Power system overcapacity worsening in Bangladesh: Study

About 60% of Bangladesh's power generation capacity remained unutilised in 2019-20, and this situation is set to worsen in the coming years, warns the US-based Institute for Energy Economics and Financial Analysis (IEEFA).

If this trend continues, it will force the government to increase the power tariff, while the financial health of the energy sector would be affected too, the IEEFA said in a briefing note on Wednesday.

Bangladesh utilised 43% of its power generation capacity in the 2018-19 Fiscal Year, which was three points better than in 2020.

According to the Bangladesh Power Development Board's (BPDB) own data, it spent Tk67,586 crore in the last decade for paying capacity charges to the private power plants that remained idle due to a lack of demand.

The government has so far increased power tariffs several times to cover this cost. Last year, the government passed an act that will allow it to raise the power tariff multiple times each year.

Analysing the BPDB data, the report warns that the planned capacity additions over the next five years will likely see capacity utilisation decline further.

"With another 21,000MW due to come online by 2025 and only 5,500MW of old capacity set to be retired, utilisation will drop below 40% over the next few years unless power demand growth is maintained at or above 10% per annum," says Simon Nicholas, author of the briefing note and energy finance analyst at the IEEFA.

But power board chairman Engineer Md Belayet Hossain is optimistic about the upcoming power scenario, saying that the authorities were expecting a 10% demand growth annually.

"Currently, we have slowed the pace of the power generation sector. Besides, some power plants are also waiting to go into retirement. So, the percentage of the unused capacity will drop in the present and following years," he said.

The IEEFA report said that worsening overcapacity has significant implications for the BPDB's finances, as well as power tariffs.

On top of the overcapacity problem, the author pointed out that the planned reliance on expensive imported coal and LNG in the future will raise the per unit fuel cost for thermal power.

"Recently, the Bangladesh government began to consider the cancellation of coal-fired power projects in the pipeline and replacing them with LNG projects. However, replacing coal power plants with LNG-fired plants of similar capacities will not address the nation's overcapacity issue," says Nicholas.

He suggested that instead of replacing the coal power projects with LNG, the Bangladesh government should consider using land set aside for these projects for renewable energy installations.

This could effectively jump-start Bangladesh's utility-scale solar and wind power build-out and push down renewable energy tariffs, as happened in neighbouring India.

Mohammad Tamim, an energy expert and Professor at Bangladesh University of Engineering and Technology (Buet), however, said reliance on renewable sources would not be the solution for overcapacity.

"We could wholly depend on renewable energy sources if we had multiple options, such as solar, wind and hydro power. But we do not have much of a prospect in renewable, except solar. So, we need a mixed energy policy where demand and supply will be set with practical data," he said.

Concurrently, Bangladesh is generating only 715.73MW of renewable electricity. Of that, 367MW is connected to the grid, according to data from the Sustainable and Renewable Energy Development Authority (SREDA).

The country currently has a capacity of generating 21,239MW electricity.