Bangladesh is at a crossroads in its energy sector. As electricity demand grows alongside ambitious economic and industrial development goals, the country continues to rely heavily on fossil fuels -- natural gas, coal, diesel, and heavy fuel oil (HFO) -- to meet its power needs.
Yet, as global energy markets experience volatility and renewable technologies become increasingly cost-competitive, questions arise about the economic efficiency of existing power plants and the potential role of solar in reshaping the country’s electricity mix.
A close analysis of Bangladesh’s fossil fuel power plants reveals a stark reality: While natural gas and the country’s lone hydroelectric plant remain marginally profitable, almost all other fossil fuel-based power plants operate at a loss.
HFO plants, commonly used as peaking power, consistently show the highest losses per unit of generation.
Coal plants, despite being base load generators, are also increasingly loss-making due to high fuel and operational costs.
In contrast, modern renewable energy technologies, although not yet fully profitable, are steadily reducing losses and are projected to reach cost parity with coal and gas in the near future.
The inefficiency of fossil fuel plants in Bangladesh is driven by a combination of high fixed costs and expensive fuels.
Peaking plants, which operate intermittently, distribute fixed costs over a smaller amount of generation, resulting in high per-unit fixed costs.
HFO plants, in particular, are capital-intensive and have very low plant factors, making them extremely expensive to operate.
In comparison, modern renewables such as solar PV have minimal fixed costs, and hydroelectric plants also maintain relatively low per-unit costs.
Fuel costs further exacerbate the problem: HFO is the most expensive fuel (though we have only a few diesel based power plants, at present they are seldom operated). This is followed by coal, and then natural gas.
Imported power, which occasionally carries separate fuel costs under contractual agreements, also adds to the total expense of fossil-based generation.
Even among natural gas plants, some are now operating at a loss due to high LNG prices and limited domestic gas supply.
Losses are more prevalent in private-sector plants and peaking units, where expensive liquid fuels dominate. Public-sector baseload plants, particularly coal and gas units, generally fare better but still face rising operational costs.
Given these trends, solar PV presents a significant economic opportunity for Bangladesh.
The cost of solar electricity has dropped dramatically over the past decade, and the current tariff -- around 8.0 cents per kWh (considering average price of recent tendered projects) -- is now close to, or even below, the cost of gas-based generation, especially when LNG prices are high.
Coal, even at historically low prices, is already more expensive than solar PV on a levelized cost of electricity (LCOE) basis.
Replacing inefficient fossil fuel generation with solar PV is particularly viable for liquid-fuel plants, such as HFO, which are expensive and often used as peaking generators.
By deploying solar PV to supply daytime electricity, HFO plants can reduce fuel consumption, generate savings, and operate primarily during nighttime or periods of low solar irradiance.
This does not require reducing the installed capacity of fossil plants but allows their operation to become more efficient and targeted.
Consider a hypothetical scenario: A winter day with 3,000 MW of installed solar PV capacity. Solar generation runs from approximately 8 am to 4 pm, replacing the equivalent output of liquid-fuel plants.
On such a day, solar could generate around 10,000 MWh of electricity with minimal curtailment.
Given that HFO electricity costs roughly $0.2 per kWh, and solar PV costs $0.08 per kWh, the per-unit saving is $0.12. This translates to daily savings of $1,200,000 and annual savings of approximately $438 million.
One critical consideration is the risk of stranded assets. Gas-based power plants have a typical lifetime of 25 years. Any new gas or coal plant commissioned today will compete with solar PV throughout its operational life, not just at present fuel prices.
Given the declining cost of solar and potential volatility in fossil fuel markets, some fossil fuel plants could become economically-unviable long before their technical lifespan ends.
Early retirement of loss-making plants, particularly HFO units, may therefore be financially prudent.
Capacity payments under power purchase agreements (PPAs) complicate the picture, but replacing expensive fuel costs with cheaper solar PV during the day could reduce overall losses even while honouring existing contractual obligations.
To maximize economic efficiency and support the renewable transition, Bangladesh should pursue a combination of policy measures and investment strategies:
Bangladesh’s power sector is at a pivotal juncture. Existing fossil fuel plants -- particularly liquid-fuel units -- represent an expensive and increasingly inefficient component of the electricity system.
At the same time, solar PV costs have fallen dramatically and are increasingly competitive with fossil fuels.
By strategically deploying solar PV to replace costly liquid-fuel generation, Bangladesh can achieve substantial economic savings, reduce fuel import dependence, and mitigate the risk of stranded assets.
Moreover, with thoughtful policy design, investment in renewable technologies, and alignment of fossil fuel operations with renewable integration, the country can create a more resilient, economically efficient, and sustainable power system.
The economic case for solar PV is clear: the money spent on inefficient fossil fuel plants would be far better invested in clean energy that provides predictable costs, environmental benefits, and long-term financial sustainability.
Bangladesh has the opportunity to lead South Asia in renewable energy integration. Phasing out costly, inefficient fossil fuel plants and replacing them with solar PV is not just environmentally responsible; it is economically imperative.
Shahriar Ahmed Chowdhury is Founding Director, Centre for Energy Research, United International University. Email: [email protected].
