Power generation cost up 4 times as local gas supply dwindles

Infographic: TBS

The cost of generating one kilowatt of electricity has increased four times from Tk2.50 to Tk10 over the last 13 years, thanks to a continuous depletion in gas-based generation and a subsequent rise in the share of imported liquid fuels in power production.

The cost of power generated in plants fired by imported fuels was higher than that of gas-powered electricity, and the cost has soared to a dramatic high owing to the current energy market volatility, bleeding the state-owned power agency white.

The Bangladesh Power Development Board (BPDB) has failed to make payments to private power producers for five months and owes the producers Tk16,000 crore.

Supplies from local gas fields have fallen more than expected, making the agency rely more on expensive fuel oils – further inflating its generation costs, officials say.

"If we are supplied 100mmcf [million cubic feet] less gas and the demand is met by oil-based electricity, production cost goes up by Tk5000 crore annually. Compared to last year's supply, we are now getting around 200mmcf less," said SK Aktar Hossain, member (Finance) at the BPDB.

Gas supply to power plants has dropped to 950mmcf per day from 1,150mmcf a year ago.

Till last year, the Bangladesh Oil, Gas and Mineral Resources Corporation (Petrobangla) used to supply 3,100mmcf gas per day to different sectors. The number has now dropped to 2,670mmcf.

Pursuing energy-mix policy

The government has gradually expanded the liquid fuel-based facilities as part of its energy-mix plan for power generation amid decreasing gas supplies from domestic fields.

But the price volatility of the fuels – oil, gas and coal – in the global market has made electricity generation from oil-based plants extremely expensive, putting the power development board under a heavy cost burden.

SK Aktar Hossain told The Business Standard that oil-based electricity generation is 10-12 times costlier than gas-based production.

"We have to produce electricity from oil-based plants to meet the demand even at high costs as we are not getting enough gas to use the full capacity of the gas-based plants, the cheapest option to produce electricity," he noted.

Amid the dwindling production of local gas fields, the government started importing   Liquefied Natural Gas (LNG) under a long-term contract in 2018 and from the spot market in 2020.

But the supply has become scarce now as the country has suspended LNG imports from the spot market due to its price volatility in the global market.

Petrobangla Chairman Nazmul Ahsan said considering the greater benefit of the country, they have stopped importing the very high cost spot market LNG.

Petrobangla used to import spot market LNG at $6-$7 per metric million British thermal unit (mmBtu), which is now hovering at $39.

"Instead, we have decided to increase gas production from local gas fields by conducting workover, deep drilling and maintenance work," said Nazmul Ahsan.

Cheaper gas replaced by costly liquid fuel

Back in 2009, the BPDB used to generate 88.44% of electricity from gas-fired power plants. During that time, the country's total electricity generation capacity was 5,493 megawatts.

The share of furnace oil- and diesel-based power generation then were just 3.89% and 2.03% respectively of the total energy mix.

The capacity of gas-based plants has grown over the past 13 years, but they make up only 56.43% of the country's total power generation that has more than doubled during the period.

As of Sunday, power generation was 12,309MW during evening peak hours.

As supplies from local gas fields continued to fall, the government established dozens of oil-based power plants with public and private sponsorship to make up for the shortage and also to increase electricity coverage across the country.

Now furnace oil-based power generation accounts for 26.40% of electricity, while diesel-run electricity holds a 0.92% share in the total energy mix, according to a BPDB report of July 2021 to March 2022.

In 2008-09, the average cost of electricity production from different fuel mixes was Tk2.50 kilowatt-hour (kWh). But now, the average cost of power generation has reached Tk10.

Production of electricity from furnace oil-based plants costs Tk17 per unit, diesel-based plants cost Tk37 and gas-based plants cost Tk3-Tk3.5.

But the power development board has had to resort to costly options owing to a gradual fall in gas supplies, the low cost energy source, leading it to a chronic loss-making concern of the government.

Since 2009, the power agency's accumulated losses have reached above Tk60,000 crore for purchasing electricity at high costs and selling it at a subsidised rate.

How BPDB can clear its dues

According to data from the Independent Power Producers, the BPDB has not yet paid last April's power purchase bills.

The power agency's financial condition is precarious as it now owes Tk16,000 crore – equivalent to five-month electricity purchase bills – to private power producers.

SK Aktar Hossain said low gas supplies to power plants, costly oil and rising dollar prices are to blame for the current situation.

Asked how it is going to clear the payment backlog, SK Aktar Hossain said an adjustment between the electricity purchase cost and the bulk price is a way out.

At present, there is almost a Tk5 difference between production and purchase costs of electricity and the bulk tariff at which the BPDB sells electricity to distributors.

The second way out would be the rationalisation of different taxes levied on electricity, said the power development board member.

Currently, there are above 40% taxes and VAT imposed on electricity that make the energy costlier.

The same tax has repeatedly been applied on electricity production, purchase and retail level, which is in no way acceptable, said sources at the Power Development Board.

The Power Division and the BPDB had applied to the National Board of Revenue for restructuring the taxation on electricity. But the NBR rejected the appeal, the sources added.