Home ›› 13 Feb 2022 ›› Front
Consumers will have to pay the price as the rising cost of independent power producers (IPPs) and dependence on imported fossil fuel will continue to push up power tariffs in Bangladesh, says a study.
Prepared based on the Bangladesh Power Development Board’s (BPDB) annual reports, US-based Institute for Energy Economics and Financial Analysis (IEEFA) unveiled their findings on Friday.
The study revealed that Bangladesh’s total capacity payments to private power plants increased again to Tk 132 billion in FY2020-21, up by 25 per cent from the prior year.
In order to limit the need for large tariff increases, Bangladesh’s new Integrated Energy and Power Master Plan (IEPMP) must focus on grid investment and renewables rather than switching focus from imported coal to imported LNG, it added.
Energy analyst and author of the report Simon Nicholas said, “Building domestic low-cost clean energy capacity would help improve the eroding financial status of the BPDB which is burdened by the country’s capacity over-expansion based on imported fossil fuels.
“Any further focus on imported volatile fossil fuels is a warning to energy consumers in Bangladesh. Further significant and economically damaging power tariff growth is more than likely.”
Nicholas says the higher renewable energy ambition of Sustainable and Renewable Energy Development Authority (SREDA) and the Mujib Climate Prosperity Plan must be reflected in the new energy and power master plan.
Operational losses
BPDB’s operating loss doubled in FY2020-21 as expenses surpassed revenues, which was clearly driven by a significant rise in the cost of electricity purchases from independent power plants (IPPs) – that rose 58 per cent compared to the prior year.
The Bangladesh government has been providing subsidies to the BPDB for a decade to cover losses made by selling power at a price lower than the cost of power generation and electricity purchases from independent generators.
In FY2020-21, the subsidy was a record at Tk117.8 billion, up from Tk74.4 billion in the prior year. In FY2019-20 BPDB’s total operating loss was Tk 43,518 million, which increased to Tk 86,647 million.
IPP costs will continue to rise
The increase in the IPP cost was partly as a result of increased power units purchased from these plants – 34.6 TWh in FY2020-21, up from 25 TWh in the prior year and an increase of 38 per cent, says the report. However, a further driver was the higher per unit cost of each kWh purchased from the IPPs, rising to more than Tk 8/kWh in 2020-21 from Tk 7/kWh in the prior year, a 15 per cent increase.
Growing pressure to raise tariffs
In January this year, the BPDB proposed a bulk power tariff increase of up to 64 per cent to cover a Tk 325 billion shortfall.
The gas distributors also proposed a more-than-doubling of gas tariffs to Bangladesh Energy Regulatory Commission (BERC) following the spike in the cost of LNG imports.
The proposal applies to all gas consumers including industry and households. For power generators, the tariff is proposed to increase 117 per cent from Tk4.45 per cubic meter to Tk 9.66.
The BPDB has also proposed its own major increase to its bulk power tariff to the BERC.
Citing the increase in the cost of purchasing power as well as the spike in LNG, oil and coal costs, the BPDB is proposing that its electricity supply tariff should rise 52 per cent from Tk5.64 per unit to Tk8.58.
Power distributors who purchase at the bulk rate will then be under severe pressure to pass on this tariff increase to retail customers.
Power capacity and utilisation
According to the BPDB’s FY2020-21 annual report, overall power capacity increased by 8 per cent 1,648 MW in a year, but utilisation increased only 1.7 per cent.
Most of the power came from new installations of coal-fired, gas-fired and expensive oil-fired power that, despite its high cost, continues to be built in Bangladesh.
In FY2019-20 Bangladesh utilised only 40 per cent of its power as power capacity during the time was 20,383 MW but generation was 71,419. In FY2020-21 power utilisation stood 41.7 per cent because during this fiscal power generation was 80,422 MW against the capacity 22,031 MW.
What do the BPDB say?
Speaking with The Business Post, BPDB Chairman Md Mahbubur Rahman said, “Power demands in Bangladesh vary depending on the season. It is more in summer compared to winter.
“We have to estimate power capacity based on peak season demand, so electricity can remain unutilised depending on the season. The government is trying to maximise power use to reduce losses.”
BPDB sources say new plants with 12,967 MW power capacity are under construction and 19,651 MW more is planned to be added by the end of Fiscal Year 2024-25. The BPDB web portal on Thursday showed that the actual power generation was between 8,698 MW – 9596 MW.
On the matter, Consumers Association of Bangladesh’s (CAB) Senior Vice President Prof Dr M Shamsul Alam said, “Why would the people pay for energy that they cannot use?
“It is mysterious that the government continues to allow construction of more power plants to boost production of electricity. It is clearly the looting of public money.”
