ISLAMABAD: The Power Division has rejected claims circulating about payments made to Independent Power Producers (IPPs) under the capacity payment mechanism, clarifying that no funds are paid to IPPs for unused electricity.
According to official sources, capacity charges are payments made to power plants for maintaining their availability and ensuring that they remain ready to generate electricity whenever required. The payment mechanism covers the plants’ fixed costs, debt repayments, routine operational expenses and the agreed return for the companies.
How the Capacity Payment Mechanism Works
Sources explained that around 20% of capacity payments goes to companies as profit. Most power plants established in the country operate on a financing structure comprising 80% debt and 20% equity.
According to the sources, the mechanism is designed to maintain the country’s power generation capacity and help ensure a reliable supply of electricity over the long term.
Power plants that rely on expensive fuels are generally operated only when electricity demand reaches peak levels. Such plants are considered important for maintaining grid stability and responding to emergency situations.
Rs1,863 Billion Paid in FY2025-26
Official documents show that a total of Rs1,863 billion was paid under capacity payments during the 2025-26 fiscal year.
Of the total amount, Rs944 billion was spent on debt repayments, while Rs471 billion went towards operational expenses.
The Power Division has assured that the burden of capacity payments is gradually declining as the outstanding loans of power plants are being repaid in phases.
According to the Power Division, the decline in debt obligations is expected to result in a gradual and significant reduction in capacity payment costs over time.
