Power-sector reform can save $1.2b annually

Power-sector reforms can save Bangladesh US$1.2 billion, equivalent to Tk 138 billion, annually through reduction in state subsidy to the power board, according to a research finding.
This could be realised by shifting half of the industrial demand met by captive generators to the national power grid, adding 3,000 megawatts (MW) of renewables, reducing load-shedding to 5.0 per cent from the FY24 level, and limiting transmission and distribution losses to 8.0 per cent, says the Institute for Energy Economics and Financial Analysis (IEEFA) in a report titled 'Fixing Bangladesh's Power Sector'.
"With the reserve margin hovering around 61.3 per cent, Bangladesh's power sector has an overcapacity problem, which contributes to the BPDB's persisting subsidy burden," reads the report, released Wednesday.
Despite a series of power-tariff adjustments, the hefty revenue shortfall and subsidy allocation would likely persist in the foreseeable future, it predicts on the financing of power sector, where capacity payments to rental power-plant owners against unused capacity are considered a big burden.
The IEEFA's roadmap for reforms suggests improving power demand- forecasting methods by factoring in the role of energy efficiency to cut overcapacity.
"Our roadmap recommends limiting new investments in fossil fuels-based generation while promoting renewable-energy deployment. Further, it suggests the 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. We find that taking such consistent actions can help reduce the sector's subsidy burden," says the report, authored by the institute's Lead Energy Analyst, Shafiqul Alam. It says BPDB's total annual expenditure increased 2.6fold from FY20 to FY24 against revenue growth of 1.8 times, necessitating government subsidy allocation of Tk 1.267 trillion ($10.64 billion) to ensure power supply to keep the economy rolling.
Yet, the BPDB recorded a cumulative loss of Tk 236.42 billion, the institute notes in the report. In FY24 alone, the government gave Tk 382.89 billion worth of subsidy to the power board.
To bring the subsidy burden down to nearly zero, the IEEFA recommends ensuring industries fully rely on the national electricity grid.
"Additionally, the country should gradually transition to electric systems from gas-driven appliances, such as boilers. This will help increase the BPDB's revenue from selling additional energy while reducing capacity payments to idle plants."
The institute's projection by factoring in such variables shows the country's peak power demand in 2030 is likely to be 25,834 megawatts against the Integrated Energy and Power Master Plan's (IEPMP) forecast, made in July 2023, of 27,138-29,156MW.
The roadmap also shows halting investment in fossil fuel-based power and limiting the use of oil-fired plants to 5.0 per cent of total power generation.
If these steps are taken along with the anticipated 4,500MW fossil fuel-based power-plant retirements, the report expects Bangladesh will have a system capacity of 35,239 megawatts.
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 to 66.1 per cent in December 2024 as well as 36.4 per cent (including variable renewable energy) and 20 per cent (excluding variable renewable energy) in 2030. "A reserve margin of 20 per cent, excluding variable renewable energy, is comparable to countries like India and Vietnam," the report adds.

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