Addressing the key issues in the power sector could save the Bangladesh Power Development Board (BPDB) about 14,000 (Tk 13,800 crore or USD 120 crore) crore annually. Currently this amount is spent through government subsidies. Recently, this information has been revealed from a new research report of the Institute for Energy Economics and Financial Analysis (IEEFA), a US-based energy research think tank.
According to the report, these savings could be achieved—if half of the industrial demand, currently met by captive generators (own power generation infrastructure), could be added to the national grid, 3,000 megawatts of renewable energy were added, and Load shedding can be brought down to 5 percent compared to 2023-24 fiscal year. Besides, losses in power transmission and distribution should be limited to 8 percent.
Shafiqul Alam, IEEFA Correspondent and Chief Energy Analyst of Bangladesh, said, 'The reserve margin (the amount of unused capacity of a particular infrastructure) in Bangladesh's power sector is currently around 61.3 percent, which indicates an overcapacity problem and is a major reason for BPDB's reliance on subsidies. Despite multiple adjustments in power tariffs, the fiscal deficit and the need for subsidies will continue in the coming days. Our proposed framework suggests incorporating energy efficiency for accurate forecasting of power demand, which will help reduce reserve margins.'
Shafiqul Alam also said, 'Our outline proposes that investment in new fossil fuel-based power plants should be limited and the expansion of renewable energy should be increased. In addition, Bangladesh's power grid modernization should encourage industries to draw power from the national grid instead of gas-fired captive plants and reduce load shedding. We have seen that taking such steps will reduce the subsidy pressure significantly.
According to the report, BPDB's annual total expenditure has increased by 2.6 times from FY 2019-20 to 2023-24, while revenue has grown by 1.8 times. As a result, the government has given a total subsidy of 1 lakh 26 thousand 700 crores or 10.64 billion US dollars to keep the economy running. However, BPDB incurred a loss of Tk 23,642 crore during this period. The Government of Bangladesh has given a subsidy of Tk 38,289 crore or USD 322 crore to BPDB in the 2023-24 financial year alone.
Shafiqul Alam said, 'In order to bring down the subsidy to almost zero, it must be ensured that the industrial sector will be completely dependent on the national electricity grid. Also, gas-fired appliances—such as boilers—must be gradually converted to electricity-fired appliances. This will increase BPDB's revenue from power sales and reduce capacity payments for unused power plants.' He also said, 'The time to make Bangladesh's power sector sustainable is fast running out. But if we follow the right outline, it is still possible to bring this sector in the right direction.
The report calls for accurate forecasting of electricity demand from 2025, taking into account energy efficiency and demand shifting mechanisms, as a first step in reforms. According to IEEFA calculations, the country's peak electricity demand in 2030 will be 25,834 MW. However, according to the Integrated Energy and Power Master Plan (IEPMP) published in July 2023, the potential amount of this demand could be between 27,138 MW and 29,156 MW. That is, according to IEEFA, the demand will be slightly lower than the government estimate.
At the same time, the IEEFA recommended that investment in fossil (primarily coal-based) fuel-based power plants be stopped and the use of oil-fired plants be limited to 5 percent of total electricity generation. If these steps are taken and the planned 4,500 MW fossil fuel-based power plants are discontinued, Bangladesh's power generation capacity in 2030 will be 35,239 MW.
Shafiqul Alam said, 'Since the production capacity of 2030 is 35 thousand 239 MW, it will easily help to meet the maximum possible demand of that year (25 thousand 834 MW). This will reduce the reserve margin to 66.1 percent in December 2024, to 36.4 percent (including renewables) and 20 percent (excluding renewables) in 2030. This is equivalent to the reserve margin of a country like India.'
However, by the year 2030, 45000 MW of electricity generation capacity from renewable energy should be emphasized. Because, it will help in reducing expensive oil-fired power generation during the day. Apart from this, IEEFA has also proposed installing 500 MW of three-hour battery storage to reduce the evening use of oil-fired plants. In the future, the use of more batteries can be considered if the cost of installing batteries or storage for electricity storage decreases.
Shafiqul Alam said, 'However, the success of Bangladesh in solving the problems of the power sector will depend on the policy. Challenges such as power grid modernization, gas price adjustment and renewable energy expansion need to be addressed by focusing on issues such as energy efficiency rather than just GDP-based demand forecasting.'
