The energy sector has multiple things which need to be done, all of them very difficult or with an uncertain outcome. The power sector has four components: (1) Plants that generate electricity for use by the society. (2) Sources of fuel that may be produced domestically or imported. (3) Transmission lines that move the electricity from the generating units to sub-stations. (4) Distribution systems that move the electricity from the sub-stations to the final consumers, factories, office buildings, homes, etc.
Bangladesh has sufficient generating capacity and a substantial amount is scheduled for commercial production in the next few years. The transmission system is inadequate, both in the facilities and the management, resulting in poor quality electricity and considerable unnecessary loss. Furthermore, the grid company is notoriously weak in constructing transmission lines to new generating facilities on a timely basis. The distribution systems have considerable technical losses, many illegal connections, and difficulties in collecting charges for electricity supplied, particularly to government organizations. Finally, fuel supply issues are very serious resulting in high electricity costs and uncertainty of availability.
The mismanagement of the gas and coal supply cost the country a great deal. Many factories are forced to use their stand-by facilities for power supply for extended periods. These many issues are not covered here -- rather we focus on the transmission systems, the distribution systems, and solar power. These are actually straightforward compared to the issues of finding cheap, reliable coal and gas supplies.
Expand supply of solar energy
Everyone wants to do this and what is proposed is not complicated. First, a standard Power Purchase Agreement (PPA) is prepared that sets out a schedule of payments that will be made by the government to a solar power plant for the electricity produced by the solar plant. The owner of the solar plant is free to sell the electricity to other buyers. BPDB will purchase any electricity that is unsold to other buyers. The transmission systems would be built by the power grid company to evacuate the power from the solar power facility to a major transmission line. Payment for electricity would be net of the cost of transmission from the plant to the major transmission line.
Anyone who wishes to build a solar power plant can do so upon showing that they have land of sufficient size plus meeting other rules that the government may formulate; the capacity of the plant would be required to be greater than a minimum size set by the authorities. The government will buy this power at the agreed price net of transmission costs [in this model the purchase price of power does not stay constant but will gradually decrease as set out in the PPA]. Land will be made available for leasing from the tea gardens, the military, and the railway.
Mismanagement of the gas and coal supply cost the country a great deal
The solar power plant can use any land that meets the government rules. Government land will be auctioned off but only for the solar power plants. Owners of tea plantations may build solar plants either under their own name or through joint ventures. This approach will lead to a large supply of solar power supplied to the grid. This differs somewhat from the current plan that is to have price offers from potential suppliers for different size plants. Suppliers will have to buy the land or demonstrate that they have control of it. BPDB will purchase a small fraction of the output leaving the rest to be sold to other buyers. Our recommended approach assumes that there is no upper limit to the amount of solar power the government will purchase. To attract FDI the land availability must be made simple for the foreign investor.
Transmission systems
The power grid company should be privatized [tender would permit foreign government organizations to participate through bidding]. Strict rules are needed to define the duties and charges of the winning company. The investments in equipment, software, and training would be spelled out; the bidders must demonstrate ability to construct transmission lines efficiently. As more renewable energy is added to the grid, the complexity of the system will grow. To manage this system requires technologies that are best established by foreign companies. The first step is to engage a foreign consultant to assist the government to prepare the tender documents.
Privatization of distribution companies
The government would first set up a market for electricity where the customers are large establishments or distribution companies and the different generating companies the suppliers. The market would establish the price of electricity that would vary over the time of day. The distribution companies should be privatized over the next six years. These two steps should be completed by the current government in the next two years. The distribution companies would check the sub-stations for hot points and remedy the faults to reduce losses; it would disconnect illegal connections or connections that are not paying their electricity bills.
Forrest Cookson is the Research Advisor to the Centre for Research and Development. In Bangladesh, he led the central bank component of the Financial Sector Reforms; was the Team Leader of the study of Northwest Area Development of Bangladesh; and served as the Statistical Advisor of the Legal and Judicial Capacity Building Project.
