brecorder126d ago
For more than a century, one of the clearest signals of economic progress has remained constant: when economies grow, electricity demand rises with them. Factories run longer, cities brighten, machines multiply, and productivity expands. Sustained growth without rising electricity consumption is historically rare — almost unheard of.Yet in Pakistan, that relationship is weakening. Over the past four years, economic output has inched forward, but grid electricity demand has stagnated or declined. The country is experiencing what may be called powerless growth — expansion without corresponding growth in grid power use. In a world entering what the International Energy Agency calls the ‘Age of Electricity’, such divergence is not merely unusual; it is a structural warning.Electricity is the operating system of modern economies. Every additional unit of industrial production, digital processing, mechanised agriculture, or automated manufacturing requires more power. That is why across most countries electricity consumption and GDP move together. As economies industrialise, power demand accelerates. The relationship is so reliable that electricity growth is often treated as a proxy for real economic momentum. Persistent divergence, therefore, signals stress beneath the surface — and Pakistan’s recent trajectory fits that rare pattern.Despite modest positive growth, grid demand has shrunk. This suggests the formal power system is no longer functioning as the primary engine of production. Businesses and households are adjusting behaviour in response to constraints: firms scale back output, delay expansion, shift to captive generation, or move activity off-grid; households cut usage or seek alternatives. Economic activity continues — but increasingly outside the national system.At the centre of this paradox lies a pricing problem. Industrial electricity tariffs in Pakistan have climbed to roughly 15-17 US cents per kWh, higher than many competing economies and even above average tariffs in some advanced markets. These elevated prices are not driven solely by generation costs but by structural distortions embedded in the power sector: fixed capacity payments approaching Rs 2 trillion annually, circular debt, high system losses, cross-subsidies, exchange-rate-linked fuel costs, and substantial indirect taxes built into electricity bills.Because many of these costs are fixed, they must be recovered regardless of how much electricity is consumed. When demand falls, tariffs must rise to recover the same total amount. But higher tariffs suppress demand further, increase incentives for theft or self-generation, and shrink the paying consumer base. The result is a self-reinforcing cycle economists describe as a utility death spiral. In effect, the system prices itself out of relevance.Industry feels this pressure first. Electricity is often the largest operating cost after raw materials and labour. When tariffs become uncompetitive, firms respond predictably: they reduce production, postpone investment, shift to captive power, or relocate. Each response reduces demand on the grid, worsening the cycle.Faced with expensive and unreliable electricity, consumers have adapted. Pakistan has witnessed one of the fastest expansions of distributed solar adoption anywhere. More than 20 gigawatts of solar panels were imported in 2024 alone. Estimates suggest total distributed solar capacity now stands between roughly 15 and 18 gigawatts, much of it installed behind the meter. Around 6 gigawatts operates under net-metering arrangements, while the remainder functions off-grid or as captive supply.This surge is sometimes portrayed as a threat to the power sector. In reality, it is a rational response to price signals. When a service becomes too costly or unreliable, users find alternatives. Solar provides one — especially in a country with abundant sunlight and sharply declining global panel prices. Far from undermining the economy, distributed solar has acted as a shock absorber. It has helped factories continue operating, farmers irrigate crops, and small businesses manage costs. It has reduced pressure on foreign exchange by lowering fuel imports and mobilised private investment in energy infrastructure at a scale the public sector could not match. Solar did not create Pakistan’s electricity paradox; it has merely concealed it.This creates a policy dilemma. Governments must balance three objectives simultaneously: financial sustainability of the grid, fairness among consumers, and continued investment in clean energy. If solar users pay too little for grid services, other consumers bear a disproportionate burden. But if incentives are cut abruptly, investment collapses and confidence erodes. Heavy-handed restrictions risk pushing more users off grid, shrinking demand further and raising system costs for those who remain. The problem cannot be solved by driving customers away.A practical middle path lies in a balanced net-billing framework that preserves incentives while ensuring fair cost recovery. Such an approach would link export prices to market conditions, introduce time-of-use tariffs, apply transparent grid-access charges, and adjust policies gradually rather than abruptly. Predictability is as important as price: investors can adapt to reasonable returns, but not to sudden rule changes. A moderate export price that ensures viable returns can sustain private investment in clean energy while protecting grid finances.Pakistan’s electricity problem is often described as a shortage. In reality, it is largely a utilisation problem. Installed capacity exists, but demand is too low to spread fixed costs efficiently. High tariffs suppress consumption; suppressed consumption keeps tariffs high. Breaking this cycle requires expanding demand, not restricting it.This is where policy courage is required. A deliberate reduction in electricity tariffs — even if it requires temporary fiscal support or risk-sharing by the state — could stimulate consumption, revive industrial output, and increase overall revenue collection. Higher electricity usage would improve recovery of fixed capacity payments by spreading them across more units, while stronger economic activity would expand the tax base. In network industries, scale improves viability; lower prices can generate higher total revenue if they unlock sufficient demand.The real reform, therefore, is not choosing between grid power and distributed energy. It is integrating both into a coherent system. Modern electricity markets combine centralised generation, decentralised sources, storage, and flexible pricing. The future is hybrid, not binary.Electricity is the bloodstream of modern economies. Countries that ensure abundant, affordable power industrialise faster, attract investment, and sustain productivity gains. Those that fail to do so struggle to compete. Pakistan’s powerless growth is thus more than an energy anomaly; it is a macroeconomic constraint. If the gap between economic activity and electricity demand persists, it signals that the formal energy system is no longer fully supporting growth.Pakistan now stands at a crossroads. One path attempts to sustain the existing system through higher tariffs and restrictions. The other pursues structural reform — lowering costs, expanding demand, and integrating distributed energy into the grid. The first may stabilise finances temporarily but risks long-term stagnation. The second requires policy discipline and calculated risk but offers a route to durable growth.Affordable electricity is not simply an energy objective. It is economic strategy. In the ‘Age of Electricity’, nations that align power systems with growth prosper; those that fail to do so fall behind. Pakistan’s problem is not that it lacks electricity. It is that too much of its electricity is too expensive to use.Until that changes, growth will remain — quite literally — powerless.Copyright Business Recorder, 2026
