Electricity tariff may rise by Rs2.50 per unit as July FCA pushes recovery above Rs34bn

ISLAMABAD: Electricity consumers across Pakistan could face an additional burden of around Rs2.50 per unit as the government moves to recover more than Rs34 billion through the July 2026 monthly Fuel Charges Adjustment (FCA), according to sources.

The proposed increase is expected to affect consumers of distribution companies (Discos) as well as K-Electric, with the final adjustment to be determined by the National Electric Power Regulatory Authority (Nepra) after reviewing the relevant power purchase and generation costs.

Sources said the expected positive FCA for July has largely been driven by higher electricity consumption during the peak summer season and greater reliance on expensive generation sources.

Among the key factors behind the anticipated increase are the use of liquefied natural gas (LNG) procured from the spot market and furnace oil to meet additional electricity requirements, particularly during periods of high demand.

June FCA already approved

The expected July adjustment comes after Nepra approved a positive FCA of Re0.7503 per unit for electricity consumed in June 2026.

The adjustment was lower than the Rs1.20 per unit sought by the Central Power Purchasing Agency-Guaranteed (CPPA-G).

Under the FCA mechanism, variations in fuel costs and other electricity generation and purchase-related expenses are passed on to consumers through periodic adjustments.

For July, CPPA-G will submit its relevant claims to Nepra, which will examine the costs and determine the admissible adjustment before issuing separate decisions for the respective distribution companies.

Multiple costs to be examined

The regulator is expected to assess several components included in the FCA claim before determining the final amount recoverable from consumers.

Separate adjustments will subsequently be calculated for each Disco after taking into account electricity purchased through CPPA-G, bilateral arrangements with small power producers and captive power producers, as well as electricity supplied under net-metering arrangements.

The final impact on consumers could therefore vary depending on the individual power procurement mix and applicable tariff structure of each distribution company.

Expensive generation raises concerns

The expected tariff increase has emerged at a challenging time for Pakistan’s industrial sector, where electricity prices remain a major concern for manufacturers and exporters.

Industrial consumers are already facing pressure from elevated production costs, while exporters are also dealing with uncertainty caused by deteriorating security and economic conditions in the Middle East.

The latest FCA discussion has also brought the issue of partial-loading charges under scrutiny.

During a recent hearing, Nepra raised questions over approximately Rs4.9 billion in partial-loading costs and asked CPPA-G to explain the reasons behind the additional expenditure and measures being considered to control it.

Solar power changes demand pattern

CPPA-G told the regulator that the partial-loading charges were not primarily the result of inefficient operation by power plants.

Instead, the agency attributed the costs largely to changes in electricity consumption patterns caused by the rapid expansion of rooftop solar generation.

According to CPPA-G, daytime demand from the national grid has declined as more consumers generate electricity through rooftop solar systems. Conventional power plants are consequently required to operate below their optimum capacity during solar-generation hours.

However, demand rises again in the evening when solar generation falls, forcing grid-connected power plants to increase generation quickly.

This change in the daily demand curve has created additional operational costs for the power system.

The authority noted that partial-loading charges recorded in June 2026 were around Rs1 billion higher than the corresponding amount in June 2025, highlighting the growing financial impact of the changing electricity demand pattern.

Plant shutdowns could increase costs

The Independent System and Market Operator (ISMO) also informed the regulator that shutting down power plants during periods of lower demand would not necessarily provide a cheaper solution.

According to ISMO, taking plants completely offline to avoid partial-loading charges could result in substantial start-up expenses when the units are required again to meet evening demand.

The issue has therefore become increasingly important as the rapid growth of distributed solar generation continues to alter the traditional pattern of electricity consumption.

Exporters seek cheaper fuel options

Amir Sheikh, a prominent textile exporter, called for the removal of the levy imposed on high-speed diesel and furnace oil-related generation costs, arguing that furnace-oil-based power plants could offer an alternative to expensive RLNG-fired generation under certain circumstances.

He maintained that allowing more flexible use of available generation sources could help reduce the overall cost of electricity, particularly during periods when LNG prices remain elevated.

Sheikh also proposed a change in the way FCA-related surcharges are calculated.

He suggested that the additional charges should be recovered on the basis of projected electricity consumption rather than only through the conventional mechanism, similar to the approach followed under quarterly tariff adjustments (QTA).

Falling demand creates another challenge

Another concern raised during the discussion was the continuing decline in electricity demand and its possible implications for future tariff adjustments.

Rehan Javed highlighted the potential impact of lower electricity consumption on the power sector’s financial structure, particularly as fixed system costs are spread over a smaller volume of electricity sales.

The Ministry of Energy’s Power Division, however, said the decline in demand was largely linked to the increasing number of consumers using net-metering facilities.

The ministry maintained that although distributed solar generation was changing electricity consumption patterns, its impact on future quarterly tariff adjustments would not necessarily be as severe as feared by industrial consumers.

Government seeks to avoid costly LNG purchases

The Power Division further explained that electricity demand was being managed in a manner designed to reduce dependence on expensive RLNG spot-market cargoes.

Officials said excessive reliance on spot LNG during the summer could significantly increase power generation costs and ultimately translate into higher electricity tariffs for consumers.

The government is therefore attempting to balance electricity availability, fuel costs and demand management while dealing with the changing structure of Pakistan’s power market.

If Nepra ultimately approves an FCA close to the expected Rs2.50 per unit, consumers could face another substantial increase in their electricity bills. The final adjustment, however, will depend on Nepra’s assessment of CPPA-G’s July claim and the costs deemed recoverable under the applicable tariff framework.