Pakistan needs power sector reforms to counter energy inflation

Energy price rise is a major cause of concern for Pakistan, as it deteriorates the real purchasing power of consumers and increases the cost of production. However, with prudent reforms in the power sector, the upward trend in energy prices can be curtailed.

Talking to WealthPK, Qasim Shah, Deputy Executive Director at Sustainable Development Policy Institute (SDPI), said the high cost of energy production in the country is the main reason behind many economic ills. He said reforms in the power sector are needed to curb energy inflation.

During the first nine months (July-March) of the fiscal year 2022-23, total electricity consumption stood at 84,034GWh. The household sector is the largest consumer of electricity, consuming 39,200GWh (46.6%), followed by the industrial sector with 23,687GWh (28.2%). Moreover, agriculture and commercial sectors consume 6,906GWh (8.2%), and 6,576GWh (7.8%), respectively, whereas the electricity consumption in other sectors (streetlights, general services, government) is 7,664GWh (9.1%).

Shah said the high energy inflation in the country is mainly attributed to disproportionate energy mix of the country. 

“Too much dependence on imported fossil fuels for energy generation puts a greater burden on the consumer in the form of high cost per unit of electricity,” he said. 

Shah said the energy inflation in the country leads to a substantial increase in the prices of our goods in the international market, given that energy expenses significantly contribute to the overall cost equation of numerous industries. 

In order to curtail energy inflation, he emphasised more investment in renewable energy sources like solar, wind, and hydropower that will help diversify the energy mix by reducing dependence on expensive fossil fuels.

“The government’s initiative to promote solar PV-based power generation as a substitute to imported fossil fuels is a much-needed step. The government plans to add approximately 6,000MW of solar PV (photovoltaic) capacity under this initiative,” he said. 

Moreover, he proposed that the government should issue directives to private enterprises to embrace solar energy adoption for their buildings, in addition to launching affordable energy production initiatives through the public-private partnership model.

Energy inflation in the country is causing stress to both consumers and producers. Reforms in the energy sector can bring positive economic outcomes for the economy at large.

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