment, maintenance and readiness regardless of how many units a particular consumer uses in a given month.
Electricity consumers are not only paying for the energy they consume; they are also paying for the system’s readiness to serve demand whenever electricity is needed, and that readiness carries a cost. Yet the tariff structure has historically recovered much of this fixed cost through the per-unit energy price. This creates a structural mismatch. Costs that behave like fixed monthly obligations are hidden inside the variable kWh rate. The result is an inflated energy price, an opaque bill and a growing incentive for higher-income consumers to reduce grid consumption while still relying on the grid for backup at night, during cloudy periods or when their own systems are unavailable.
Net metering has made this mismatch more visible. A consumer with rooftop solar may export electricity during the day and import electricity at night. But a daytime solar unit is not economically identical to a nighttime unit supplied during higher-demand hours when more expensive generation may be running. A one-for-one adjustment of units can therefore mask the true cost of maintaining a reliable supply. The issue is not whether solar should be encouraged. It should be. The issue is whether the tariff should honestly reflect the capacity and network services that grid-connected consumers continue to use.
Final policy choices should be set using actual load research, MDI data, coincident-peak contribution and consumer affordability analysis
A better approach would be to redesign the bill so that major cost components are recovered separately. Instead of hiding capacity payments inside the kWh tariff, Pakistan should move towards a transparent structure in which consumers see a distribution charge, a capacity charge, an energy charge, a transmission or network charge, and taxes or government levies as distinct items. This would make the bill easier to understand and harder to distort.
The principle is simple. Consumers should pay for energy when they consume energy, and they should pay a fair share of capacity when the system must stand ready to serve their load. The capacity charge could be based on sanctioned load, maximum demand indicator (MDI), connected load, or coincident peak contribution, depending on the consumer class. Low-income households should be protected. High-load residential users, commercial buildings, industrial consumers, and bulk users should pay more because their capacity responsibility is higher. And net-metered consumers must also contribute towards the capacity they rely on at night.
A simple formula can illustrate the concept. A fixed monthly capacity charge equals the capacity rate, in rupees per kW-month, multiplied by the consumer’s capacity-responsibility kW. For some consumers, capacity responsibility can be tied to sanctioned load. For larger commercial and industrial users, MDI or coincident peak demand would be more accurate. For agricultural tubewells, connected horsepower or seasonal demand could be used. The important point is that the charge should reflect the consumer’s contribution to system capacity, not merely the number of units consumed in a month.
Illustrative capacity-charge formula and revenue by consumer class
Assume Pakistan assigns about 34.25 GW of capacity responsibility nationwide. That is roughly a system-peak-plus-reserve type basis calculation. Then, the monthly capacity obligation per consumer can be calculated as Rs 1.94 trillion (annual capacity payment) ÷ 12 (months) ÷ 34.25 GW (total capacity) = Rs 4,725/kW-month
This capacity charge could be structured by consumer class as follows. Apply a common benchmark of Rs 4,725 per kW, but assign different billing bases and peak capacity allocation factors (CAF) by consumer class. For example, lifeline residential consumers could be considered exempt or charged only nominally, while protected 2 kW residential consumers would pay a small, fixed charge based on sanctioned load and 3–5% illustrative CAF. So, a typical 2 kW residential consumer would pay fixed capacity charges of:
2 kW (sanctioned load) x 0.03 (CAF) x 4725 kW-month = Rs 283 per month
For other consumer classes, as consumption and system impacts increase, the CAF should rise where low-use 3 kW residential consumers are assigned 5.3% (Rs 750/month), normal 201–700 unit residential consumers about 10.5% (Rs 2,500/month), and high-use, Time of Use, or net-metered residential consumers about 14.8% (Rs 4,900/month) to calculate monthly fixed charges. Commercial and industrial consumers can be charged more directly on billing demand or MDI, with a higher CAF of roughly 12–18%, reflecting their greater contribution to system capacity requirements.
Similarly, agricultural tubewells are treated separately, using connected horsepower/kW or seasonal MDI with an 8.5% CAF, recognising their seasonal and load-pattern differences. The proposed CAFs above are illustrative. Final policy choices should be set using actual load research, MDI data, coincident-peak contribution and consumer affordability analysis. The final CAF design should take into account actual metered data analysis to ascertain each sector’s peak demand contribution.
As existing capacity contracts expire, fixed capacity charges can be reduced transparently, enabling consumers to see the savings directly on their bills and strengthening public trust in the tariff structure
Using the above method and the estimated number of customers in each category based on the best publicly available data, the following will be the estimated capacity contribution from each sector. Residential 2 kW, 3 kW, 5 kW and net-metered/7 kW customers contributing Rs 68 billion, Rs 56 billion, Rs 156 billion, and Rs 100 billion capacity payments respectively for a total of Rs 381 billion contribution from the entire residential sector. The commercial sector would contribute Rs 423 billion, the industrial sector Rs 1.1 trillion and the agricultural sector roughly Rs 36 billion.
This would result in a combined contribution of Rs 1.94 trillion required revenue for annual capacity payments for the entire system. These are estimated numbers based on publicly available data for illustration purposes only. Final values should be calculated using actual consumer data. Because industrial tariffs directly affect export competitiveness, the industrial allocation should be tested against cost-of-service results, load factor, coincident-peak contribution, and competitiveness impacts before final adoption.
This reform should not be presented as a new charge added on top of the existing bill. That would be unfair. The capacity charge must replace the portion of capacity cost already embedded in the per-unit rate. If a high, fixed cost is moved into a transparent fixed charge, the variable kWh tariff should fall at the same time. Otherwise, consumers would be paying twice. Using a rough national capacity-payment burden of about Rs 1.94 trillion per year and annual electricity sales of about 113.234 billion kWh, shifting the full capacity cost out of the energy rate would reduce the average variable tariff by about Rs 17.2 per kWh. The exact number should be updated with the latest NEPRA-determined revenue requirement and sales forecast.
A transparent capacity charge must be paired with a meaningful reduction in the kWh tariff. This would also have the effect of a very modest to no increase in consumer bills and quite possibly a decrease for some low-use consumers. For example, a low-income consumer using 100 units would see the variable portion of the bill fall by about Rs 1,720. After adding a Rs 283 fixed capacity charge, the net bill reduction would still be roughly Rs 1,437, assuming the full Rs 17.2/kWh reduction is passed through. The Rs 17.2/kWh reduction is a national average, not a fixed reduction for every consumer class. Actual class-wise reductions would depend on existing subsidies, cross-subsidies, NEPRA’s revenue allocation, and the government’s social-protection policy.
What a redesigned bill could show
A more transparent electricity bill by separating charges according to their actual purpose would increase public trust. The distribution charge on the bill would recover basic customer-service costs such as metering, billing, and local distribution service, while a separate capacity charge in Rs/kW-month would recover fixed generation-capacity costs that are currently hidden within per-unit tariffs. The energy charge in Rs/kWh would cover fuel, variable operations, and the cost of electricity actually consumed.
A separate network or transmission charge would recover the cost of maintaining, expanding, and strengthening the grid for reliability. Finally, taxes and government levies would be shown separately so that fiscal charges are transparent rather than buried inside the electricity price. This approach would also make the politics of subsidy clearer. If the government wishes to protect poor households, it should do so openly through a targeted subsidy rather than by hiding costs in the per-unit tariff paid by everyone else.
Implementing the new billing proposal gradually may be more practical than making an abrupt transition. Recovering the full capacity burden through fixed charges immediately may be economically logical, but it could be socially disruptive. Pakistan could begin by moving 20% of capacity cost into transparent fixed charges in one year, then move to 50%, and only later in future years consider full recovery once metering, consumer classification, subsidy design and adequate public communications have been completed.
Illustrative phase-in of capacity-cost recovery
Shifting capacity costs from per-unit tariffs into fixed charges would reduce the average kWh tariff in proportion to how much capacity cost is moved to fixed charges. If 20% of the capacity cost is recovered through fixed charges, annual fixed-charge recovery would be about Rs 388 billion, lowering the average energy tariff by roughly Rs 3.43/kWh. Moving 50% of the capacity cost would recover about Rs 970 billion annually and reduce the average kWh tariff by around Rs 8.60/kWh. A full shift of 100% would recover about Rs 1.94 trillion through fixed charges and reduce the average per-unit tariff by approximately Rs 17.20/kWh. In short, the more capacity cost is recovered through fixed charges, the lower the variable per-unit electricity price becomes.
The purpose of this reform is not to punish consumers who conserve energy or install solar power. Conservation and distributed generation can reduce fuel use, emissions and stress on the grid. But they do not eliminate the need for reliable capacity and network readiness. A consumer who remains connected to the grid must pay a fair share of the cost of keeping that grid available. The current tariff structure sends a confusing signal. It makes every unit of grid electricity look expensive, while hiding the fixed obligations that drive much of the cost. A redesigned bill would be more honest. It would say clearly: what does it cost to keep capacity available; what does the energy actually cost; what are the network costs; and what the government is collecting through the bill in taxes and levies.
Here, it is important to note that Pakistan’s power-sector problem cannot be solved by tariff design alone. Short-, medium- and long-term integrated system planning, contract reform, loss reduction, better demand forecasting, improved distribution governance and economic growth all matter. But tariff design is where the consumer meets the system. If the bill is opaque, trust will continue to erode. If the bill is transparent, targeted and fair, reform becomes easier to explain — and easier to sustain. As existing capacity contracts expire, fixed capacity charges can be reduced transparently, enabling consumers to see the savings directly on their bills and strengthening public trust in the tariff structure.
Pakistan should therefore stop hiding fixed power-sector costs inside per-unit electricity rates. Capacity payments should be recovered transparently, low-income households should be protected explicitly, high-capacity users should pay in proportion to the capacity they require, and the kWh tariff should fall when fixed costs are moved out of it. That would not make electricity cheap overnight, but it would make the system more transparent, more equitable and more economically rational.
Disclaimer: The numerical examples presented above are illustrative in nature, based on best estimates and publicly available data, and do not represent official or actual tariff figures.