Pakistan’s power sector today stands at the edge of both crisis and opportunity, a paradoxical intersection where oversupply coexists with scarcity, and excess capacity burdens coexist with unmet demand.
The country pays billions of rupees annually in capacity payments for idle megawatts that never reach consumers, even as industries face power cuts and households brace for unaffordable bills. At the same time, solar panels are blooming across rooftops, signaling a quiet revolution of distributed energy. Yet the system’s regulatory mindset, still rooted in the 20th century, treats this transformation as a threat rather than a triumph.
It is in this context that the 2025 Nobel Prize in Economic Sciences, awarded to Joel Mokyr, Philippe Aghion and Peter Howitt, carries extraordinary relevance. Their collective work on innovation-driven creative destruction offers both an explanation of the past and a roadmap for Pakistan’s future.
Creative destruction, in Schumpeter’s timeless phrase, is the process by which new technologies, enterprises and ideas continually displace the old, driving long-term growth. Mokyr, Aghion and Howitt expanded this into a complete theory of economic evolution, arguing that progress is not linear accumulation but perpetual renewal.
As Aghion’s models demonstrate, sustained prosperity depends on allowing obsolescence and innovation to coexist in a cycle of disciplined turbulence. This is not chaos but choreography. But when incumbents use political influence to block this renewal, societies sink into what Aghion calls the incumbency trap. Pakistan’s power sector, with its debt-laden coal plants and take-or-pay contracts indexed to inflation, exchange rate and interest rate, epitomises this trap. It has become a system that protects old rents instead of producing new value.
The imported coal plants, once symbols of a solution to energy crises and industrial modernity, now resemble the very monopolies Schumpeter warned about: yesterday’s innovators turned rent-seekers. Their guaranteed payments have become a fiscal burden, while their environmental costs deepen Pakistan’s vulnerability to climate shocks. The challenge, as the Nobel laureates would phrase it, is not to preserve these incumbents but to govern their creative destruction.
The early retirement of coal power plants must therefore be understood as a shift from static to dynamic efficiency. It frees up fiscal space, unlocks resources and redirects human and financial capital towards the technological frontier, distributed renewables, battery storage and digital grid management. This reallocation reflects Aghion and Howitt’s central insight: growth occurs when capital and talent move continuously from declining sectors to expanding ones.
Seen through this lens, rooftop solar becomes the frontier of innovation. Like startups in a competitive market, prosumer systems represent the insurgent force of creative destruction, small, agile and decentralised. They empower citizens to become producers, reduce transmission losses and democratise energy ownership. Yet, just as Schumpeter’s entrepreneurs face resistance from entrenched monopolies, Pakistan’s solar adopters face regulatory suspicion, arbitrary policy changes, and attempts to dilute net-metering. This conflict between incumbents and innovators is the essential friction through which progress occurs. Suppressing rooftop solar is akin to protecting the candle industry from the light bulb.
To harness this wave, Pakistan must shift from the protectionism of the old to the facilitation of the new. Regulators should treat distributed generation as a public good, not a private nuisance. That means digitalising metering infrastructure, offering fair time-based tariffs and enabling prosumers to sell excess electricity transparently through grid-based markets. In short, creative destruction must be governed, not gagged. The path forward is to channel competition where it fosters innovation and regulate where it stabilises the system, what Aghion describes as staying on the ‘inverted-U’ of optimal rivalry.
The solar boom sweeping through Pakistan presents also a challenge of intermittency. Here lies another frontier of innovation, sodium-ion batteries – the next chapter in the global story of energy storage. Unlike lithium-ion batteries, which rely on expensive and geopolitically constrained materials such as lithium and cobalt, sodium batteries are cheaper, safer and more sustainable. Most importantly, Pakistan possesses abundant sodium resources embedded in its massive salt reserves at Khewra, Warcha in Punjab, and Bahadur Khel in Khyber Pakhtunkhwa.
This geological blessing positions the country to leapfrog into a new segment of the clean-tech value chain, local manufacturing of sodium-ion batteries for stationary storage, electric vehicles, and rural microgrids. By developing sodium battery industries, Pakistan could reduce import dependence, stabilise solar generation through affordable storage and create green industrial jobs. A sodium-based storage ecosystem, coupled with a solar boom, could become the cornerstone of Pakistan’s Schumpeterian renewal.
But perhaps the most profound shift must occur in how Pakistan conceives its grid itself. The ‘National Unified Power Grid’ was built for an era when electricity flowed in one direction, from massive, centralised plants to passive consumers. That philosophy belongs to the age of accumulation; the future belongs to the age of innovation. In the 21st-century paradigm, the grid must evolve into a National Integrated Power Platform, an intelligent, interoperable ecosystem where power flows both ways, data flows freely and every household, industry, or microgrid can interact dynamically. This new grid should not be a command-and-control network but a digital marketplace, linking renewable generators, storage providers, industrial clusters and households through real-time pricing, open access and carbon-market linkages.
Such transformation requires not just engineering but governance reform. The system must move from central dispatch and uniform tariffs to open platforms, localised markets and flexible pricing. It must prioritise transparency over hierarchy and interconnectivity over control. As Aghion argues in ‘The Power of Creative Destruction’, institutions must adapt to sustain innovation cycles, not fossilize around obsolete models. For Pakistan, that means restructuring the grid from a monopoly of transmission to a marketplace of participation, where flexibility, rather than rigidity, becomes the source of reliability.
In practical terms, this Schumpeterian energy transition calls for what the laureates term the “investor–insurer state”. The state must invest in birthing the new, through R&D support, innovation funds and mission-oriented financing, and ensure against the pains of the old’s decline. Establishing a Coal Transition Fund, financed by carbon credits and green bonds, could ease the fiscal burden of early retirement while reskilling workers and repurposing plant sites.
Parallel efforts should promote net-metered industrial clusters that absorb excess capacity into productive use, develop regional microgrids in agricultural and industrial zones integrating solar, storage and EV charging, and implement carbon pricing to rechannel incentives from fossil inertia toward renewable creativity. Integrating sodium-ion battery manufacturing into these policies would allow Pakistan not only to store its sunlight but to export its technological prowess, turning salt into energy security.
What emerges from this vision is a tale of renaissance. Early coal retirement and rooftop solar are not opposing forces – they are twin movements in the same symphony of progress. The first makes room; the second fills it, hence the sunrise on rooftop solar and sunset on coal plants. The grid, reimagined as a platform rather than a pipeline, conducts the orchestra through ‘Independent’ System and Market Operator (ISMO) and National Grid Company (NGC). Pakistan’s energy transition must not be a donor-driven compliance exercise but a homegrown expression of creative destruction, a deliberate, disciplined process of letting go of what no longer serves in order to build what must.
As the Nobel Committee observed, “Economic growth cannot be taken for granted. We must uphold the mechanisms that underlie creative destruction, so that we do not fall back into stagnation”. The same is true for Pakistan’s power sector. The choice before us is stark yet simple: cling to an expensive past or choreograph a sustainable future.
The writer has a doctorate in energy economics and serves as a research fellow in the Sustainable Development Policy Institute (SDPI). Twitter/X: @Khalidwaleed_ Email: [email protected]
