Bangladesh's new energy and power system master plan must focus on grid investment and renewable energy, rather than switching its focus from imported coal to imported LNG, to limit the need for large tariff hikes, said a new report.
The Institute for Energy Economics and Financial Analysis (IEEFA) released the report titled "Growing Independent Power Plant Costs Threaten to Overwhelm Power System" on Thursday.
Energy analyst and author of the report Simon Nicholas said that it represents an opportunity for Bangladesh to halt the construction of planned LNG and coal power plants and reset the planning to provide a financially sustainable power system for the long term.
"Building domestic low cost clean energy capacity would help improve the eroding financial status of the Bangladesh Power Development Board (BPDB) which is burdened by the country's capacity over-expansion based on imported fossil fuels," said Nicholas.
"Any further focus on imported volatile fossil fuels is a warning to energy consumers in Bangladesh. Further significant and economically damaging power tariff growth is more than likely."
The BPDB is sinking under the increasing cost of power generation and purchase based on imported coal, liquefied natural gas (LNG) and oil, he added.
In January 2022, the BPDB proposed a bulk power tariff increase of up to 64 per cent to cover a Tk325 billion (US$3.8 billion) shortfall, the report said.
In FY 2020-21, a record high government subsidy was required to cover the BPDB's operating loss which doubled from the previous year.
The country's energy consumers are at risk of being asked to pay massive tariff increases to cover the shortfalls being experienced by the BPDB.
This is not sustainable, and does not address the root of the problem in the power sector, according to the report.
BPDB's financial status is being eroded by the current overcapacity in the power system, rising capacity payments being provided to under-utilised power plants - which reportedly increased again to Tk132 billion (US$1.5 billion) in FY 2020-21 - and the growing reliance on price-volatile imported fossil fuels.
This has led to a 58 per cent rise in Independent Power Producers' (IPPs) costs in FY2020-21. For the first time, the cost of power purchases from IPPs represented more than 50 per cent of the BPDB's total operating expenses.
The new Payra coal-fired power plant, which is receiving capacity payments whilst half the plant stands idle because of insufficient transmission infrastructure, was the largest single contributor to the increase.
With more IPPs due to come online - and more coal and LNG plants being planned - BPDB's operating losses can be expected to worsen going forward.
The record high government subsidy to the BPDB in FY 2020-21 cannot be regarded as a peak, the report said.
Bangladesh has already suffered from exposure to the price-volatile global LNG market. LNG prices soared to record highs in 2021, forcing Bangladesh to pay record spot LNG prices. Analysts don't expect stability in that market any time soon, it said.
Becoming increasingly dependent on the imported fuels, such as LNG, would result in larger subsidies to bail out the BPDB's losses, and large power and gas tariff increases for the energy consumers.
A new Integrated Energy and Power Master Plan (IEPMP) is currently being prepared for Bangladesh, funded by the Japan International Cooperation Agency (JICA).
According to the report, the new power system master plan led by JICA should not call for increased imports of fossil fuels, which will further damage tariffs.
Given the power system's already very low overall utilisation rate of just 42 per cent, JICA must focus on grid investment and renewables in the new master plan to improve reliability and limit the country's future dependence on expensive, imported fossil fuels.
The higher renewable energy ambition of SREDA and the Mujib Climate Prosperity Plan must be reflected in the new energy and power system master plan, said the report.
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