High electricity rates put Pakistan’s export competitiveness at risk: IEA

ISLAMABAD: Pakistan’s industrial sector is facing a significant challenge as it pays nearly double the electricity costs compared to its counterparts in China, India, the United States, and even higher than the European Union, which is negatively affecting its export competitiveness.

A recent report titled ‘Electricity 2025 – Analysis & Forecast to 2027’ by the Paris-based International Energy Agency (IEA), indicates that average electricity prices in the United States and India for 2024 are both around 6.3 cents per kilowatt-hour (kWh), while in China, it’s 7.7 cents.

Other examples include Norway, with prices at 4.7 cents, and the European Union at 11.5 cents. In contrast, energy-intensive industries in Pakistan are projected to face average electricity costs of approximately 13.5 cents per unit in 2024.

While the IEA report does not specifically mention Pakistan (as it is not a member), it outlines significant challenges for the European Union, where electricity rates are 11.5 cents—about 18 percent lower than those in Pakistan. This discrepancy may reflect the hurdles that Pakistani industries encounter both domestically and in international markets.

The report highlights that Europe is grappling with issues related to de-industrialisation, as high energy costs are driving industries to relocate. The availability of affordable power is crucial for economic growth. “High electricity prices continue to undermine the competitiveness of European energy-intensive industries,” the report stated.

After a slight decrease in 2023, preliminary data for 2024 reveals that electricity prices for energy-intensive industries in the EU have only fallen by 5 percent compared to the previous year, still reflecting a 65 percent increase from 2019. Despite decreasing from record highs in 2022, these prices remain double those in the United States and are 50 percent higher than in China.

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The report also points out that the impact of rising electricity prices on European industries varies based on consumption levels. Businesses with low to medium electricity needs have experienced more stable tariffs between 2021 and 2024, mitigating price volatility compared to larger consumers. On average, EU electricity prices for energy-intensive industries increased by 160 percent between 2019 and 2022, with medium consumers facing an 80 percent hike and low-consumption businesses experiencing a 60 percent rise.

Additionally, the IEA noted a surge in electricity demand, heralding what it terms a new ‘Age of Electricity,’ with global consumption projected to rise at the fastest pace in years between 2025 and 2027.

The organisation estimates that global electricity demand grew by 4.3 percent in 2024 and will likely continue increasing at about 4 percent per year until 2027, leading to an unprecedented uptake of 3,500 terawatt-hours (TWh), which equates to adding an amount equivalent to Japan’s annual consumption each year.

Emerging economies are expected to account for 85 percent of this demand growth over the next three years. Notably, China will drive much of this increase, registering a 7 percent growth in electricity demand in 2024, consistent with previous trends, and is projected to see an average annual increase of 6 percent through 2027. India, along with Southeast Asian countries, is also anticipated to experience strong demand growth, spurred by economic development and rising ownership of air-conditioning units. India’s electricity demand is forecast to grow at an average yearly rate of 6.3 percent over the next three years, surpassing the 2015-2024 average growth rate of 5 percent.

While many emerging economies are witnessing robust electricity demand growth, Africa still struggles, with 600 million people in sub-Saharan Africa lacking access to reliable electricity, despite significant progress in recent years. Conversely, electrification is advancing rapidly in China, where electricity represents a larger share of final energy consumption (28%) compared to the United States (22%) and the European Union (21%).

Since 2020, electricity consumption in China has outpaced economic growth, demonstrating the rapid pace of electrification across various sectors. In the 2022-2024 period, the industrial sector accounted for nearly 50 percent of electricity demand growth, while the commercial and residential sectors combined contributed another 40 percent. Notably, the industrial sector in China has become increasingly electricity-intensive, with approximately one-third of the demand growth driven by the manufacturing of solar PV modules, batteries, and electric vehicles. By 2024, these industrial sectors are expected to consume over 300 TWh of electricity annually, equivalent to Italy’s total annual usage.