Research October 19

Reallocating Fuel towards more Efficient Power Production

Affordability of electricity has been a major concern in the recent past.  The following discussion will focus on the role of government-controlled generation plants in reducing cost of generation.  This reduction in cost of electricity can come from reallocating fuel mix from inefficient government-owned gas-based generation plants to more efficient ones.

Currently, the government operates power plants in GENCO (Generating Companies) or IPP format. Most of the IPPs format power plants were incorporated under the 2015 power policy, configured to use Gas and Coal as a fuel. The gas fueled power plants (Bhikki, Balloki and Haveli Bahadur Shah) were some of the most efficient power plants in the world with an efficiency of 62.5%. These power plants were supplied with LNG. In order to understand the decision of supplying these plants with LNG, it is important to revisit the situation in which the decision was taken.

By 2015, Pakistan had started to feel the pressure of a gas shortage that was the result of ill-thought distribution strategies combined with an in-effective E&P (Exploration and Production) policy. The following figure will illustrate the growth of that gas shortage.

As a result, the new power projects were supplied with imported RLNG. Imported RLNG being more expensive led to the fuel component of new efficient power plants exceeding that from inefficient plants. Having a higher fuel component led to newer efficient power plants being placed lower on the merit order.

This anomaly can be addressed if new efficient power plants are supplied with cheap domestic gas from dedicated lines. Doing so would place the newer/efficient plants higher in merit order since fuel cost component is one of the main input factors for merit order. Going up on merit order will translate into more dispatch orders for new (efficient) power plants. Such a move will decrease basket price of electricity generation since the low fuel cost component would allow new plants to fully utilize their efficiency. Such reallocation would also lead to secondary knock-on benefits.

Auxiliary advantages

Adjusting the gas allocation among government owned Power Plants will have many knock-on effects in addition to reducing cost of power generation.

First, Reallocating the Natural Gas from Older to Newer plants will help alleviate the gas shortage in the country by reducing the overall Gas demand of the country. This is because on an average, power sector consumes about a fifth of all gas in the country (see Figure 2). Furthermore, this reduction in demand will happen without any decrease in overall value of generation in the country.

Apart from reducing gas shortage, reducing overall consumption of gas in the country would also reduce the pressure on current account of the country. Currently, Pakistani rupee is under devaluation pressure due to its current account deficit. Oil based imports contribute to this pressure and LNG imports are also expected to contribute to that weight. Reduction in power sector demand for LNG imports will help alleviate some of that pressure.

Furthermore, a reduction in carbon emission[1] will definitely help Pakistan contribute towards its pledges for combatting climate change by reducing carbon emission per MW of electricity generation. In addition to environmental benefits, increased dispatch order to Bhikki, Balloki and Haveli Bahadur Shah would also lower the capacity payment share of cost due to increasing EP revenue.


Pakistan is looking for various measures to reduce its cost of power generation. This generation cost can be reduced via reallocating domestic gas pipelines from old power plant to new ones at Bhikki, Balloki and Haveli Bahadur Shah. Doing so would allow newer plants to move up the dispatch order and hence reduce the cost of power generation for the country.

[1] Resulting from more efficient use of gas generation systems.