THE objective of the Power Division’s directive to the public distribution companies, including K-Electric, to sign service-level agreements with industries using gas-based captive power for their electricity needs is to lure them away from their off-grid, in-house generation to the national grid. The idea is to arrest falling demand on the grid and boost the use of a huge idle grid capacity for slashing the burden of capacity payments on consumer tariffs. The industry’s total self-generation capacity across the country, mainly in Punjab and Sindh, is estimated to be 2,150MW. The government could slash its capacity payments on surplus generation capacity by Rs240bn and cut the consumer tariffs by Rs2 per unit even if the industry agrees to shut down 70pc of its in-house generation and shift to the grid. The authorities have already raised the gas prices for captive power plants from Rs3,000 per mmBtu to Rs3,500 per mmBtu to discourage the use of self-generation under its $7bn agreement with the IMF.

Captive power is quite popular among manufacturers, especially textile producers, due to a combination of economic, operational and infrastructural factors. Our energy infrastructure faces challenges such as frequent power outages, and voltage fluctuations, which can significantly disrupt industrial operations. Besides, in-house generation is cheaper than electricity from the grid, which enables businesses to control their energy costs, while ensuring uninterrupted production. The agreements with the industries will commit to the “provision of stable, reliable and high-quality electricity supplies to them, catering to their specific needs”. In case of supply disruptions or grid fluctuations, the distribution firms will face heavy penalties. The agreements will also cover mechanisms for addressing technical faults in electricity supply and dispute resolution. The question is whether distribution companies are in a position to give such undertakings to the industry. Although the Discos and K-Electric have large distribution networks, especially in Punjab and Sindh where captive power is located, the network is mostly unreliable and plagued with inefficiencies due to lack of investment in its upgradation, the key reasons why industries opted out of the grid in the first place. Unless the distribution companies start investing in their networks, it would be impossible to lure the industries back to the grid. But do they have enough cash to upgrade their network?

Published in Dawn, February 3rd, 2025