Financial Analysis of a Large-scale Hydropower Project in Pakistan with a Focus on Clean Energy Transition and National Priorities

This study evaluated the financial viability of a proposed 4,500 MW hydropower project in Pakistan, with a focus on alternative financing structures and sensitivity to macroeconomic and operational risks. Using the FINPLAN model and sectoral data from Pakistan’s National Electric Power Regulatory Authority (NEPRA), Independent System and Market Operator (ISMO), and International Monetary Fund (IMF), two scenarios were compared: (i) full private financing with equity and foreign loans, and (ii) partial government support through a grant covering 20% of the local currency component. Results show that while both scenarios can deliver attractive returns under favorable conditions, the project’s resilience is significantly influenced by electricity pricing, production levels, and inflation. Subsidized tariffs and reduced generation substantially erode net present value (NPV) and internal rate of return (IRR), at times making the project financially unattractive. Similarly, higher Pakistan rupee (Rs) inflation relative to the internationally dominated loan imposes additional financing needs, raising project vulnerability. Government support helps ease capital pressure and enhances resilience but cannot fully shield the project from risks of low tariffs or reduced generation. Overall, large-scale hydropower remains a crucial option for meeting Pakistan’s future electricity demand and policy targets, but its financial sustainability depends on realistic pricing, climate resilience, and stable macroeconomic conditions. This work was supported by the Climate Compatible Growth Programme (#CCG) of the UK's Foreign Development and Commonwealth Office (FCDO). The views expressed in this paper do not necessarily reflect the UK government's official policies.