To build or not to build: Keeping Pakistan’s hydropower reliance in check - Institute for Energy Economics and Financial Analysis (IEEFA)
Published December 24, 2025
Evaluating Pakistan's Hydropower Dependency: A Critical Analysis
Pakistan's energy landscape has been significantly shaped by hydropower, a resource that has historically provided a substantial portion of the country's electricity. However, the reliance on this renewable energy source raises important questions regarding sustainability, economic viability, and environmental impact. The Institute for Energy Economics and Financial Analysis (IEEFA) has conducted a comprehensive examination of the current state of hydropower in Pakistan, highlighting both the potential benefits and the challenges associated with expanding this sector.
Current Hydropower Capacity and Future Prospects
As of now, Pakistan's installed hydropower capacity stands at approximately 9,700 megawatts (MW), accounting for nearly 30% of the total electricity generation mix. This reliance on hydropower is set against a backdrop of increasing energy demand, which is projected to rise significantly in the coming years. The government has ambitious plans to enhance the share of hydropower in the energy mix, with an aim to add around 25,000 MW of new capacity by 2030.
However, the feasibility of achieving such targets is under scrutiny. The IEEFA report indicates that the economic viability of new hydropower projects is questionable, especially given the high capital costs and long construction timelines typically associated with these large-scale initiatives. Moreover, the financial health of the state-owned power sector raises further concerns about the ability to sustain these investments.
Economic Implications of Hydropower Expansion
The economic implications of expanding hydropower capacity in Pakistan are multifaceted. On one hand, hydropower can provide a relatively low-cost source of electricity once operational. On the other hand, the initial investment required to develop new projects is substantial. The IEEFA report notes that the cost of constructing large dams can exceed $1 billion, and the financial returns on these investments may take years, if not decades, to materialize.
Furthermore, the report highlights the risk of over-reliance on hydropower, especially in a country where water availability can be highly variable due to climate change and seasonal fluctuations. The reliance on hydropower can lead to vulnerabilities in the energy system, particularly during periods of drought when water levels are insufficient to generate electricity.
Environmental Concerns
In addition to economic considerations, the environmental impact of hydropower projects must be carefully evaluated. The construction of large dams can lead to significant ecological disruption, including habitat loss for aquatic and terrestrial species, altered river flows, and changes in sediment transport. The IEEFA report emphasizes the importance of conducting thorough environmental assessments before proceeding with new hydropower projects.
Moreover, the social implications of hydropower development cannot be overlooked. Large dam projects often displace local communities and disrupt their livelihoods. The report calls for greater transparency and stakeholder engagement in the planning process to ensure that the voices of affected communities are heard and considered.
Alternatives to Hydropower
Given the challenges associated with expanding hydropower, the IEEFA report encourages the exploration of alternative energy sources. Pakistan has significant potential for solar and wind energy, which could provide viable solutions to meet the growing electricity demand without the extensive environmental and social impacts associated with large hydropower projects.
Solar energy, in particular, has seen a rapid decline in costs, making it an increasingly attractive option for both utility-scale and decentralized generation. The report suggests that investing in solar and wind could diversify Pakistan's energy mix and reduce the risks associated with over-dependence on hydropower.
Policy Recommendations
The IEEFA report concludes with several policy recommendations aimed at ensuring a balanced approach to energy development in Pakistan. These include:
- Conducting comprehensive feasibility studies for proposed hydropower projects to assess their economic viability and environmental impact.
- Encouraging the development of renewable energy sources such as solar and wind to diversify the energy mix and reduce reliance on hydropower.
- Implementing robust stakeholder engagement processes to ensure that local communities are involved in decision-making related to energy projects.
- Investing in energy efficiency measures to reduce overall demand and alleviate pressure on the energy system.
Conclusion
Pakistan's reliance on hydropower presents both opportunities and challenges. While hydropower has the potential to provide a significant share of the country's electricity, the economic, environmental, and social implications of expanding this sector must be carefully considered. The IEEFA report serves as a crucial reminder of the need for a balanced and sustainable approach to energy development in Pakistan, one that embraces a diverse mix of renewable energy sources while safeguarding the interests of local communities and the environment.
As Pakistan navigates its energy future, it is imperative to prioritize investments that not only meet immediate energy needs but also promote long-term sustainability and resilience in the face of changing climatic conditions.
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