The US-based Institute for Energy Economics and Financial Analysis in an analysis released on Wednesday said that Bangladesh’s power overcapacity reached 60 per cent in the 2019–20 financial year with only 40 per cent of the installed capacity used in the year.
With more power plants in the pipeline, the overcapacity is likely to increase further over the next five years necessitating frequent increases in the power price or government power sector subsidy.
The latest IEEFA analysis released on its website said that Bangladesh’s power overcapacity situation had deteriorated given that the country’s power overcapacity was 57 per cent in 2018–19.
‘With another 21,000MW due to come on the line by 2025 and only 5,500MW of the old capacity due to be retired, the utilisation will drop below 40 per cent unless a very high rate of power use growth is maintained,’ said IEEFA energy finance analyst Simon Nicholas.
The power use growth in 2019–20 was only 1.26 per cent as Bangladesh went through the impacts of the coronavirus pandemic just as the rest of the world, said the IEEFA.
If power utilisation does not increase at a rate of 10 per cent or more over the next five years the power overcapacity would become greater than 60 per cent in 2025, said the IEEFA analysis.
Overcapacity bears significant implications for Bangladesh’s power sector for power generators are entitled to a capacity payment whether or not their power is used.
The country’s annual spending on the idle power plants has increased 300 per cent over the last decade when the idle plants have been paid nearly Tk 600 billion.
Over the period the power price has increased by 98 per cent with the power sector’s annual deficit rising to over Tk 8,000 crore.
Experts fear that the deficit would go up in the coming decade as the government would build more power plants over the time.
‘It could become a monster and have massive economic consequences unless the government manages to bring the overcapacity under control,’ said energy expert Ijaz Hossain, who teaches chemical engineering at Bangladesh University of Engineering and Technology.
Power demand growth has been almost stuck since 2017 for the growth was largely predicted based on household demand, he said.
Rural electrification is almost complete implying that the power demand growth is coming to an even lower level in coming years, he explained.
‘The overcapacity problem won’t go away as long as big industries produce their own power from captive sources,’ said Ijaz.
Bangladesh’s installed generation capacity is over 20,000MW, excluding over 3,500MW captive power, which big industries say they need because the grid power is not reliable.
The growth in domestic demand is unlikely to see a sharp rise overnight and any increase on top of the current level would surely put the government’s transmission and distribution capacity under stress, he said.
‘The government has got itself in a complex situation by rapidly increasing its power generation capacity when economic and other growths could not keep pace with it,’ said Ijaz.
According to the Institute for Energy Economics and Financial Analysis, power in Bangladesh is likely to become costlier because of the government’s increasing reliance on expensive imported energy for power generation in addition to the growing overcapacity problem.
‘Instead of replacing the coal power projects with the LNG, the Bangladesh government should consider using the land set aside for these projects for renewable energy installations,’ said Nicholas.
He also advised that the government should focus its investment on developing power transmission and distribution capacities to facilitate an increased utilisation of the existing installed capacity.
Reacting to the IEEFA analysis, Centre for Policy Dialogue research director Khondaker Golam Moazzem called for shutting down the inefficient and quick rental power plants.
‘One of the basic principles of power sector development in the coming decades should be transforming the sector into a competitive market, which will ensure efficiency and transparency, reduce generation cost, set market-based tariffs at the retail level and facilitate clean energy,’ said Moazzem.
The IEEFA said that a reduction in the use of power generated by diesel- and other fossil fuel-based plants helped reduce power sector subsidy in 2020 by 7 per cent compared to the year before.
In 2019 Bangladesh paid $1.19 billion in capacity charge, according to Bangladesh Working Group on External Debt.
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