Our power sector will play a crucial role in our development -- it's time to improve it
Historically, the power sector around the world has been characterized by a stable policy and regulatory framework, including mature technology implementation, where utilities were managed based on their technical excellence while ensuring adequate profitability.
Presently, power generation, worldwide, is undergoing a phase of radical and disruptive transformation due to a clash between technological, economic, and political forces.
Bangladesh’s economy has grown better than many of our Asian peers over the past decade. In the last 10 years, Bangladesh’s installed capacity has increased remarkably, from around 4.5GW to 12.8GW.
Private sector participation in power generation accounts for about 60% of the total number. The transmission sector has also gone through significant capacity building in the last five years.
The focus has shifted to higher voltage operating levels to reduce losses. The distribution sector, with a clear focus on increasing electricity access, has registered significant growth in terms of distribution network and sub-station capacity.
Under the Power Sector Master Plan, 2016, Bangladesh has set some key transition milestones projected to be achieved over the next 20–25 years. The key focus for investments is on capacity addition across the generation, transmission and distribution sector, along with infrastructural improvements by adopting superior technology solutions.
It has been planned to increase installed capacity to 24GW by 2021, and about 8,000km of new transmission lines and 120,000km distribution lines have also been planned to be constructed by 2020.
To ensure sustainable transformation, the country aims to increase generation from renewable energy sources from 2.91% (in 2017) to 17% in 2041, in line with its Intended Nationally Determined Contribution (INDC) commitment to reduce greenhouse gas emissions by 5% until 2030.
The power sector transformation across the globe is driven by interaction between five global mega-trends: Technological breakthroughs, climate change and resource scarcity, demographic and social change, shifts in global economic power, and rapid urbanization.
The impact of these mega-trends is more relevant for developing countries such as Bangladesh, as they face the challenge of a persistent electricity demand-supply gap, along with sizeable demand growth and a need to increase access to electricity.
Bangladesh has the potential to be among the emerging economies . However, the electricity sector needs to play a crucial role and will need to go through significant transformation to achieve the government-stated objectives of transitioning to a “middle-income country” by 2021 and “high-income country” by 2041.
The key drivers which will affect future actions of stakeholders in Bangladesh include electricity infrastructure augmentation, improved focus on the industrial sector, increasing access to electricity, ensuring energy security, and development of sustainable renewable energy sources.
Disruptions in the power sector are catalyzing this transformation and accelerating any paradigm shifts. It is important for stakeholders (the government, regulators, utilities, investors, and development partners) to assess their strategies and implement the changes they need to make in time or, even better, ahead of time.
Key actions suggested for Bangladesh are on thematic areas in which disruptions are impacting the Bangladesh power sector. These areas are government and regulations, financing and investments, renewable energy and energy efficiency, technological advancement, and capacity-building.
The government is projecting further reform measures to meet the increasing demand for reliable, affordable, and sustainable power. Some of the key actions required in the context of regulations and government support are to facilitate the development of a competitive power market, introduction of rationalization of tariff, and reforming subsidy arrangement (ie implementation of direct benefit transfers).
With the addition of new sources of power, a changing generation mix, increasing customer demand, and increased operational efficiency, there is a need to develop a more efficient, transparent, de-regulated, and competitive power market for the supply of reliable and cheap power to customers.
This will introduce competition on the supply side, resulting in an efficiency-driven decrease in electricity prices and pass-through gains to end consumers. In a competitive power market, participants can efficiently manage their portfolios by choosing different products available under a long-term, medium-term, and short-term duration.
Industries and the residential sector are the two largest energy consumers in Bangladesh’s economy, followed by commercial and agricultural consumption. The Sustainable and Renewable Energy Development Authority (SREDA), the apex institution in Bangladesh which is responsible for energy efficiency and conservation (EEC) activities, has identified sector-wise potential for energy efficiency and conservation, which ranges from 30% for industry, 36% for residential, and 30–40% for commercial sectors (as a percentage of EEC).
While the government has demonstrated initiatives to keep pace with the rising energy supply gap and is addressing the same with policy instruments, EEC in various sectors is still largely driven by a voluntary approach from end users.
The existing policies and regulations by policy-makers and regulators may be supplemented by promoting incentive-driven, demand-side management among various classes of consumers.
By 2041, it is expected that Bangladesh will require an investment of about $35 billion in the power sector.
In Bangladesh, power-generation projects have been predominantly financed by a consortium of local banks, non-banking financial institutions (NBFIs), international financial institutions, export credit agencies (ECAs), and foreign investors. The country may face challenges in securing funding requirements due to lack of project finance, inadequate domestic funding, poor financial utilities, and debt sustainability.
Bangladesh needs to consider alternative financing options such as green funds, power sector focused financial institution outfits, strategic disinvestment of power utilities, overseas listing, increasing private participation, and local currency denominated bonds in the overseas market.
Certain regulatory reforms could also help attract more financing, such as capping interest rate by allowing London Inter-bank Offered Rate (LIBOR) with a margin for ceiling interest rate, relaxation of Bangladesh Investment Development Authority (BIDA) guidelines on remittance of fees to technical advisers, and streamlining the approval process for foreign loans.
Another major area that is key to the future of our power sector is technology, one of the key enablers for improving efficiency in the power sector. We expect that information and operational technologies will play a critical role in Bangladesh’s power sector.
The utilities in Bangladesh are currently in the process of implementing enterprise resource planning (ERP) systems, geographical information system (GIS), etc. In order to keep up with global trends, Bangladesh needs to focus on enhanced consumer services, adoption of smart-grid technologies, advanced technologies like digital asset management and drone-powered solutions, and cyber security.
Smart-grid technology will give us the grids of tomorrow where the supply chain will become networked and non-linear both physically (with power flowing bi-directionally) and commercially (with new market participants and new commercial arrangements between participants). In the new world, the smart grid will play a key role in ensuring that demand and supply are balanced through smart systems that merge consideration of grid technical constraints with customer preference and activity while allowing industry participants to manage risk and make a fair return.
Thus, new technologies and ways of working will be required. New players will enter the industry and the industry’s relationships with their customers will be changed. Smart grids will challenge the utilities to think outside the box and look for new solutions.
The stable nature of the traditional utility business will become a thing of the past. Policy-makers and utilities in Bangladesh need to ponder over the following points in working towards a consensus for a suitable strategy to be adopted for smart grids in Bangladesh.
A report by PwC UK and the James Martin Institute for Science and Civilization provide insights into how people think the workplace will evolve, the megatrends and how this evolution will affect their employment prospects and future working lives:
Given the shift in generation mix and advancement in technology Bangladesh’s power sector is witnessing, significant skill upgrade and capacity building of the workforce is required to enable successful transformation. The interventions need to be planned, designed, and implemented by factoring in process, technology, information requirements, organization structure, people capabilities, and customer requirements.
Mamun Rashid is a partner and Nabila Sajjad is a principal consultant with the Power and Utilities practice at PwC Bangladesh. This article is an excerpt of a PwC thought paper prepared for the Bangladesh Power Conclave.