Pakistan is facing a defining moment in its economic and industrial trajectory, where rising energy prices, geopolitical uncertainty and entrenched domestic inefficiencies have converged into a full-scale energy polycrisis.
Yet, this moment of disruption also presents a rare and urgent opportunity to fundamentally reevaluate the future of energy in Pakistan, shifting from a fragile, import-dependent system towards a resilient, competitive and clean energy paradigm. No longer a matter of environmental preference; this transition is an economic imperative.
The magnitude of the current crisis is striking, now being compared to the 1970s energy crisis. Global energy markets have been severely disrupted, with nearly 20 per cent of oil and LNG supply unavailable, triggering a sharp escalation in prices. Even before political turmoil, in the previous month, oil prices surged by approximately 33 per cent, while LNG markets tightened considerably.
Pakistan’s exposure to these shocks is particularly acute, given its heavy dependence on energy sources originating from Qatar, a supply chain now vulnerable to geopolitical instability. Scenario projections suggest oil prices could climb from $80 to as high as $150 per barrel, depending on how tensions evolve. These global dynamics are already reverberating domestically: inflation is expected to rise from 5-7 per cent to 11-13 per cent, while GDP growth may slow to 3.0-3.3 per cent, with risks of dipping even lower.
These external pressures are amplified by structural weaknesses within Pakistan’s energy system. The country’s import bill is projected to increase by $6.2 billion, placing additional strain on already limited foreign exchange reserves. Meanwhile, energy costs have become a dominant burden for industry. A Rs55 per litre increase in petrol prices has translated into an estimated 17 per cent rise in logistics costs, further dissolving competitiveness. Compounding these challenges, gas sector debt has reached Rs3.28 trillion, reflecting systemic inefficiencies that continue to distort pricing and investment signals.
Nowhere are these pressures more visible than in the industrial sector. Energy-intensive industries, particularly textiles, are faced with costs that far exceed those of regional competitors. Captive power generation, once a reliable alternative, now costs approximately $15-16 per unit, compared to $7-8 per unit in neighboring economies. At the same time, RLNG prices have risen sharply, with SNGPL tariffs increasing by 19.6 per cent (from $11.34 to $13.55 per MMBtu) and SSGCL prices rising by 22 per cent (from $10.27 to $12.54 per MMBtu) within a single month. Electricity tariffs, averaging 13-15 cents per kWh, remain nearly double those in India and significantly higher than in Vietnam and Bangladesh. These disparities reflect a widening competitiveness gap that cannot be sustained.
Yet, amid these challenges, a compelling narrative of transformation is emerging, one centred on clean energy. Pakistan’s rapid adoption of distributed solar power offers a glimpse of what is possible. Already, this shift has delivered over $12 billion in avoided fuel import costs, providing a critical buffer against external shocks. More importantly, it signals a transition towards a decentralised, resilient energy system that reduces dependence on volatile global markets while empowering consumers and industries alike.
Electrification is central to this transformation. Pakistan currently faces a paradox of surplus generation capacity alongside high electricity tariffs and underutilised demand. By expanding electrification across transport, industry, and households, the country can achieve significant efficiencies. Increased demand would allow fixed system costs to be distributed more broadly, potentially reducing tariffs to Rs24-25 per unit (8-9 cents per kWh). This would not only improve affordability but also enhance the competitiveness of clean energy solutions. Electrifying transport, which accounts for nearly 80 per cent of petroleum consumption, offers multiple benefits; cutting fuel imports and reducing emissions, especially critical for Pakistan, home to some of the world’s smoggiest cities.
However, the success of this transition depends on addressing persistent inefficiencies within the power sector. Transmission and distribution losses remain high at 17.5 per cent, costing the economy approximately Rs265 billion annually. These losses, combined with circular debt, continue to inflate tariffs and undermine confidence in the system. Strategic investments in grid modernisation, energy storage and smart technologies are therefore essential. A more efficient and flexible grid will reduce costs substantially, while also enabling the large-scale integration of renewable energy.
Policy alignment is equally critical. Pakistan’s energy landscape is currently shaped by fragmented decision-making and misaligned incentives. For example, underutilized RLNG imports, estimated at around 400 mmcfd, coexist with long-term contractual obligations that could result in a surplus of 177 LNG cargoes through 2031, creating potential liabilities of $5.6 billion. At the same time, levies such as the Rs1,243 per MMBtu levy on captive power plants (CPP) discourage industrial efficiency and innovation. A coherent, integrated policy framework is needed, one that aligns energy planning with industrial strategy and prioritises flexibility, efficiency and sustainability.
The economic case for clean energy is both clear and compelling. Renewable technologies are now among the most cost-effective sources of power globally. At the same time, international markets are increasingly favouring low-carbon production. For Pakistan’s export-oriented sectors, particularly textiles, adopting clean energy is about maintaining market access and meeting rapidly changing global standards.
Transcending industry, the broader economic and social benefits are substantial. Reducing reliance on imported fuels can stabilise the economy, ease pressure on foreign exchange reserves and help control inflation. The expansion of renewable energy and electrification also holds significant potential for job creation (especially green jobs), supporting inclusive and sustainable growth. Observing the way forward, emerging solutions such as green hydrogen offer opportunities for decarbonising hard-to-abate sectors, positioning Pakistan as a contender in the global clean energy economy.
What emerges from this predicament is a clear conclusion: the current energy model is no longer viable. High costs, inefficiencies and external vulnerabilities are constraining growth and undermining resilience. In contrast, clean energy offers a practical, data-driven alternative.
The path forward demands decisive and coordinated action. By scaling renewable energy, advancing electrification, reducing system losses and implementing forward-looking policy reforms, Pakistan can transform its energy sector into a foundation for sustainable industrial growth. Despite the severity of the energy polycrisis, it has brought a moment of clarity: incremental change matters, with solar power showing how it can act as a hedge against such crises.
To translate this clean energy vision into tangible outcomes, the government must adopt a coherent and phased policy framework that simultaneously addresses immediate vulnerabilities and long-term structural reform. From an industrial perspective, the focus must be squarely on restoring cost competitiveness while accelerating the transition to cleaner and more efficient energy systems.
In the near term, priority should be given to accelerating distributed solar deployment, building upon the billions in avoided fuel imports already achieved, by streamlining interconnection approvals, accelerating the approval and implementation of wheeling reforms and revisiting recent changes to net-metering by restoring more favourable export tariffs, particularly for commercial and industrial consumers.
At the same time, targeted pricing and allocation reforms are essential to ensure energy is directed towards high-value sectors such as industry and agriculture, while minimising distortions that exacerbate circular debt. Removing burdensome levies such as the CPP levy can also significantly improve competitiveness. Simultaneously, renegotiating rigid LNG contracts, given the projected surplus of 177 cargoes and $5.6 billion in liabilities, will enhance fiscal flexibility.
Over the medium term, rationalising industrial tariffs, investments in grid modernisation, storage and market-based procurement mechanisms will be critical to integrate renewables at scale, reduce circular debt and T&D losses, and other inefficiencies. Advanced demand forecasting for electricity and gas could optimize generation, reduce curtailment and guide renewable investment, supporting EV charging, industrial electrification and green hydrogen production. Combined with high-efficiency CHP plants, waste heat recovery, and optimised captive power, it could boost operational efficiency and lower energy intensity.
In the long run, aligning industrial, electricity and climate policies under a unified framework, while promoting electrification and emerging solutions such as green hydrogen, will ensure that Pakistan’s energy transition is sustainable and economically transformative.
By synchronising industrial development with green innovation, we can transform our energy system from a liability into a high-efficiency asset, securing our economy and our environment in one decisive and transformative move.
The writer is an energy researcher at the Sustainable Development Policy Institute (SDPI), Islamabad.
