How will early retirement of coal-fired assets benefit Pakistan?

If the Sahiwal coal-fired plant is closed early, this could avoid up to 38 million tonnes of emissions.

Pakistan can shutter its coal plants early and still avoid heavy financial costs, simultaneously slashing millions of tonnes of carbon emissions, according to a new report.

In a new analysis, the Institute for Energy Economics and Financial Analysis (IEEFA), Pakistan-China Institute, and Renewables First specifically noted that the early retirement of the 1,320-megawatt (MW) Sahiwal Coal-Fired Power Plant (CFPP) could avoid 27 million to 38 million tonnes of carbon dioxide emissions over a 10-year reduction scenario.

It is also deemed economically viable within a $400m to $1.5b compensation range, with modest 5 to 10 year acceleration scenarios. This would cost less than $100m, compared to an annual import bill exceeding $200m, or $5b in continued capacity payments through 2046.

Sahiwal CFPP was commissioned in 2017 by China’s Huaneng Shandong Ruyi Energy under a thirty‑year power purchase agreement.

“The opportunity is ripe because debt amortisation for the plant is nearly complete, and equity returns dominate. In recent years, the plant’s low utilisation has imposed fiscal stress on public finances without proportional benefit,” the analysis read.

According to the report, an upfront buyout can compensate owners for foregone future cash flows through a lump-sum settlement, whilst a negotiated reduction in the Return on Equity (ROE) component of the plant tariff could accelerate the plant equity value under a business-as-usual scenario.

This lump sum settlement could be rechanneled into equity for a coal-to-clean energy transition project that could create opportunities for both investors and the government. This move would allow investors to shift exposure from a low-utilisation coal asset to cost‑competitive renewable energy projects.

However, the report noted a major challenge could still be faced due to persistent issue of delayed financial settlements, and the higher margins of return for investment in coal-fired capacity.

“An accelerated coal phaseout would, therefore, require legal restructuring and the renegotiation of power purchase agreements for CFPPs,” the report said.\