$1.71b needed annually for 40% capacity by 2041

Institute for Energy Economics and Financial Analysis (IEEFA) has estimated an annual $1.71b investment in clean energy for 40 per cent power generation capacity in Bangladesh by 2041.

This annual investment expectedly would help the country’s electricity sector to get rid of the dependence on expensive imported fossil fuels and ease its growing subsidy burden.

The ambitious clean energy capacity target of 40 per cent (without storage facilities) would require $1.53 billion to $1.71 billion from 2024 to 2041, which is less than the power sector’s FY2021-22 subsidy burden, according to a new IEEFA report.

It added that a faster transition to renewable energy would free up financial resources that otherwise end up as subsidy payments.

“Bangladesh’s electricity generation model appears unsustainable without a clear transition pathway. Therefore, policymakers should raise their renewable energy targets and reflect the same in the upcoming Integrated Energy and Power Master Plan (IEPMP),” IEEFA Energy Finance Analyst and the report’s author Shafiqul Alam said.

“The government should also translate the renewable energy policy target into a year-wise action plan backed by a monitoring mechanism to track progress,” he added.

The report finds that high prices of fossil fuels and increased power generation costs have led to a surge in the subsidy required by the country’s power sector. For FY2021-22, the subsidy reached $2.82 billion, nearly 152 per cent higher than FY2020-21 and a whopping 301 per cent higher than FY2019-20.

“Rising subsidies eventually compel the government to pass the rising cost on to the consumers. This results in a spectre of price hikes for electricity and different fuels in quick succession. Despite these price hikes, the subsidy burden of the power sector in FY2022-23 could still be higher than the previous year,” Alam said.

Instead, the report finds that accelerating the transition of the electricity sector to renewable energy can free up financial resources and enhance the country’s energy security.

“Our analysis shows that the existing power system can immediately incorporate 1,700MW to 3,400MW of solar during the day and, subject to the feasibility of location and availability of sufficient wind speed, 2,500MW to 4,000MW of wind power at night to reduce the use of costly furnace oil-based power generation,” Alam added.

Such a move will also help reduce the average electricity generation cost. According to the report, estimates show that the levelised costs of electricity (LCOE) from the rooftop and utility-scale solar are around Tk5.25/kilowatt-hour (kWh) and Tk 7.6/kWh, respectively.

On the other hand, the average electricity generation cost of the Bangladesh Power Development Board (BPDB) was Tk 8.84/kWh during the FY 2021-22. It likely will cross double digits in taka during FY2022-23.

The report calls on the government to bring policy changes to promote the adoption of renewable energy. For example, the report suggests the government lift the current cap on rooftop solar installation capacity by up to 70 per cent of the sanctioned load of industrial and commercial buildings.

Similarly, it also recommends waiving applicable duties on fibre-reinforced polymer (FRP) walkways, imported inverters, mounting structures, and direct current (DC) cable, ranging from 15.25 per cent to 58.6 per cent, for rooftop solar projects.

“Such moves will send the right market signals about the government’s vision for the electricity sector’s transition,” Alam said.

Bangladesh needs to have a map of funding channels, including local resources and international sources. For this, Bangladesh can draw on lessons from Indonesia and Vietnam’s Just Energy Transition plans to fund its electricity sector transition, the report said.

From India’s experience, the report finds that risk mitigation measures, such as risk guarantee funds, will shield the project developers. Furthermore, competitive renewable energy procurement through auctions will help reduce renewable energy tariffs and help Bangladesh contain the rising electricity generation cost.