The Power Development Board (PDB) could save Bangladesh Tk 138 billion (US$1.2 billion) in annual losses, which are currently covered by government subsidies, through reforms in the electricity sector, according to a new report.
Institute for Energy Economics and Financial Analysis (IEEFA) published the report on Wednesday.
Bangladesh can achieve the savings by shifting half of the industrial demand, met by captive generators, to the grid, adding 3,000 megawatts (MW) of renewables, reducing load shedding to 5% from the fiscal (FY) 2023-24 level and limiting transmission and distribution losses to 8%, said the report.
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The report found that during the fiscal year (FY)2019-20 to FY2023-24, the BPDB’s total annual expenditure increased 2.6-fold against revenue growth of 1.8 times, prompting the government to allocate a combined subsidy of Bangladeshi Tk1,267 billion (US$10.64 billion) to ensure power supply to keep the economy afloat. Yet, the PDB recorded a cumulative loss of Tk236.42 billion (US$1.99 billion).
In FY2023-24 alone, the government gave a Tk382.89 billion (US$3.22 billion) subsidy to the BPDB.
To bring the subsidy burden down to nearly zero, it recommended ensuring industries fully rely on the national electricity grid.
“With the reserve margin hovering around 61.3%, Bangladesh’s power sector has an overcapacity problem which contributes to the BPDB’s persisting subsidy burden. Despite a series of power tariff adjustments, the hefty revenue shortfall and subsidy allocation will likely persist in the foreseeable future,” said the report’s author, Shafiqul Alam, lead analyst – Bangladesh Energy, IEEFA.
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IEEFA’s proposed roadmap for reform suggests improving power demand forecasting methods by factoring in the role of energy efficiency to reduce overcapacity.
“Our roadmap recommends limiting new investments in fossil fuels-based generation while promoting renewable energy deployment. Further, it suggests modernisation of Bangladesh’s electricity grid to encourage industries to shift to grid power rather than operate gas-based captive plants and minimise load shedding,” he added.
“Besides, the country should gradually transition to electric systems from gas-driven appliances, like boilers. This will help increase the PDB’s revenue from selling additional energy while reducing capacity payments to idle plants,” said the author.
As the first step of the reform, the report urged the government to forecast power demand from 2025 by factoring in energy efficiency gains and demand shift measures.
IEEFA’s projection by factoring in such variables shows that the country’s peak power demand in 2030 is likely to be 25,834MW as against the Integrated Energy and Power Master Plan’s (IEPMP) forecast, made in July 2023, of between 27,138MW and 29,156MW.
Simultaneously, the IEEFA roadmap also suggested halting investment in fossil fuel-based power and limiting the use of oil-fired plants to 5% of total power generation.
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If these steps are taken along with the anticipated 4,500MW of fossil-fuel-based power plant retirements, the report expects Bangladesh will have a system capacity of 35,239MW.
“A system capacity of 35,239MW will help Bangladesh meet the peak demand of 25,834MW by 2030. It will bring the reserve margins down 66.1% in December 2024 to 36.4% (including variable renewable energy) and 20% (excluding variable renewable energy) in 2030. A reserve margin of 20%, excluding variable renewable energy, is comparable to countries like India and Vietnam,” the author mentioned.
The report said Bangladesh can consider a conservative goal of installing a total combined grid-connected renewable energy capacity of up to 4,500MW by 2030 to help reduce mostly expensive oil-fired power generation during the day.
The use of battery storage of 500MW with a backup for three hours will help reduce the operation of oil-fired plants in the evening, too. If batteries become more economical in the future, Bangladesh may consider their increasing use during the evening peak.
IEEFA examines issues related to energy markets, trends and policies. The Institute’s mission is to accelerate the transition to a diverse, sustainable and profitable energy economy.