Industries drive power demand

Pakistan’s national grid power generation in 7MFY26 remained 8 percent below the peak recorded in 7MFY22. At 74 billion kilowatt hours, output was still lower than the same period in FY23 and FY24, and only marginally higher than last year. The broader trend of subdued generation nevertheless saw a meaningful break in January, which became only the fourth instance in the past 18 months where actual generation exceeded reference levels.

January 2026 also marked a structural milestone. At current estimates, it was the highest January generation ever recorded, and the first instance of a highest ever monthly generation figure since May 2022. On a year on year basis, January generation rose by 12 percent, the strongest growth recorded so far in FY26. This improvement coincided with the rollout of the winter consumption incentive package in December, which appears to have provided a clear boost to demand.

The uptick comes on top of the ongoing shift of previously captive industrial users back onto the grid, a transition that has already lifted industrial electricity demand by an estimated 35 to 40 percent year on year. With industrial demand showing a strong rebound, overall grid demand is expected to gain further traction in the coming months.

Despite these positives, cumulative generation over 7MFY26 showed little improvement compared to last year, highlighting the extent of demand compression in other segments. Domestic and agricultural consumption continue to lag, offsetting gains on the industrial side.

The deviation from reference generation is more clearly explained by the evolving fuel mix. As seasonal hydel output declined sharply in January, the system leaned heavily on imported fuels. Imported coal recorded the most pronounced divergence, with actual generation rising to 1.58 billion units against a reference of 437 million units. Furnace oil also re entered the generation stack, adding an estimated Rs9 billion to the fuel bill despite no reference allocation. Consequently, the average fuel cost of generation rose to Rs12.2 per unit, the highest level since January 2024, while the Rs1.78 per unit fuel price adjustment sought for January is the steepest since June 2024.

While the monthly fuel adjustment is elevated due to heavier reliance on thermal and imported fuel based generation, higher than referenced overall generation should help moderate future quarterly tariff adjustments. With hydel contribution at its seasonal low and thermal generation carrying the load, near term cost pressures appear unavoidable. However, a sustained recovery in industrial electricity demand, supported by multi year low industrial tariffs and a near elimination of cross subsidy, keeps the medium term outlook for grid demand constructive. If current momentum holds, a return to FY22 generation highs by the end of FY26 remains plausible.