The country’s power sector is passing through an embarrassing situation in the context of commercial scenario as it is maintaining a substantially surplus generation capacity while the demand is not growing. Such situation prevails in the most investment-intensive sector over the past two years. Policymakers are holding discussions with the industrial entrepreneurs for increasing the demand through arranging expeditious connections and assuring them of uninterrupted, quality power supply. But the interest in captive power generation of the industrial sector is remaining as usual. Not only the exiting industries but also the entrepreneurs of new ones are pressing for gas connection to captive power generation. On the other hand, the power demand in the industrial sector remains standstill over the last two years. Only 4-5 years back, the annual demand growth for power in industries was above 9%. This has created an unpleasant situation as far as the capacity utilization is concerned Bangladesh. The highest generation and demand during the peak hours of last summer did not exceed 13,000 MW. The demand has dropped below 8,000 MW during the winter. But the installed generation capacity is little over 20,000 MW. Consequently, the capacity charge that the government is paying to the idle plants is being added to the cost of generation. The latest review of power tariff by the Bangladesh Energy Regulatory Commission (BERC) evidenced that the cost of power generation at end users’ level increased from Tk 7.52 per unit in 2018 to Tk 7.80 in 2019. The cost of captive power remained within Tk 4.5 per unit even after increasing price of gas to Tk 13.85 from July 2019. The tariff for grid power to industries is Tk 8.00 per unit. It is being told that the dependence on captive power will start reducing if quality grid power can be supplied to industries. But experts observed that merely through motivation or applying legal binding may not be enough to encourage the industrial consumers abandoning the captive power use. Power tariff must also be made affordable. For this, contribution of domestic fuel in fuel mix must be increased, more power should be imported through regional power trading and efficiency must be enhanced across the power value chain from generation to end use. The gas price should also be adjusted gradually as Bangladesh is getting more and more dependent on imported LNG. On top of all, the major challenge to creating increased demand for power through vastly improving environment for rapid industrialization.
Power Generation
All are aware about the commendable success of the government in increasing the power generation capacity over the past 11 years – it increased by around 15,000 MW to around 20,000 MW from only 5,000 MW. The contribution of natural gas reduced from 89% to 62%. About 5% is coming from India, but the contribution of liquid fuel (furnace oil and diesel) increased to 29%. This caused steady increase of generation cost gradually. According to the plan, 1,800 million cubic feet per day (MMCFD) gas was to be made available for power generation by 2019. But Petrobangla can supply only about 1,100 MMCFD. Due to this supply shortage, BPDB had to let the liquid fuel-based power generation, keeping part of gas-based capacity idle for meeting the peak demand during the summer. During the winter, the contribution of liquid fuel-based generation dropped to zero amid reduced demand. But pursuant to the provisions of the contract, BPDB has to pay huge capacity charge even without getting power from them. But from review of BERC, it appears that for the nature of fuel mix, the generation cost grew to Tk 7.00 per unit though actual generation cost in winter was Tk 5.00 per unit. For keeping 1,000 MW of capacity idle, Bangladesh Power Development Board (BPDB) annually requires Tk 1,700 crore for paying the capacity charge.
Mizanur Rahman, Member BERC, while talking to the EP mentioned that a modern power system must not have spinning reserve of over 20%. BPDB also planned for 25%. But now the spinning reserve is over 50%. Consequently for offsetting the margin of loss, power tariff requires adjustment at regular interval. Another announcement of power tariff revision is expected soon as the hearing on tariff revision proposal has been conducted recently. About 5% increase at generation and distribution level and 7% increase of transmission margin are most likely to feature in the BERC determination.
The Power System Master Plan (PSMP) 2010 mentioned about power tariff reduction from 2014 after commencement of commercial operation of the coal-based power plants and lowered reliance on expensive liquid fuel based generation. That could have reduced the cost of generation as well. On the other hand, the planned program for liquefied natural gas (LNG) import for overcoming the gas deficit also got delayed till late 2018. The plan to import 1,000 MMCFD of LNG by end 2019 also did not happen. For delays in construction of required gas transmission facility for evacuating Re-Gasified Liquefied Natural Gas (RLNG) facility, the RLNG delivery to national gas grid remains restricted to 650 MMCFD. The BPDB load curve evidences that power demand of industrial sector remains standstill over the past two years. But for making this sector commercially viable, there is no option but to keep demand dynamically growing. Even then, initiative for large expansion of generation capacity is still visible. The targeted capacity achievement by 2021 is 24,000 MW. The target by 2030 is 40,000 MW and by 2041 is 60,000 MW.
Prof Dr. Ijaz Hossian told the EP that the capacity of BPDB for expansion of generation is well documented. But irrational growth of generation capacity without simultaneous growth of demand deserves urgent review. Failure in creating situation of demand growth through facilitating massive industrialization would intensify crisis in power supply chain. But the policymakers did not agree. It is not true that the industries are not growing. But the pace of growth may not be as expected. It will be possible to create growth of demand of industrial load through making power transmission grid and distribution system more reliable. There will be no issue with generation at that time.
Transmission & Distribution
For the lack of coordination among generation, transmission and distribution right from the beginning, it has not been possible to supply quality power reliably until now. However, the situation is marginally better over the past two years than the previous five years. It has been possible to bring 95% of the population under the coverage of grid power. By end 2020, it will be possible to bring 100% of the population under the coverage of power supply. Power division officials informed the EP that the initiatives for supplying quality power to all would be more intensified after achieving power to all by 2020. But experts observe that it is not a correct strategy. Actions for supplying quality power on uninterrupted basis should have proceeded simultaneously.
Power Grid Company of Bangladesh Limited (PGCB) officials informed the EP that the power grid has the capacity for evacuating 24,000 MW now. But there are constraints in several pockets of the grid. These become acute during the summer though not visible in the winter. They have to achieve a lot more to make the grid truly reliable. The system now operates at 50 Hz. In case of quality supply, it can fluctuate plus minus 0.5%. But now it varies between 0.5-1.5%.The quality of grid power supply would be improved to appropriate level before the Nuclear power plant comes into operation. Works for bringing all the grid-connected plants under Free Governor Mode of Operation (FGMO) has already started for keeping the frequency of supply steady. Once it is done, the power supply can be centrally controlled according to demand through increasing or reducing. Frequency of supply can be maintained steady at the right level. Golam Kibria, MD of PGCB, informed the EP that they have to confront many challenges during implementation works. But we are optimistic that the grid would become completely reliable for supplying quality power to all on uninterrupted basis.
The responsibility of supplying power to consumers is vested upon the distribution companies. Half of the consumers are served by the Rural Electrification Board (REB) and Polly Bidyut Samity (PBS). Investment for ensuring quality supply is not enough compared with the works they are doing for expanding their coverage area. A major section of the industrial belts of the country are within the command area of the REB. Dr. Ahmad Kaikaus, former senior secretary of power division, did not sound optimistic that REB can ensure quality power supply to all within 3 years.
Other distribution utilities like Dhaka Power Distribution Company Limited (DPDC), Dhaka Electric Supply Company Limited (DESCO), Western Zone Power Distribution Company Limited (WZPDC) and North Eastern Power Supply Company Limited (NESC0) are currently implementing projects in respective command areas for making supply reliable. The DPDC has taken up a model project in Narayanganj for ensuring uninterrupted quality power supply. The power would be supplied through dual sources within 9 months. DESCO has also taken up a special project in Tongi industrial area. All distribution utilities are optimistic about achieving quality power supply on uninterrupted basis by 2023. Industrial zones are at the top of the priority attention. Making power supply reliable for domestic and commercial consumers still appears challenging for the distribution utilities.
It will not be possible to ensure quality power supply to all if all other related construction works and power evacuation facilities are not completed on time.
Own Power Generation in SEZs
The Power Division informed the EP that ensuring power supply to industries in the Special Economic Zones (SEZs) is among their priorities. But ensuring quality power supply on uninterrupted basis to all consumers across the country is still a huge challenge. Some 20 out of the 100 SEZs have already started operation. The others would come into operation in phases. These should have increased the grid power demand by now. But it is observed until now that the entrepreneurs of industries are given permission for setting up captive power plants. Most of these are liquid fuel-based. This action runs counter to the plan of increasing the demand for grid power. Experts observed that such initiatives needed to be stopped now. Otherwise, like captive power generation, the power supply crisis in the SEZs would continue.
Unbalanced Competition of Grid Power & Captive Power
The power sector had a rough ride during the last half of 1990s. Power crisis was a major issue at that time. Due to huge deficit, the industrial sector especially the operation of the export-oriented industries almost came to a standstill situation. Multidimensional development activities were initiated after the Sheikh Hasina-led government took over state power for confronting the chaotic situation. A new era in the power generation was dawned with the integration of private sector entrepreneurs. Special incentive packages were offered to them as encouragement with long-range vision of overcoming the supply shortage of industries and creating comfortable surplus in generation. The strategy of no own power generation was put on suspended animation. Highest priority to captive power generation was given through required tax incentives and preferential gas supply for attracting investment. But from 2007, for gas supply constraints, restrictions were imposed on gas supply to captive power. Since then, gas to some new captive power plants was given only in special cases. Despite increasing gas price by few times, the cost of captive power still remains below Tk 4.50 per unit. Grid power costs almost double. For reliable power supply at affordable cost, the captive power generation appears indispensible now.
BERC records state that the generation capacity of captive power (each above 1 MW) is now about 3,000 MW. But another source’s information indicates that gas using captive power generation capacity is over 4,000 MW. The government is still under stress for supplying gas to captive power. Entrepreneurs are still complaining about quality of grid power supply. They informed the EP that to stay in competition they have to go for captive power. Mostafa Kamal, President of Bangladesh Small and Captive Power Producers Association, said that they are making additional investments. They would definitely take grid power provided the government ensures quality supply reliably. But Prof Dr. Ijaz informed the EP that the tariff of grid power is double than the cost of captive power. As such, until the grid power becomes cost competitive, entrepreneurs would not be attracted to grid power. SMEs may survive at the higher power tariff, but the export-oriented large industries may not, Prof Ijaz apprehended.
Experts observed that Industrial consumers cannot be attracted to grid through suspending fuel supply to captive power plants and enacting law. Member of BERC Engr. Mizanur Rahman informed the EP that gas is now supplied at US$ 4.00 – 4.50 per MMBTU to captive power plants. From 2025, imported LNG contribution to fuel mix will continue increasing. The cost of gas would increase due to higher price of LNG. The price of gas for captive power would also require to be doubled in phases. On the other hand, the contribution of own gas and coal as well as imported power should be increased to adjust the cost of grid power to competitive level. By this time, the transmission and distribution system would also become more reliable for quality and uninterrupted supply. Accomplishment of all these works in well coordinated manner can only make grid power more attractive to industrial consumers. But Mostafa Kamal, President of Small and Captive Power Association and Chairman of Meghna Group of Industries, apprehended that operation of industries may collapse if quality power on uninterrupted basis cannot be supplied to industries at affordable price. The government must accomplish all required activities in well-coordinated manner.
Fuel Mix & Affordable Power Supply
It has been mentioned already that the contribution of liquid fuel for power generation is about 29%. More than 40% of generation capacity now remains idle. For these two reasons, the cost of generation remains higher. The government has so far failed to shut down all rental and quick rental power plants installed for 3-5 years term as contingency actions as base load power plants construction suffered from prolonged delays in construction. Consequently, the terms of most plants were extended and new furnace oil and diesel-based power plants were installed. These led to higher cost of generation. According to PSMP the contribution of liquid fuel would be reduced to half by 2030 and brought down to 5% by 2041.
Experts believe that the present plan of fuel mix of the government would not reduce generation cost at all. The reason is planned imported primary fuel dependency. In 2041, the envisioned installed generation capacity is 60,000 MW – 35% would rely on coal, almost entirely would be imported coal while 35% would come from own gas and imported LNG. Cross border power import is planned to contribute 15%. The cost of this power is expected to be less than imported fuel-based power. Around 10% would be contributed by nuclear power. 100% fuel (enriched Uranium) for this would be imported. But the cost of generation would be less though one time investment sounds very high. 5% generation from liquid fuel based generation would continue as peaking plant. Restricting the cost of generation below 8 US cents per unit would be a challenge. Power system would become almost exclusively dependent on cost of fuel imported from the global market.
Recognizing the challenge, Nasrul Hamid MP, State Minister for Power, Energy and Mineral Resources, told the EP that affordable fuel mix for power generation would be a major challenge of the government from 2020. We have to increase contribution of own fuel, which would not be easy. Experts believe that own coal is a major fuel source of Bangladesh. But the government failed to take a decision for exploiting coal resources over the past 11 years. This is not a technical decision at all. It is purely a political decision. Only a decision by Prime Minister Sheikh Hasina can help commence mining own coal for using as fuel for power. Own coal is enough for generating 10,000 MW power for about 40 years. The cost of generation would also be at least 2 cents less than the imported coal.
Other local fuel is natural gas. Still another 11.90 TCF reserve is there for use. It would be entirely depleted by 2031. But unfortunately, there has been no mentionable success in discovering new gas resource over the past 11 years. The required preparation for expediting petroleum exploration is also not visible in 2020. Experts believe that if IOCs are engaged through PSCs soon for exploration at onshore frontier areas and unexplored offshore in the Bay of Bengal, success may start coming within 4 years.
Finally, in addition to increasing contribution of local fuel for power generation, efficiency must be significantly enhanced at all segments of power (generation, transmission, distribution and utilization) and energy value chain (generation, transmission, distribution and fuel utilization). Accomplishment of all these works with proper coordination among all utilities can only ensure affordable power supply. This is the prime condition for coming out of the captive power.
Conclusion
Bangladesh power sector is still not being operated commercially. Subsidy and cross-subsidy still exists in power pricing. Fuel supply has also subsidy and government control. For achieving mid-income and developed economy vision by 2021 and 2041, the government should make the power sector self-sustaining and let it operate on commercial basis. One of the major pre-conditions for this is creating circumstances for effective utilization of most of the available generation capacity. Some 40% of the installed capacity remains idle now for slow pace of industrialization, 50% of the power demand for industries coming from captive generation and failure of making grid power reliable and dependable. Overall cost of the grid power remains higher. The consumers are bearing the burnt.
From discussions with relevant experts, the EP also considers that increased contribution of own fuel (coal and gas) in the fuel mix of power, getting out of imported expensive liquid fuel as soon as possible, enabling power transmission grid and distribution networks for quality power supply on uninterrupted basis and enhancing efficiency at all segments of power supply chain are the way forward. The grid power supply can be made attractive if fuel price can be made market based. There should not be a problem for attracting users to grid power from captive power by 2025 if efficient management and good governance can be ensured and appropriate policy to reduce the power generation cost to affordable limit can be adopted. Without wasting any time, well-coordinated actions must be launched now for achieving the objectives.
