Reliance on LNG for the country’s energy and power sector will start increasing from 2025. Consequently, the price of gas would have to be increased in phases to accommodate the higher cost of imported LNG. This would drive up the cost of generation of captive power. The cost of grid power should be lowered by increasing the contributions of domestic coal and gas and increasing cross border power import. It would be possible for the industrial sector to come out of its dependence on captive power through a well-coordinated plan to ensure quality grid power supply at an affordable cost.
Dean of Engineering Faculty, BUET Prof. Dr. Ijaz Hossain said the above in an exclusive interview with Energy & Power Editor Mollah Amzad Hossain.
There has been an imbalance between the demand and supply of power for some years in the past. But now the generation capacity is way above the demand. The government has to pay capacity charge for the idle power plants. Cost of generation is also increasing. Another announcement to increase the power tariff would come soon. What is the way out?
There is no doubt that the economy is growing and expanding. However, the demand for power is not increasing as per the projection due to slower than expected pace of industrial growth. Due to the failure of expansion and modernization of power transmission grid and distribution network, sustainable supply of even a single MW of grid power is not possible. On the other hand, the cost of grid-connected power generation has also increased due to increased contribution of expensive liquid fuel in the fuel mix. Consequently, the industrial sector has to still depend on captive power rather than rely on grid power. The cost of captive power generation is comparatively lower. SMEs can manage by using grid power, but it is not possible for the medium to large industries to come out of captive power. Present situation has been created due to the lack of coordination among utilities engaged in the generation, transmission and distribution of electricity in the power supply chain.
Bangladesh is a good paymaster. This has made it easier for attracting sizable investment in power generation. The investors are confident of getting required rate of return. However, it will not be easy in getting similar investments in the electricity transmission and distribution segments of the value chain. New entrepreneurs are still showing interest in generation but not so much in transmission and distribution. More than half of the generation capacity remains idle. Operation of industries in important industrial area like Gazipur, adjacent to capital Dhaka, remains disrupted for 4-5 hours daily for grid power supply interruptions. Moreover, the gas demand for power generation cannot also be met.
There is no alternative to achieving economic development and growth of power demand through attracting new investments in industries. These industries would require reliable quality power supply at affordable cost. This is possible through increasing contribution of domestic fuel in the fuel mix.
There are allegations that the government has failed in making planned investment in power transmission and distribution. Over the past 2 years, it has started working on a master plan for upgrading and modernizing the transmission and distribution system. Do you think that power supply chain would be capable for ensuring quality supply of power soon?
The commitment to building a reliable modern power transmission and distribution system is not enough. Huge investments are being made for achieving 100% access to grid power. In my opinion, it is not a correct strategy. By now, we could have made the system much more reliable and better balanced if rational investments across all segments of the power supply chain was made. However, the present situation is that we have given power to all, but cannot guarantee assured supply to anyone. Because of this, the system could not be developed along commercial lines. Rather it is somehow surviving as a service sector.
For the above reasons, consumers are not getting quality power supply even after paying competitive regional power tariff. Domestic consumers having no other choice have to live with it, but the industries continue to rely on alternative captive power generation.
Power supply to all program witnessed above 12% growth in household demand but the growth of industrial demand is only about 9%. Consequently, the winter demand declines substantially. What is the remedy?
A review of the growth of power demand in the industry sector reveals that the demand remained almost at the same level over the past two years. As a result, the idle capacity is growing with time. Debt servicing on loans taken for power generation would start from 2021. The economy would be stressed if the demand growth of grid-connected power cannot be increased. Practically, a stalemate situation has been created for industrialization. Without identifying, assessing and addressing the reasons for the lack of growth of industries, we cannot expect growth in power demand.
An example may further clarify the situation. The power demand during the day drops down to about 6,000 MW in the winter; domestic, industrial and commercial consumers together consume this power. Let us consider that 50% goes to industries. If we assume, captive power contributes about 3,000 MW for the industries, then the total demand for industries is not more than 6,000 MW. This gives an indication where Bangladesh stands now in industrialization. We cannot expect demand growth if dynamism cannot be created in industrialization.
Do you think that entrepreneurs would be attracted to grid power if quality power can be ensured? Tariff of grid power for industries is Tk 8.00 per unit. On the other hand, cost of gas based captive power is Tk 4.5. Many observe that this tariff disparity is one of the major reasons for industries remaining dependent on captive power. What are your views?
In most countries, there exists policies that restrict auto generation (captive power plants) in grid coverage areas. In Bangladesh, as a contingency action plan for confronting an electricity supply crisis, industries have been permitted to do captive power generation along with some added incentives to improve the overall power supply situation for all consumers – domestic, commercial and industrial. Now, the captive power generators are meeting over 50% of the industrial demand for power. The cost of captive power generation is well below grid power. Hence, most industries are interested in captive power generation.
Quality grid power supply on an uninterruptible basis is necessary for addressing the prevailing situation, and that has to be achieved through ensuring supply at affordable cost. Industries cannot retain their global competitiveness if tariff of quality power is higher than the present level.
It is not possible to supply gas to all industries for captive power generation. There are few thoughts that cost of fuel must be determined based on heating value. This, according to many, would create competiveness in fuel supply and facilitate increasing grid power demand. What are your views about this?
Industries need power at affordable price for retaining competitiveness. This can never be achieved with imported liquid fuel. The government must reduce cost of grid power generation using a balanced affordable mix of domestic fuels and imported coal, LNG, cross border power trading. Use of imported liquid fuel must be brought to a bare minimum as soon as possible. Efficiency at all segments of the energy and power value chain must be significantly enhanced. Only then, quality power supply at affordable cost for industries can be truly ensured.
I don’t think there is much dividend in fixing price of fuel for industries on the basis of heating value.
The government claims that fuel efficiency in captive power generation is much lower. But entrepreneurs say that they have introduced cogeneration and tri-generation wherever possible to enhance fuel efficiency. What is your opinion?
The government has not achieved high fuel efficiency in power generation. However, the overall power generation efficiency has started improving over the past few years. The fuel-to-electricity efficiency of grid-connected power plants could be increased beyond 38%. The principal reason average efficiency cannot be appreciably increased is the continued reliance on liquid fuel based contingency power plants. Industries have definitely kept their overall operating cost within tolerable limits through efficiency enhancement. Many industries have kept their initiatives for achieving cogeneration and tri-generation ongoing to offset the impacts of gas price increase.
I do not think industries should be pressurized to get rid of their captive power generation. By 2025 gas sector would become more and more dependent on imported LNG. Price of gas for captive power will more than double. The cost of generation per unit may then increase from Tk 4.50 to Tk 6.50-Tk 7.00. At the same time, the cost of generation of grid power must be brought down considerably by adopting a balanced fuel mix of domestic and imported fuels. Grid power must be made competitive with captive power. Captive power generation cannot be done away with by simply promulgating laws.
The Power Division is discussing with the trade bodies about using grid power. At the same time, entrepreneurs are encouraging own power generation in special economic zones (SEZs). Do not you think the government’s two-pronged policy is self contradictory?
This is definitely like a double-edged sword. I have already mentioned that without increasing the demand for grid power, the present huge imbalance in demand and generation capacity cannot be minimized. In my opinion, the focus must be concentrated towards achieving capacity enhancement of managing the power system as a whole for ensuring quality power supply at affordable cost to all categories of users. No permission should be given to any new industry anywhere, not even in SEZs, for generating their own power.
There are visions for achieving 40,000 MW generation capacity by 2030 and 60,000 MW by 2041. From present reality how rational do you think about the vision?
In 2020, Bangladesh is already sitting on huge surplus generation capacity. Power division has proved their capability for increasing generation capacity. But what do you do with additional capacity generation if half of your generation remains unutilized. The government must review afresh the reasons why demand did not grow. The power demand will not grow until and unless there is economic development; living standard of people cannot improve without major industrial development. New targets for power generation must be pragmatic and realistic based true demand and on lessons learnt over these years.
New generation capacity must be commensurate with actual trend of demand growth because maintaining idle capacity has a huge impact on electricity tariff.
The government could not take any action at all in 11 years for exploiting own discovered coal resource. Do you think the government can eventually take political decision for exploiting own coal resource?
I do not want to talk about political decisions at all, but can say that the government seriously disadvantaging itself by not utilizing its coal deposits. The global scenario gives the impression that coal price in international market would remain stable for at least 20 years. Nevertheless, the government is realizing how challenging it is to construct the required infrastructure for coal import. In my opinion, the decision for domestic coal exploitation must be taken, and initiatives for utilizing the mined coal must be launched before it is too late.
Coal exploitation remains clueless, gas exploration remains stuck in quagmire. The all highways of entire energy sector is heading towards imported fuel destination. Can Bangladesh afford absorbing the financial implications?
There is no iota of doubt that the business-as-usual present situation would push Bangladesh to severe financial challenge. We must keep in mind that power supply at affordable price would remain a wishful dream without major contribution of domestic fuel in the future fuel mix for power. Grid power cannot become the major source of supply for industries without making the supply affordable. Finally, power supply cannot be made affordable without significant power import from India, Nepal and Bhutan through regional cross border power trading.
The State Minister for Power has already mentioned that increasing contribution of own fuel to the fuel mix for power is a major challenge in 2020. How optimistic are you about the success of the government?
Yes, I do agree it is a major challenge. I am not much optimistic about the success of the government.
Bangladesh is already feeling the challenge of power tariff and gas price increase. Situation is boiling in the Middle East. Do you think the global geopolitics demands any change for the government’s energy policy?
The Iran-centered crisis may continue for another decade. It may have marginal impact on oil price but would cause significant impact on LNG price. We must source LNG from countries other than Qatar and Oman. In my opinion, the government must open dialogue for LNG import from Australia.
