The government has admitted that the contracts made with Independent Power Producers (IPPs) are a heavy burden on the national exchequer.

Secretary Power Division Rashid Langrial said in a post on X that capacity payments have also doubled due to the increase in the value of the dollar.

This is because many IPP contracts are denominated in US dollars.

The depreciation of the rupee against the dollar has made these contracts more expensive for the government.

What are capacity payments?

Capacity payments are payments made to power plants for their ability to generate electricity, even if they are not actually generating electricity at a given time.

These payments are designed to ensure that there is enough power generation capacity to meet the country's needs, even during peak demand periods.

Capacity Payment doubled as dollar rose from PKR 100 to 300.

Foreign-funded dollar-denominated IPPs have contributed the most.

Locally funded RLNG plants's capacity payment has increased by 60 % while foreign-funded coal plants' payment has gone up by 145 %.

Policy lessons ? pic.twitter.com/HbEhpYvEIn
— Rashid Langrial (@Rashidlangrial) September 18, 2023

The capacity payments of externally funded power plants have increased by 145%, while the capacity payment rate of domestic fuel powered power plants has increased by 60%.

Capacity payments of all power plants: Rs2,152 billion
Electricity rates include capacity payments of Rs19 per unit
Capacity payments of alternative energy power plants: Rs260 billion
Capacity payments of nuclear power plants: Rs510 billion
Capacity payments of LNG power plants: Rs149 billion
Capacity payments of coal power plants: Rs643 billion

Impact on electricity tariff

The high cost of capacity payments is one of the factors that contributes to the high cost of electricity in the country.

The government has said that it is working to reduce the cost of electricity, but it remains uncertain when these efforts will bear fruit.