BBC: A policeman and a plant employee were killed on the spot and nine people were taken hostage, police said.
Five bodies were later recovered from a nearby field but the whereabouts of the four remaining hostages are unknown.
No group has said it carried out the raid, but the Taliban frequently launch attacks in the region.
The attack temporarily disrupted power to parts of the city - the supply has now been restored.
The assault by militants armed with mortars and rocket-propelled grenades took place in the early hours of Tuesday in the southern Badh Bher suburb of Peshawar, an area frequently targeted by militants, correspondents say.
"They attacked the power station at around 02:30 (21:30 GMT Monday). They killed two officials on the spot," Javed Khan, a senior police official in the area, told Agence France-Presse news agency.
The dead include police officers and employees of the power plant.
"They entered the grid station and started setting ablaze each and every thing," police official Mohammad Ishaq told Reuters news agency.
"They kidnapped nine people and killed five of them later and threw their bodies in the fields."
The BBC's Orla Guerin in Islamabad says that there had been fears militants would step up attacks in advance of elections to be held in May.