Bangladesh’s power sector is currently undergoing aggressive expansion with a focus on fossil-fuel-based capacity, leading to challenges such as overcapacity, high generation costs, revenue shortfalls, and a growing subsidy burden.
The sector’s overcapacity is evident with an installed generation capacity of 28,166 MW compared to a peak demand of just 17,200 MW, resulting in a surplus of 38.9%, which rises to over 60% during the winter. This surplus is particularly problematic because the system is heavily reliant on fossil fuel-based plants, with only 2.35% of capacity coming from renewable sources like solar and wind. The high reliance on fossil fuels necessitates large capacity payments to these plants, even when demand is low, creating a financial burden.
High generation costs exacerbate the issue. Bangladesh relies heavily on oil-fired power plants, which are costly to operate. In FY2022-23, the average cost of power generation from these plants was Tk 23 per kWh (US 20¢/kWh), significantly higher than the overall average generation cost of Tk 11.33 per kWh (US 9.6¢/kWh). These oil-fired plants contribute disproportionately to the total generation cost while producing only 24% of the power.
The financial strain on the Bangladesh Power Development Board (BPDB) is further compounded by sluggish demand growth and the high costs of capacity payments and fuel. From FY2020-21 to FY2022-23, BPDB recorded a cumulative loss of Tk 148.69 billion (USD 1.27 billion) even after receiving substantial subsidies amounting to Tk 809.7 billion (USD 6.88 billion). Additionally, BPDB’s outstanding payments to gas companies and private power producers have escalated to Tk 450 billion (USD 4 billion).
Looking ahead, with a projected 7% annual growth rate, peak power demand is expected to reach 25,813 MW by 2030. As new baseload power plants, including nuclear facilities, come online and interest in renewable projects grows, total capacity could exceed 35,000 MW by 2030. This projected capacity will be sufficient to meet future demand, suggesting that further expansion of fossil fuel-based power plants should be halted. Reducing capacity payments by avoiding additional fossil fuel projects and focusing on renewable energy could help manage costs effectively.
Investing in renewable energy is a cost-effective alternative. Current tariffs for renewable energy are significantly lower than those for oil-fired power. Deploying solar power with battery storage can meet peak demand efficiently and reduce the need for expensive oil-fired power plants. Renewable projects also do not incur capacity charges, offering further financial benefits. Improving grid reliability is another essential strategy. By providing more consistent and reliable grid electricity, industries can reduce their reliance on captive generators, which in turn will decrease overcapacity and boost BPDB’s revenues through higher industrial tariffs.
Bangladesh needs to develop a comprehensive action plan to ensure the sustainability of its power sector. This plan would include optimizing existing system capacity by pausing new fossil-fuel-based plant developments until 2030, enhancing energy efficiency to reduce wastage, and benchmarking project costs to manage expenses better. Investing in grid modernization will be crucial to encourage industries to use grid electricity, thereby managing surplus capacity and reducing capacity payments.
Additionally, the plan should focus on maximizing the use of economic power plants to control rising generation costs and accelerating the deployment of renewable energy to replace costly oil-fired power plants. Conducting resource mapping will help identify suitable areas for renewable projects, and empowering the BPDB to implement these projects on government lands will aid in reducing overall costs. Building capacity within the renewable energy sector to support high-quality projects and encouraging the adoption of rooftop solar in commercial and industrial sectors can further drive the transition to cleaner energy.
To support the growth of renewable energy, creating a favourable ecosystem is needed. The Sustainable and Renewable Energy Development Authority (SREDA) should lead efforts to promote clean energy deployment and consider rationalizing import duties for renewable projects to reduce reliance on fossil fuels over the next two decades. By implementing a long-term action plan that addresses these key areas, Bangladesh can ensure a sustainable and resilient power sector that supports economic growth and energy security.
-The Business Standard.