17th January 2020
M Ahsan Shuvro

The industrial captive power has made the power sector expensive. With the expansion of capacities in electricity generation, transmission and distribution, captive power has become a prominent cause for the growing cost of electricity supplies. However, it was hardly understood the consequences of the move when the government started allowing industrial units to set up captive power plants under the Policy Guidelines for Small Power Plant in Private Sector in 1998. In the wake of frequent and unpredictable disruptions in electricity supplies coupled with fluctuations in frequency and voltage, apparently the government had no other options but to encourage captive power generation for the sake of industrial expansion. The government move was followed by incentives, including waivers of certain tax and duties and use of natural gas at a very low price. The captive power owners have been enjoying the incentives which are offered for attracting foreign investments in large scale grid-feeding power generation.

 

It was a story of more than two decades and the captive power solution was not meant for a long-term solution. No doubt the country’s power sector lead by its ministry had totally failed in ensuring uninterrupted and quality electricity supplies. This failure leads to justify the existence of the captive power units for smooth industrial productions. It has also invited multidimensional problems and nourished them over the years. The ultimate expression and consequences of such an ad hoc and inefficient practice is growing cost of electricity generation which is realized from the consumers through power price hikes.

 

It is very unfortunate that the issue is still out of the focus of the discussions about the country’s power sector development. Let us examine how the historic failure had created anarchy in the country’s power sector and making it more expensive with time.

 

Effect of Inefficient Captive Power Plants

The government data shows that the gas-fired captive power plants are approximately 30 percent efficient on an average while the gas-fired bigger power plants that supply electricity to the national grid are 40 percent efficient. New grid-feeding gas-fired power plants (combined cycle) are approximately 60 percent efficient.

 

The captive power plants consumed 4,525 million cubic metre of natural gas to generate 13,345.19 million units of electricity in 2018-19 fiscal year. With the same volume of gas supplies, the grid-feeding power plants generate 14,679.71 million units of electricity per year considering their 40 percent average efficiency. The gas-fired combined cycle power plants of latest technology generate 17,348.75 million units per year.

 

This inefficient use of scarce natural gas is charging in many ways. The average plant factor (capacity utilization factor of power plants) of gas-fired grid-tied power plants was too low at 54 percent due to shortage of gas supplies. Average electricity generation cost was approximately Tk 2 per unit from gas-fired power plants. The BPDB officials say that they could have run the gas-fired power plants at around 70 percent plant factor lowering the generation cost even at a lower level than what they spent in the past financial year. The BPDB officials also said that some 1,200MW of capacity remain unutilized round the year due to shortage of gas supply. Finally, this would help reduce the volume of imports of natural gas at a very high price comparing domestic gas which has started depleting since 2018.

 

Growing Unutilized Capacities

The use of captive power in the industry is a major cause for the poor capacity utilization factor of the country’s power sector. It is commonly understood that lower capacity utilization factor (underutilized resources) increases the cost of electricity generation, transmission and distribution due to its high depreciation. We will limit our investigation within electricity generation.

 

Last 10-year data show that the level of unutilized power generation capacities increased to 28-50 percent during the peak demand season (summer) in 2019 from 13-39 percent in 2010. The scenario is even worse during the off-peak season (winter) as the unutilized power generation capacities increased to 51-73 percent in 2019 from 29-62 percent in 2010.

 

Table shows the unutilized capacity of power plants during peak (summer) and offpeak (winter) seasons

 

2010

2013

2016

2019

Max Generation Summer

4,606MW

6,434MW

9,036MW

12,893MW

Min Generation Summer

3,224MW

4,504MW

7,196MW

8,842MW

Derated Capacity

5,271MW

8,537MW

11,744MW

17,786MW

Capacity Unutilized Summer

12.62%-38.84%

26.63%-47.27%

23.06%-38.73%

27.51-50.29%

Max Generation Winter

3,891MW

4,616MW

6,694MW

8,339MW

Min Generation Winter

2,057MW

2,573MW

3,647MW

4,674MW

Derated Capacity

5,450MW

9,677MW

11,476MW

17,142MW

Capacity Unutilized Winter

28.61%-62.26%

52.53-73.41%

41.67%-68.22%

51.35%-72.73%

Power generation on a working day from the first week of January and respective year’s highest generation and that day’s minimum generation

 

The declining trend of utilization of power generation capacities had started since late 90s with the growing stakes of domestic and commercial consumption on grid electricity over industrial consumption. The main reason behind this is that the seasonal diversity does not affect electricity consumption by the industrial units while it affects domestic and commercial consumption. In winter, the households and commercial spaces usually do not use air conditioners or fans lowering the national demand for electricity and consequently force the power generation utilities to run their plants at very low capacities. Sluggish growth in electricity consumption by the industries worsened the scenario.

 

BPDB data shows, in 2001, the stakes of domestic, commercial and industrial consumption on grid electricity were 40.28 percent, 6.91 percent and 46.55 percent respectively. The stakes in 2010 became 47 percent, 9 percent and 37 percent respectively aggravating the situation further in 2019 as the stakes became 53.31 percent, 12.11 percent and 29.54 percent respectively.

The declining stake of industrial consumption on the grid electricity has been contributing to the growing cost of electricity generation. By now, more than 42 percent of industrial power demand is met by the captive plants. In 2019, industrial electricity consumption was estimated at 31,674 million units, of which 13,345 million units were supplied by the non-grid sources (captive power plants).

 

Another simplistic estimate can be made to examine the level of capacities utilized in actual electricity generation considering the combined generation capacities of the grid-feeding power plants. An optimistic estimate says that power plants with an average generation capacity of some 18,000MW were used in 2019 calendar year. As per standard (80 percent plant factor) power purchase agreements of the BPDB, the power plants with 18,000MW combined capacity could generate 126,144 million units (kilowatt-hours) of electricity in 2019 while they actually generated 62,037 million units. This means, only 49 percent of the greed-feeding power generation capacity was used in the past year.

 

Now, if we dare to think of the immediate effects of diverting gas supplies from captive plants to the grid-tied ones, we will find an increase in cheap (gas-fired) electricity supplies by 14,680 million units (considering 40 percent average efficiency of grid-tied plants) per annum. It will increase the capacity utilization rate (factor) of gas-fired power plants as well as the average rate of all plants and decrease electricity generation cost significantly.

 

Impact on Utilities’ Revenue

Industrial captive power has been affecting the utilities’ revenue as well. In 2018-19 fiscal year, the power distribution utilities were deprived of earning revenue of Tk 110,153 million as the industries themselves generated 13,345 million units of electricity at their captive plants. The price of electricity has considered at Tk 8.25 per unit, according to data available with the BPDB, describing the average revenue earned by the utilities from different consumer groups. 

 

The government would not have to provide subsidy to the sector if the industrial captive power supply is replaced by the grid electricity.

 

Where are We As Far As Quality Power Supply is Concerned

Although the frequency and duration of power outages have been reduced in recent years, the country’s electricity supply system is still suffering from voltage and frequency fluctuations. The country’s power system is still experiencing up to 30 percent voltage fluctuation at 132 kV grid. The power system frequency varies between 48.7 Hz and 51.5 Hz.

 

Under such circumstances, it is quite unrealistic to have a hope of replacing the industrial captive power generation facilities with the grid supply system. But maximum efforts are badly needed from the government’s policy level to ensure quality electricity supply in the shortest possible time to reduce wastage of national resources.

 

Other measures should include rationalization of the costs of power sector project, prioritizing least cost options in electricity generation and respective infrastructure expansion plan, industrialization with reasonable distribution across the country and promoting round the clock industrial production and overseas business operations.

It would be unwise to ignore the issue even for the sake of industrial expansion. Under no circumstances, the country should afford such an inefficient exercise (industrial captive power) in the power sector which is consistently making the sector more expensive. People are already bearing the burden of 82 percent hikes in electricity prices on an average enforced in nine phases between March 2010 and December 2017. Now another blow is waiting for them as the Bangladesh Energy Regulatory Commission had completed public hearings on the proposal to increase electricity prices for different consumer groups.

 

 

M Ahsan Shuvro;

Energy Journalist

ma.shuvro@gmail.com


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