21st August 2020
Mollah Amzad Hossain

The power sector continued to face criticism. Electricity is indispensable for development, but the excess generation capacity appears to have become a liability, especially in the eyes of the consumers’ rights activists. Notwithstanding, the necessity of introducing the private sector in power generation and the growth of generation capacity has been unplanned. Consequently, the cost of generation is increasing due to payments of rents and capacity charges for keeping the generation capacity unutilized. The consumers are bearing the burnt of this. On the other hand, the energy sector researchers and academics observed that the present situation has been created due to planning the generation growth based on projected economic growth. The demand grew in domestic and commercial sectors, but remained virtually static in the industrial sector over the last four years. The unutilized capacity progressively increased. There is another school of thought that the already operational industries could not be brought under the grid power coverage for not very reliable supply and comparatively higher tariff than that of the cost of captive power. However, Bangladesh Power Development Board (BPDB) analysis evidenced that the generation capacity increased by 444% over the past 19 years, but the demand growth in industrial sector is 245% only. The demand growth in commercial and domestic sector is 853% and 620% respectively. USA-based research organization, Institute For Energy Economics Financial Analysis (IEEFA) claimed that if the PSMP 2016 is pursued, 58% of the generation capacity would remain unutilized in 2030. BPDB, however, contested these observations as unrealistic and claimed that these were not based on objective information.

 

During the COVID-19 pandemic, half of the generation capacity remains idle. The Power Division thought that the demand during this summer could grow to 14,000-15,000 MW had there been no pandemic. In that case, it could be extremely difficult to manage that demand with the present effective generation capacity. The pandemic, that caused an economic stagnation of Bangladesh alongside global recession, has forced the authorities to review the power generation plan. Some academics and civil society representatives have advised the government for slowing down the implementation of the under-construction mega power generation projects. Advice is also there to suspend other projects in the pipeline. Sources close to BPDB told the EP that there is no scope for paying heed to such advises before reviewing the PSMP 2016. Moreover, slowing down execution of the ongoing projects would push up the cost.

 

At present, the installed capacity of the grid-connected power is 20,383 MW. The off-grid capacitive generation capacity is 2,800 MW. Some 56% of the total natural gas supplied by Petrobangla is used for power generation (40% for grid power and 16% for captive generation). Of the grid connected power plants, gas-based 53. 86% (10,979 MW), furnace oil 27.17% (5540MW), diesel 6.33% (1,290MW), import from India 5.69% (1,160MW), coal 5.62% (1,146 MW), hydro 1.13% (230MW) and renewable 0.19% (38MW). The capacity of liquid fuel-based meaning furnace oil and diesel-based generation capacity is 33.50% (6,830MW). The government has a plan to bring down liquid fuel-based generation to 5% by 2041.

 

In 2018-19, the total generation was 70,553 giga watt hour. Of this, gas-based generation was 68.5%, furnace oil 16.20%, import 9.60%, diesel 2.90%, coal 1.70%, water 1%, renewable 0.1%. In 2019-20, according to provisional estimates, the total generation marginally increased to 71,417 giga watt hour. Of this, gas-based 71.91%, furnace oil 13.19%, import 9.30%, coal 4.18%, hydro 1.15%, diesel 0.19% and renewable 0.19%. During the pandemic, the use of gas has increased and liquid fuel diminished. Consequently, the cost of generation should be reduced.

Bangladesh had to enter into a crisis phase as the development partners had withdrawn their financial assistance from the power sector. Consequently, the deficit in power system progressively increased as generation growth failed to keep pace with the demand growth. Against this backdrop, the government of Sheikh Hasina after assuming office in 1996 started attracting foreign direct investment in generation through formulating and introducing Independent Power Policy (IPP). Following that trend, the local companies like Summit, United, Orion, Energypac and Confidence have successfully invested in power generation. Alongside the private companies, some public sector companies of BPDB under ECA financing and forming joint venture with foreign companies are working in expanding the generation capacity. In addition, under a contingency action plan, liquid fuel-based rental and quick rental plants have been set up. Due to failure in increasing gas supply, some liquid fuel-based IPPs have also been set up. For all these, the average cost of generation also increased. In 2009, the unit cost of power generation was Tk 2.53, which is increased to Tk 6.03 in 2014. However, it came down to Tk 5.67 per unit in 2019 due to increased gas supply. The generation cost is expected to reduce further this year due to increased gas supply and substantial fall in fuel oil price in the international market. However, the bulk power tariff did not increase proportionately. The loss of BPDB started going up as a result while the retail price continues to rise.

 

Though the successes and achievements have been observed, yet no such success was visible in transmission and distribution segments. Dr Ijaz Hossian, Dean of Chemical Engineering faculty of BUET, said the success in generation segment could not be achieved if it remains in the exclusive domain of public sector like the transmission and distribution segments. The private sector has become interested to invest in power generation due to guarantee of return on investment. And, to do that the investors have been provided with rent and capacity charges. According to the Bangladesh Energy Regulatory Commission (BERC), the government has to pay rental fees and capacity charges of Tk 61,460 crore during a period of six years from 2013-14 to 2018-19. Over this period, BPDB had to account for Tk 293,294 crore for purchasing power from the IPPs.

 

The energy sector analysts and academicians considered the private sector investment rational. But representatives of the consumers’ rights organization and left-leaning politicians termed this as a flawed planning. They claimed that these were done on political ground to serve few companies. According to them, this is why the generation capacity kept sky-high than the actual demand.

Special assistant to the Chief Advisor of former caretaker government Prof M Tamim observed that the present situation has emanated from planning the generation on the basis of the government’s projection on the GDP growth. That strategy is proved to be wrong. Hence, the generation growth must be readjusted through revisiting the PSMP now. Taking the situation where it stands, it can be forecasted with reasonable assurance that the demand would not grow to 32,000 MW or 37,000 MW by 2030.

 

Dr Ijaz thought that the demand is not growing as investment in industries is not increasing. In this situation, he suggested not to go for any new imported coal-based generation plant. Coal plant can be constructed at mine-mouth through exploring own coal. He also stressed on giving priority to LNG import.

 

Giving a detail technical analysis, Engr. Belayet Hossain, Chairman of BPDB, explained that BPDB cannot utilize its 11,000 MW gas-based generation capacity for gas supply deficit. About 2,500 MW gas-based generation capacity remains idle. BPDB has no other alternative to use liquid fuel-based generation. Taking into account the fuel supply constraints, auxiliary use, plant load factor and technical losses, there is not much spinning reserve. Hence, we have to kept pursuing our generation plan. Otherwise, we would not be in a position to meet the requirements of 100 new Special Economic Zones (SEZs) now under the process of implementation. But the pace of development of SEZs is not encouraging as such.

 

Former Chairman of BPDB Engr. Khaled Mahmood did not see any reason for reviewing the generation plan as yet. By 2030, about 7,000 MW capacity plants would go into retirement. Consequently, we have to continue adding new baseload power plants progressively. He expressed concern over the permissions now being given for new captive power generation in the SEZs. These will create huge risks for grid power utilization in the future. Hence, for effective utilization of the grid power, there must not be any new captive power generation in the SEZs. He also strongly suggested bringing out present industries from exclusive reliance on captive power. Otherwise, the grid power development planning would fall flat. Another pre-condition of demand increase is enhancing the capacity of power transmission and distribution, and ensuring efficiency. Though late, emphasis on these segments would make it more reliable in about 3 years.

Director General of Power Cell Mohammad Hossain did not think that the present generation capacity is way too much. The situation has not yet reached a level for supplying fuel as per demand to all generators, especially gas. Hence, there is no alternative but to have surplus generation capacity. Some 25% spinning reserve is a universally accepted standard for efficient power system operation. The countries where renewable energy is a major contributor have 100% reserve margin. He said the PSMP is a dynamic document. In usual practice, it is reviewed every 5 years. On special circumstances, it can be reviewed quicker as well. Hence, there is scope for reviewing the generation plan, fuel mix and other associated aspects.

 

State Minister for Power, Energy and Mineral Resources Nasrul Hamid told the EP that the effective generation capacity is not above 16,500 MW. We would have struggled meeting the power demand in the summer had there been no depletion of demand due to the COVID-19. However, the government will plan new power plants upon reviewing the demand growth in “New Normal” Bangladesh in the post-COVID period. But we must bear in mind that the liquid fuel-based plants and many ageing plants are being progressively retired. 

 

Environment activists and consumer rights organizations allege that the power tariff is being continuously increased as more and more private power generation units coming into operation. But the energy sector analysts and professionals stressed that the success of power generation owes a great deal for introduction of the private sector. They insisted that not the IPPs, the fuel supply constraint is the main reason for the present uncomfortable situation. The gas supply constraints cause going for increased use of liquid fuel-based power. This has increased the cost of generation. The cost of power generation doubled now since 2009. But in the last year, the contribution of gas increased compared to the year before. Consequentially, the cost of generation would go down. The losses of BPDB is compounding as the bulk power tariff is remaining lower than the generation cost. For managing the impact, the government requires subsidizing BPDB every year. Around Tk 60,000 crore has been given as subsidy to the BPDB over the past 10 years. The government is showing this as loan to BPDB. If BPDB has to repay this, it would become bankrupt.

 

The debate over surplus capacity of power generation is not an isolated issue. Sustainable economic development and smooth, assured supply of power and energy in any country goes hand in hand. Specially, energy and power are two inseparable inputs. Without their coordinated and simultaneous development, safe, sustainable and affordable power supply security cannot be ensured. Without exploiting own fuel resources and using this economically and effectively, secured and affordable power supply cannot also be guaranteed. Reliance on imported coal and LNG exclusively would create uncertainty as there can be supply chain disruption or price shock in the global market due to regional and global geo politics. This would become an issue for lack of utilization of the actual generation capacity. Power evacuation and supplying efficiently would also be impeded if transmission grid and distribution networks are not updated and modernized. In fact, it is very much unlikely that the industrial demand for grid power could be increased without increasing the contribution of own fuel resources in the fuel basket for power generation. Failure in doing so would keep the power sector open for debate in the future too.


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