Pakistan’s power generation is expected to rise month-on-month in January 2026, supported by seasonal demand patterns and improved grid conditions. Hydropower output is likely to outperform earlier expectations of weak water availability, which may reduce overall fuel costs and potentially lead to negative Fuel Cost Adjustments (FCAs) in the coming months.

Looking ahead, NEPRA projects national electricity demand to increase by 1.0% YoY in CY26, suggesting a gradual recovery in consumption alongside improving macroeconomic conditions, according to Arif Habib Limited.

In December 2025, power generation exceeded expectations, reinforcing a more stable sector outlook. Total electricity generation grew 8.8% YoY to 8,487 GWh compared to 7,800 GWh in December 2024, while 1HFY26 generation rose 1.1% YoY to 67,356 GWh. On a monthly basis, output increased 5.4% on the back of seasonal demand and higher industrial activity.

Generation in December 2025 surpassed NEPRA’s reference level of 7,965 GWh by 6.55%, supported by lower tariffs and a shift of captive consumers to the national grid after a levy was imposed. This transition boosted industrial demand in line with an improvement in economic activity, reflected in November 2025 LSM growth of 10.4% YoY.

December 2025 marked the second-highest December generation on record and the highest since December 2021, a positive signal for forthcoming Quarterly Tariff Adjustments (QTAs) and grid stability.

Despite higher output, adjusted fuel cost in December 2025 reached Rs9.62/kWh, above NEPRA’s reference cost of Rs9.14/kWh. Consequently, DISCOs have applied for a positive FCA of Rs0.48/kWh, ending a three-month streak of negative adjustments. The positive FCA reflects a greater share of thermal generation relative to the reference, despite lower underlying fuel prices.

In the fuel mix, RLNG, imported coal, and Thar coal generation exceeded NEPRA’s reference targets, while nuclear and hydel lagged. Hydropower generation fell 13.7% YoY to 1,534 GWh and remained 0.5% below reference, indicating weaker water flows. RLNG-based output declined 9.3% YoY to 1,464 GWh but was 25.2% above reference, contributing to higher fuel costs.

Imported coal generation surged 593.5% YoY to 860 GWh and exceeded reference by 103.8%, becoming a key driver of the positive FCA. In cost terms, imported coal-based output averaged Rs14.31/kWh, down 25.3% YoY due to lower international coal prices. Thar coal remained comparatively cheaper, priced at a Rs1.18/kWh discount to imported coal, narrowing the historical premium where imported coal typically carried a ~Rs4/kWh higher cost.

Overall, December 2025 generation exceeded NEPRA’s reference by 6.6%, creating a surplus of 522 GWh. This signals improving grid balance and a more resilient trajectory for the power sector, after earlier demand softness driven by solar adoption and captive power usage.