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Dhaka Tribune

CPD: Govt wasting dollars on import-based power generation, capacity charges

Total amount owed to independent power producers (IPPs) $3.5 billion (over 35,000C) as capacity payment as of Sept'23

Update : 16 Nov 2023, 07:46 PM

The government is wasting more dollars on import-dependent power generation like coal, gas, or oil-fired plants, not to mention capacity charge costs and avoiding local gas production, said the Centre for Policy Dialogue (CPD) on Thursday.

They released their latest report titled “Currents of Change: Quarterly Brief of the Power & Energy Sector of Bangladesh” on the day, while stating that during the last quarter, the power generated from imported oil was being replaced by coal-based power generation due to the high import cost of fuel and the unavailability of gas, including liquefied natural gas (LNG.)

Dollars are constantly being wasted in the name of capacity charges. On one hand, the country is literally fighting to keep dollars in their deposits, but dollars are being spent elsewhere on LNG and coal imports, experts opined.

The government's dependence on imported LNG has increased. Import costs have increased. As a result, the cost of government and Petrobangla is increasing further, they also stated.

“Coal is the worst source of fossil fuel. Its use is increasing. The government has started a journey in the opposite direction to energy transition, when there is talk of reducing coal dependence nationally and internationally. But the cost of coal is increasing with each day. Loadshedding continued in June, July and August. Loadshedding is increasing due to faults in transmission and distribution systems,” said Khondaker Golam Moazzem, research director of CPD at the report launching session.

“A lot of bills are due in the energy sector. I also see the impossibility of importing fuel. On the other hand, the government is leaning towards importing LNG. LNG development is increasing while avoiding domestic gas production. As a result, the pressure on the government to pay its debts and bills is increasing,” he also said.

Owing to the dynamic nature of the power and energy, it is essential to follow up the government's decisions, operational actions, and initiatives as well as to keep an eye on how the policies are being developed, constructed, and implemented., he added.

Helen Mashiyat Preoty, research associate of the think tank, gave the keynote presentation.

In her presentation, she said that the Ministry of Power, Energy and Mineral Resources should try to immediately reduce import dependency and invest in sustainable domestic sources such as natural gas and renewable energy in the upcoming quarter (October-December.)

"Allocating resources from the Annual Development Program (ADP) and national budget for exploring old and new gas fields and wells can be a short to medium term solution," she added.

She also said that the ministry showed optimistic performance in attracting foreign investment, grants, and loans for renewable energy.

The renewable energy-based power plants that are under construction, or in the pipeline, should be completed and added to the grid on a priority basis within the expected timeline, the research associate also surmised.

She suggested redirecting capacity payment from zero-production plants towards innovation policies for renewable energy.

Capacity payment burden

The quarterly brief also said that in the last 12 years, the government has paid the 82 IPPs, 32 rental power plants a whopping Tk104,000 crore as capacity payment.

According to Power Division and BPDB, the total amount owed to independent power producers (IPPs) stands at $3.5 billion (over Tk35,000 crore) as capacity payment, as of September 2023.

Noteworthy is the challenge that even if capacity payment is in Taka, it must align with the US dollar rate.

Update on IMF conditions

Under the terms set by the International Monetary Fund (IMF), Bangladesh is supposed to phase out subsidies given to the power sector by adopting a market-based pricing mechanism.

To reduce fiscal pressure, power tariffs have been increased three times by 5% each time this year, following the approval of the IMF loan.

According to the Energy and Mineral Resources Division, the energy prices will be revised by adopting the market-based pricing mechanism for fuel oils.

The Energy and Mineral Resource Division has already constructed a model that will be implemented to adopt market based pricing mechanisms.

However, the adjustment has been postponed due to the upcoming national election.

Loadshedding

During this quarter, the disparity between power generation demand and supply diminished from July to August but expanded once more in September.

The demand and supply gap of power generation decreased from 7,739 MW in July to 6,100 MW in August.

But the gap again widened to 14,102 MW in September, resulting in increased loadshedding in different parts of the country.

The report also said that looking at the pattern of these loadshedding, a decline in the overall amount and number of loadshedding during day peaks is observed.

However, a contrasting trend is observed in the number of load shedding taking place during evening peaks.

Power outages due to interruptions in the transmission grid station network increased from approximately 2,410 hours in June 2023 to 5,016 hours in August 2023.

Power sector challenges

Despite surplus and unutilized power generation capacity, BPDB extends installed power generation capacity further, mainly relying on coal, gas, or oil-fired plants.

Even during the last quarter, the power generated from imported oil was being replaced by coal-based power generation due to the high import cost of fuel and the unavailability of gas, including LNG.

Despite progress in transmission lines and substations, power interruption and outage frequency increased during July and September.

This highlights the need for a smart grid and modernized transmission and distribution system.

Other observations

The CPD also recommended urgent need to expedite drilling of 46 gas wells to reduce dependency on expensive petroleum oil and LNG imports.

The government should allocate more resources to expedite the drilling of 46 gas wells as committed, it further said.

The fiscal pressure created by the skyrocketing import costs for petroleum oil and LNG require immediate attention.

CPD also suggested redirecting capacity payment from zero-production plants towards innovation policies for renewable energy.

Examples include tax-adjusted energy prices, renewable R&D subsidies, etc.

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