Since March 2026, the US–Iran conflict has sharply changed the economics of Pakistan’s power market. The System Marginal Price (SMP), the variable cost of the most expensive generating unit required to meet demand averaged around PKR 15 per unit in February and PKR 16 per unit in March 2026. It rose to PKR 40 per unit in April and averaged PKR 35 per unit from April to August 2026, against PKR 16 per unit during the same months of 2025.
The principal drivers are higher fuel prices and, more critically, the unavailability of imported RLNG. This has pushed furnace oil and diesel-fired plants into regular operation, allowing their higher variable costs to influence market prices. Pakistan has long debated surplus capacity, yet it lacks sufficient affordable energy. Installed capacity and economical electricity are not the same thing. Greater reliance on indigenous fuels, particularly Thar coal and biomass offer a practical response. Thar Block II has achieved a coal-mining capacity of 11.2 million ton per annum (MTPA), placing it among the world’s leading mines in terms of capacity, with a target of 20 MTPA in the coming years.
Approximately 2,640 MW of existing generation capacity operates on mine-mouth Thar coal, whose economics are attractive. The indicative mine-mouth price after two years is around PKR 1,000 per MMBTU on an LHV basis, assuming an exchange rate of PKR 280 per US dollar. Including rail transportation towards Punjab, the delivered cost is approximately PKR 1,500 per MMBTU. However, transmission constraints between southern generation hubs and central Pakistan’s load centers limit the utilization of available capacity. New transmission infrastructure is essential but takes time to develop. The immediate question is how to make affordable electricity available closer to demand.
Pakistan already has potential sites in retired, near-retirement and largely standby power stations. Many have steam turbines, generators, cooling systems, water arrangements, land and grid connections. Much of their original investment has already been recovered through past capacity payments. Installing new local coal and biomass fired boilers with associated auxiliaries, alongside targeted balancing, modernization and rehabilitation (BMR) of existing equipment, could restore suitable units at a fraction of the cost of developing entirely new plants.
Preliminary estimates suggest a new boiler and associated auxiliaries could cost approximately USD 0.40 million per MW. At an assumed steam-cycle efficiency of 35%, preliminary calculations indicate a total generation cost of approximately PKR 21.9 per unit, including debt repayment, and PKR 19.6 per unit excluding debt repayment. The estimated energy purchase price (EPP) would be approximately PKR 16 per unit.
Against an SMP of PKR 35 per unit, the indicative difference is PKR 13 to 19 per unit, depending on whether the comparison includes debt repayment. At sustained prices and sufficient utilization, this could make the investment highly attractive, potentially allowing recovery of the new investment including debt in roughly one year.
The second abundantly available option is Biomass that is agricultural residues, often burned in fields, offer another indigenous energy opportunity. Pakistan has substantial biomass potential, but the market remains underdeveloped. The absence of transparent, standardized pricing and dependable long-term procurement arrangements creates uncertainty for investors and suppliers.
Thar coal’s delivered cost could provide a useful benchmark for biomass pricing. If sustainably sourced biomass can be supplied at around a 20% discount to the equivalent cost of Thar coal, it could offer industries an attractive local energy source. Achieving this requires reliable fuel-quality standards, aggregation and storage facilities, efficient transportation, and education for farmers and other supply-chain participants about energy value and market pricing. Biomass must remain genuinely competitive after accounting for its collection, processing, and transportation costs.
Selective Conversion, Not Indiscriminate Revival:
Not every old plant should be converted. Each candidate must undergo rigorous engineering and economic assessment, including turbine and generator condition, remaining operating life, achievable heat rate, water availability, rail access, ash handling and most importantly power evacuation requirement in vicinity.
The government should establish a fast-track pathway for technically viable conversions, covering license modifications, cost-based tariff determinations and grid approvals, aligned with distribution companies’ power acquisition plans. The first coal-drying plant in Thar is nearing completion. By reducing coal moisture, it could improve fuel quality and reduce transportation costs per unit of useful energy. In parallel, Pakistan should strengthen Thar coal’s rail-evacuation capacity, establish clear fuel-quality standards and consider appropriate financing support.
The Competitive Trading Bilateral Contract Market (CTBCM) could provide an additional commercial route. Subject to applicable market rules, registration and contractual approvals, converted plants could sell electricity through bilateral contracts with eligible Bulk Power Consumers, participate as merchant generators to sale electricity at SMP, or pursue power purchase agreements with distribution companies. Such flexibility could improve bankability.
Pakistan has repeatedly responded to energy crises by building new infrastructure. This time, the priority should be to recover value from suitable assets already connected to the grid and located near demand. With indigenous fuels, targeted retrofits and commercially viable biomass, selected existing plants could provide dependable electricity at competitive prices while new transmission projects and renewable energy develop.
The cheapest megawatt may be the one already built. Pakistan should identify which plants can be converted economically and act before their remaining value is lost.
Corresponding Author: Dr. Muhammad Farhan is an engineer by profession with nearly two decades of experience in the energy and power sector.