Spendthriftiness in the name of capacity payment

For years the staggering amount dished out as capacity payment to power plants -- a large number of which are inoperative -- does make a unique case of squandering public money. Capacity payment is what the government has to pay whether or not electricity is produced upon commissioning of a power plant. As per agreement with power plants, the government is required to pay capacity charges based on the plant's capacity and establishment costs, regardless of whether power is purchased or produced. In FY2021-22, the government paid around Tk 240 billion in capacity charge to power plants including the diesel-based ones. Ironic as it seems, the government paid the charges to power plants most of which have been idle for years, without reviewing the terms of the agreement or their effort to go for production. There are people related to the energy sector who are sceptical about any performance tests of the diesel-fired power plants ever carried before signing the agreement. Lately, although the government has sat up, one finds it intriguing how the spendthriftiness could last so long! A FE report says the long overdue scrapping of the practice has finally been taken up. At the start, it is the idle diesel-guzzling plants which are the targets. Shutting down these diesel-based plants, most of which have been sitting idle for years burdening the exchequer, should have been closed long back.

The country's overall electricity generation now hovers around 14,000MW. The highest generation recorded so far was 15,648MW on April 19, 2023. On the other hand, total generation capacity is around 24,602 Megawatts including the installed capacity of the idle ones, according to official data of the Bangladesh Power Development Board (BPDB). Around 51 per cent of the power generation is gas-fired, of which 27 per cent is generated from furnace oil, 6.0 per cent from diesel, 2.0 per cent from solar and hydropower and another 5.0 per cent is imported from India. Cost of electricity generation from diesel-fired power plants is the highest at around Tk 154.11 per unit followed by around Tk 22.10 per unit for furnace oil-based plants, around Tk 9.17 per unit for coal-fired plants, according to the BPDB's latest annual report.

It has been gathered that in the past months five privately owned and one state-run diesel power plants were closed down. These plants, reportedly, has outlived their life-span. However, according to the BPDB, almost all the state-run plants are still kept active although many of those have crossed their productive lifespan. Most of the diesel-fired power plants were awarded to private entrepreneurs before the last national election in 2018 under an indemnity law. Clearly, the decision of the government did not pay, rather caused a significant burden in the form of capacity payment. The belated move of the government to part with this will stop drainage of money, but the damage is done.