Overcapacity in generation cripples power sector

Published at 12:00am on January 24, 2021

A 60 per cent overcapacity in power generation in Bangladesh, as the US-based Institute for Energy Economics and Financial Analysis says, in the 2019–20 financial year is gravely worrying on several counts. Such an overcapacity suggests an increased capacity payment — about $1.19 billion paid in capacity charge, according to the Bangladesh Working Group on External Debt in 2019–20 financial year — as power producers are entitled to a capacity payment irrespective of their power being used or not used. At the same time, such a high level of overcapacity necessitates frequent increases either in power prices or government subsidy for the power sector. The US institute report also shows that Bangladesh’s power overcapacity deteriorated in 2019–20 given that the overcapacity was 57 per cent in 2018–19. What is also concerning is that, with another 21,000MW scheduled to come into operation by 2025 and only 5,500MW of the old capacity planned to be retired, power use is likely to drop below 40 per cent unless a very high rate of power use growth is ensured and maintained, which is highly unlikely as power use growth was recorded to be 1.26 in 2019–20.

Such overcapacity, against the normally required 15 per cent, also suggests a wide gap between power generation capacity, demand, transmission and distribution. Bangladesh now has the capacity to generate about 21,000MW while the demand ranges between about 12,000MW in the summer and about 6,000MW in the winter. The government’s disproportionate attention to and investment in increasing generation capacity, neglecting the development of transmission and distribution infrastructure, has left the development of the power sector largely lop-sided. The country’s annual spending on idle power plants has increased, as statistics show, by 300 per cent over the past decade when idle plants were paid nearly Tk 600 billion in the period. Even when the power generation capacity far outweighs the transmission and distribution capacity, more private and public plants are under way. Some more are in the bidding and contract process. And yet, some more are in planning stages. Without attending to the problems in power policy, inefficiency, the absence of good governance, flawed measures and without shutting down inefficient and quick rental power plants, as has been demanded for long, the government appears to be allowing more power plants, that too environmentally-hazardous ones.

Last but not least, there is a worrying disinclination to renewable energy for power generation, even though Bangladesh, as a signatory to the Paris Agreement, is meant to generate 100 per cent electricity from renewable energy by 2050. While meeting the energy need is a high priority of the government, it must attend to the issues of overcapacity, transmission and distribution failures. The government must also not allow environmentally-hazardous power plants and resort to renewable energy for power generation. Setting the power policy on the right track is a must now.