Capacity charges — the hidden 65% of your electricity bill
Fuel costs get the headlines, but capacity payments to Independent Power Producers are the structural reason Pakistani electricity is expensive and getting more so. Here's what they are, who they're paid to, and why they matter more than the units you actually use.
A one-line definition
Capacity charges are fixed monthly payments the national grid makes to power plants for standing ready to generate — regardless of whether their electricity is actually used. Think of it like a gym membership: you pay whether or not you turn up.
How they got embedded in the tariff
In the 1994 Power Policy — and again in 2002 and 2015 — Pakistan signed "take-or-pay" contracts with Independent Power Producers (IPPs) denominated in US dollars, with guaranteed returns of 15-20% IRR. These contracts require CPPA-G (Central Power Purchasing Agency) to pay a fixed monthly capacity payment for the plant's declared available capacity, plus a variable energy payment for units actually dispatched.
Two things then happened. First, demand growth stalled after 2018 as tariffs rose faster than incomes, so plants ran at lower load factors. Second, the rupee lost 60% of its value against the dollar between 2022 and 2024. Together these mean the fixed capacity bill — paid in rupees converted from dollars, divided by fewer delivered units — went from roughly PKR 3/unit in 2015 to over PKR 18/unit today.
Where they hide in your bill
Unlike Fuel Price Adjustment (FPA) or Quarterly Tariff Adjustment (QTA), capacity charges don't appear as a separate line. They are folded into the base energy tariff NEPRA notifies each fiscal year. When NEPRA raises the 201-300 slab from PKR 24 to PKR 27, roughly PKR 2 of that PKR 3 increase is capacity — not fuel, not distribution losses.
This is why fuel-price falls (petrol, coal, gas) don't translate into cheaper bills the way consumers expect. The variable share is small; the fixed capacity share is dominant and locked in through 2035-2040 contract tails.
What actually reduces capacity charges
- Contract renegotiation — the 2024-25 round cut ~PKR 1.4 trillion in future payments; more rounds are politically hard.
- Higher grid utilisation — every extra unit consumed spreads the fixed bill wider. Ironically, EV adoption and industrial revival would lower per-unit capacity.
- Retiring the oldest, most expensive IPPs — several 1994-vintage contracts expire between 2025 and 2027.
- Wheeling for captive power — the new wheeling rules let industrials bypass IPPs by moving surplus solar/wind between sites, though a Rs 8-10/unit stranded-capacity levy has been proposed to compensate.
None of these help the household bill this year. That's why the practical response is on the consumption side: solar, protected-status discipline, and off-peak load-shifting all still work — just don't expect capacity charges themselves to disappear.