The upcoming power master plan should address the issues of overcapacity and expensive energy sources to bring financial stability in the power sector, said the US-based Institute for Energy Economics and Financial Analysis (IEEFA) in a report.
The report said the Integrated Energy and Power Master Plan would have to align with the government's Eighth Five Year Plan to drive zero carbon transformation.
The Eighth Five Year Plan acknowledges many of the major issues impacting Bangladesh's fossil fuel-based power system and solutions to fix them.
It says the government now has an increased focus on renewable energy, energy efficiency, and financial sustainability of the power system that has been affected due to reliance on coal and liquefied natural gas (LNG).
Bangladesh Power Development Board (BPDB), however, says the government will decide whether or not it will stop using coal and LNG.
"The government is still considering whether to reject coal projects or not. If it decides to reject coal projects, we must address this in the upcoming master plan," said BPDB Chairman Belayet Hossain.
The country's total electricity generation capacity is 25,227 megawatts at present while daily demand is hovering around 13,000-13,500 megawatts in this hot summer. Power supply drops to 8,500 megawatts in winter due to low demand.
The IEEFA report author Simon Nicholas, an energy finance analyst, said the Eighth Five Year Plan clearly acknowledges Bangladesh's power overcapacity problem as well as solutions to address it.
He said the financial sustainability of the power system is currently seriously jeopardised by heavy subsidisation and ballooning capacity payments to fossil fuelled power producers, stretching the power system's already weakened financial position.
"Increased reliance on expensive imported coal and LNG is a burden the government simply cannot afford to wear going forward," he said.
He further said any increased reliance on coal and LNG risks seeing electricity costs for energy consumers rise even further at a time when ever-cheaper solar and wind power is available.
The Japan International Cooperation Agency (Jica) funded the existing master plan, which was prepared by Tokyo Electric Power Company Holdings.
The upcoming master plan is also scheduled to be prepared by the same organisation as Jica signed a Record of Discussions with the Bangladesh government for the development of the plan in March this year.
If Jica funds coal power and creates a plan for more high-cost, LNG-fired capacity, it will be worsening overcapacity and increasing the likelihood of power tariff increases for consumers, said Simon.
"Coal and LNG are carbon-intensive fuel sources, and the most technologically and economically challenged by the current global energy transition to renewable clean energy," he added.
The IEEFA examines issues related to energy markets, trends, and policies and its mission is to accelerate the transition to a diverse, sustainable, and profitable energy economy.