Comment by saidinesh5
4 months ago
I'm guessing: fewer people buying from the power companies/grid => the fixed costs of these companies are pushed onto the poorer customers, who already couldn't afford much.
4 months ago
I'm guessing: fewer people buying from the power companies/grid => the fixed costs of these companies are pushed onto the poorer customers, who already couldn't afford much.
This is correct.
But there is a bit more. Almost all power plants in Pakistan are built with state-backed dollar-denominated loans (reason govt incompetence+corruption). This means if grid demand goes down, power plants don't go out of business like they would in a market based system. Instead, they keep collecting dollar-denominated interest paid by the state, even if they produce zero power.
The state mitigates this by increasing electricity prices (in rupees). I have forgotten how this helps.
The reason power plants in Pakistan probably require this kind of financing is because Pakistan doesn't have the industrial capability to make the equipment that you need to build a power plant, so, dollars are a requirement.
Power companies in Pakistan also don't have easy access to international money markets, and thus, it makes sense for the government to back those strong currency loans as a subsidy on infrastructure.
This is not exclusive to Pakistan, this is the routine of infrastructure financing on developing countries. J.P. Morgan is not really eager to lend money for PakiPower Incorporated, but it is willing to lend to the government.
It is unfortunate that the government of Pakistan and their investors (China and the IMF) made poor investment decisions. They should feel free to go back to debt holders to renegotiate the debt, or default on it and hand the stranded assets back to creditors. The death spiral is of their own making, and will only accelerate as solar PV and battery cost declines continue. Electricity consumers will simply go off the grid. Such is the risk of unsophisticated investors not understanding the market in which they invest. Capital being at risk is an inherent component of investment.
My condolences and sympathy to the people of Pakistan caught in the mess. The global energy transition will be volatile.
Solar electricity every hour of every day is here and it changes everything - https://ember-energy.org/latest-insights/solar-electricity-e... - June 21st, 2025
Stranded fossil-fuel assets translate to major losses for investors in advanced economies - https://www.nature.com/articles/s41558-022-01356-y | https://doi.org/10.1038/s41558-022-01356-y - May 26th, 2022
Rethinking Energy -- 100% Solar, Wind and Batteries Is Just The Beginning - https://www.youtube.com/watch?v=PM2RxWtF4Ds - January 2021
Who owns the distressed fossil generation collateralized debt? China. Where is Pakistan importing cleantech from? China. There is some IMF debt in there as well, for accuracy.
How Chinese loans trapped Pakistan's economy - https://www.dw.com/en/how-chinese-loans-trapped-pakistans-ec... - August 2nd, 2024
Emeber Energy: China Cleantech Exports Data Explorer - https://ember-energy.org/data/china-cleantech-exports-data-e... (updated monthly)
I doubt the debt is secured by the power assets. If anything, maybe China can assume ownership of the entire powerplant if Pakistan cannot pay. They have done that many times in Africa. See: "debt-trap diplomacy". Also, it is terrible advice to tell a country to default on external debt. See: Argentina!
3 replies →
So the power plants lend dollars to the state so that they can pay to build the power plant?
Or else I don't see how the power plants are collecting the interest?
Usually there are three parties in these agreements.
1. State of Pakistan
2. Someone with dollars (the investors)
3. Local businessman who are willing run the power plant.
The three parties come to an agreement on what the minimum returns should be on the investment. Say 10% annual. Then the investors give money to the businessman, who then import the power plant equipment and start operating it. The state-run electricity distribution companies buys from the power plant as needed and pays them the unit price set by the State of Pakistan. Part of this is converted into dollars at some pre-agreed rate and transferred to the investors.
In all this, if the total returns to the investor are above 10%, then all is good. However, if the grid demand has fallen, and the distribution company didn't buy a lot of units from the power plant, then the State of Pakistan has to step in and give the investors the difference to make up the 10% returns.
Yes, it is an insane system.
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Don't they charge a minimum just for keeping the wires connected?
I heard that they are trying to restructure the billing in this way for next fiscal year (July 2026- ), but its really difficult to find a non-regressive scheme. Electricity per-unit prices in Pakistan are set by the government, they vary depending on how much you consume [1], and they play a pretty significant role in government popularity.
[1] There is a price for the first 50 units you consume, then a higher price for the next 150 units, etc. Similar system to income taxes.
Grids in Germany if you're not a "typical household/office" with therefore atypical grid usage bill for peak power and energy separately; the billing related peak power is measured by averaging power over 15 minute chunks, and taking the worst one of a year.
Alternatively it's also practical for such solar situations to bill for market rate price of the energy in each 15 minute chunk separately; this doesn't correctly attribute transformer and other transmission equipment expenses between solar houses and non-solar houses, but it's still handling the grid tie solar load on the grid's power plants during periods of very little sun.
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When they start charging that way, the rich will buy batteries and disconnect from the grid entirely.
It's good until a Wednesday afternoon your home system dies and you have no electricity until Monday. I guess more people would prefer to pay a $10 or $20 monthly fee just in case.
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I think most places the service is priced under the assumption that usage is enough to pay for the grid…
I’ve only ever rented though. Are connection fees something that homeworkers think about?
Possibly we will have to see changes to account for this sort of stuff at a more granular level, as the grid becomes more dynamic. But, that’s a future we should be actively looking to design for, as the energy supply mix is going to change whatever anybody thinks about that. Can’t beat energy falling from the sky, on price…
In a random German apartment usage tends to be on the order of 30-ish EUR per person, and the connection fee is typically around 10 EUR per month.
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Usually that’s included in per-kWh fee, so indeed usage dependent.
its easily fixable, utility company can charge fee for fixed cost those who connected to the grid, and if all rich decided to disconnect, then they disconnect neighborhood eliminating fixed cost.