The Power Division will buy electricity generated at the country's largest 300MW solar power plant to be built in Rampal, Bagerhat for ¢10.20, equivalent to Tk11.067, per kilowatt-hour. Over the course of 20 years, the government's expenditure for purchasing electricity from the plant at this rate is projected to amount to Tk10,762 crore.
The Cabinet Committee on Government Purchase approved the tariff proposal for the solar power project on Wednesday, sources within the finance ministry told The Business Standard following the cabinet committee meeting chaired by Finance Minister AHM Mustafa Kamal.
The approved tariff rate is considerably high, especially in view of the fact that the cost of solar power production per unit hovers around the range of ¢2-3 in other regions such as the Middle East, Africa, and several Asian nations including India. Investors, however, attributed the high prices of solar power in Bangladesh to various factors, including high expenses required for land leasing and development, reduced solar intensity, and heightened costs of borrowing in Bangladesh.
ACWA Power, a prominent entity from Saudi Arabia, will lead the investment for this significant solar power plant project in Bangladesh, with an investment totalling $430 million.
The plant will be built adjacent to the existing Rampal coal-fired power plant. The Bangladesh Power Development Board has allocated 900 acres of land for the project.
Ownership distribution for the solar power plant will involve ACWA Power holding a 45% stake, while the state-owned Bangladesh Power Development Board will possess a 25% share. Private sector entities, namely Comfit Composite Knit Ltd Bangladesh and Viyellatex Spinning Ltd, will each hold a 15% stake in the power plant.
Power Division officials said the Power Development Board has developed 900 acres of land to set up another coal-based power plant next to the Rampal coal-based power plant. The Power Development Board gets 25% ownership of the proposed solar power plant by converting the money spent on developing the land into equity. The organisation will also get the land rent.
ACWA Power will undertake 60% of the required investment for the power plant, while the remaining 40% will be equally split between Comfit Composite and Viyellatex Spinning.
David Hasanat, chairman of Viyellatex Group, told TBS that the solar power plant can effectively supply electricity to around 5 lakh families or 60-70 large composite mills, potentially contributing $6-7 billion to the economy.
The initiative is also expected to offset 450,000 tonnes of CO2 emission annually, despite the nation's per capita CO2 emission remaining quite low, he added.
ACWA Power signed a memorandum of understanding with the Power Development Board in November last year, outlining plans to establish 1,000MW solar power plants in Bangladesh. Within this framework, the Saudi Arabian conglomerate is spearheading the creation of this 300MW plant at Rampal.
Moreover, discussions are underway between ACWA Power and the government regarding the establishment of an additional 700MW solar power plant in Bangladesh.
Power Division officials told TBS that ACWA Power has been evaluating various potential locations across the country, including Payra in Patuakhali and Mirsarai in Chattogram, for the establishment of solar power plants. If suitable locations are identified, the company will set up plants there, and in such cases, Comfit Composite and Viyellatex Spinning would also participate as partners.
ACWA Power is predominantly owned by the Saudi government, with a 75% stake, while the remaining 25% share is held by private entities. It holds the distinction of being the second-largest company in Saudi Arabia, following Aramco, and stands as the world's largest power producer, boasting an operational or under-construction capacity of approximately 56,000MW.
Expressing optimism, David Hasanat anticipates the Rampal 300MW solar power plant will secure a power purchase agreement with the government by the upcoming February.
He envisions the power generated from this facility will be integrated into the national grid by the close of 2025.
Asked about their rationale for venturing into solar power despite being a textile company, David Hasanat emphasised its viability as a sustainable business model.
He also highlighted the prospects of profitability through investments in the power sector.
Furthermore, acknowledging Bangladesh's imperative for renewable energy to support sustainable development, he articulated the company's motivation for making such investments.
Investor explains why solar power is so costly in Bangladesh
Despite a global trend of decreasing solar power generation costs over the past decade, Bangladesh remains an exception to this phenomenon.
David Hasanat of the Viyellatex Group, a vital participant among the quartet of investors driving the solar power plant, explained the rationale behind the relatively elevated costs of solar power units in Bangladesh.
David attributed this disparity to a quartet of critical factors: substantial expenses incurred in land leasing and development, reduced solar intensity in comparison to sun-drenched regions like the Middle East, heightened costs of borrowing at 10.10% within Bangladesh versus lower rates in various other nations, and a tax regimen that only partially exempts solar power investments, a divergence from the comprehensive tax exemptions extended in many countries.
David elaborated, stating, "Our project's lifecycle is burdened by land acquisition and development expenses accounting for nearly 30% of the total cost. Moreover, the intensity of sunlight we receive is approximately 40% lower compared to the Middle East."
He said the borrowing expenses in Bangladesh are significantly higher at 10.10% compared to numerous other countries. Also, while Bangladesh provides limited tax relief for solar power ventures, this stands in contrast to the complete tax exemptions prevalent in various global counterparts.
"In light of these multifaceted factors, the aggregate impact results in a tariff surcharge of 75% to 80%," he added.
If these influencing factors align with those of other nations, the current cost of ¢10.20 per unit could easily plummet to ¢2.50, said the chairman of Viyellatex Group, which is one of the country's foremost garment exporters.