Why should cost of renewable power be so high?

Due to a myriad of reasons, the energy being bought from renewable power projects in Bangladesh costs several times higher than the global prices. Depreciation of the national currency and dearth of foreign exchange and primary energy sources have got the government in a bind. Because of the inability to pay for fuel imports, the authorities have given the green signal to the renewable energy sector to install power plants. Indeed, going by reports published in the media, a number of projects have been approved and more are on the way. The three solar power contracts awarded in September will sell power at Tk10 per unit. Although in neighbouring India, it costs nearly half that amount.
This has energy experts questioning as to why solar power should cost so much here. The three solar power plants that have been approved recently will have 20-year purchase agreements and it will cost the national exchequer Tk13,236 crore. A slew of such contracts has been signed this year with varying price contracts. According to Bangladesh Power Development Board (BPDB) data, more than Tk10 per unit has been paid to buy power from solar sources in FY2021-22. Some companies have benefitted more than others. Engreen solar generated energy at Tk16.42 per kilowatt (kw), Simpa solar power limited at Tk11.96/kw, KEPZ 9.8MW solar at Tk12.93/kw and Energon Renewable (BD) Limited at Tk12.11/kw. Interestingly, BPDB informs that cost of producing per kw of solar was between Tk 13 - Tk17 in FY2021-22 and that in the current fiscal is coming down. Next year it is expected to come down to Tk9-10 per unit.
When solar power in a neighbouring country costs a fraction of what it costs in Bangladesh, one thing has to be clearly understood. In that country, the contracts are not given out arbitrarily, there is a fierce competitive process. Where there is competition, there will always be a pressure to provide power at the lowest possible price. Unfortunately, in Bangladesh, the energy sector as a whole appears to have fallen victim to special considerations. Through tender and bidding process, India has progressively brought down production cost of solar power. Energy experts point out that solar power plants in that country are built on the basis of competition and hence, production cost has come down. In Bangladesh, such plants are being built under the aegis of a special act, where contracts are being signed with specific companies.
So naturally where this is no oversight, the cost of solar power is much higher. Other factors are also at play here. It has been seen that after signing of contracts, years pass by before power is added to the grid and payments start flowing. The third factor that is a problem is that practically all components of a solar project are imported. These carry various rates and types of duty that add to project cost. Other factors that act as hindrances include land acquisition, etc. But these are problems for all industry and if Bangladesh wishes to procure solar energy at competitive rates, the bidding process for contracts must also be competitive.
Most of Bangladesh's solar projects are installed either on river banks or in remote areas. Getting these connected to the grid is increasing project costs. Drawing a comparison with India, the planning is on a whole different level. There, permission for plant location is given where it is most convenient for connection to grid transmission lines. Again, India makes most of the components associated with solar panels, ranging from the silicon panel to spares - many of which are subsidised through government incentives. No such regime exists in Bangladesh. Indeed, the eco system for making solar panels hasn't begun in the country, which precludes any profit-making market for would-be entrepreneurs.
Although the authorities are hopeful that the solar tariff will get reduced in the years to come, it is difficult to imagine how that is going to happen when the entire industry is import-dependent. Where the duty structure allows for taxes to be placed on all manners of equipment and where there is a general lack of policy initiative to encourage a cottage industry to make it possible for companies to make components locally, prices are unlikely to come down. Lastly, if the renewable energy industry is going to fall into the same regime of 'no questions asked' under the power act, with no oversight on which company gets what contract at what price, then the country will have to pick up the pieces of another round of high price power that will do little to benefit consumers.

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