The Bangladesh Power Development Board (BPDB) can avoid Tk13,800 crore or US$1.2 billion annual financial loss and lower subsidy burdens by addressing core problems of the power sector, estimates the Institute for Energy Economics and Financial Analysis (IEEFA).
For this, the country has to shift half of industrial power demand, now met by captive generators, to grid, add 3,000MW renewable electricity, cut load shedding to 5 percent and limit transmission and distribution losses to 8 percent, it said in a new report: ‘Fixing Bangladesh’s Power Sector’ unveiled on Wednesday.
IEEFA has estimated that the BPDB’s total annual expenditure increased 2.6-fold against revenue growth of 1.8 times between FY20 and FY24, prompting the government to allocate a combined subsidy of Tk1,27 trillion or $10.64 billion to ensure power supply to keep the economy afloat. Yet, the BPDB recorded a cumulative loss of Tk23,642 crore or $1.99 billion.
In FY2023-24 alone, the government gave a Tk38,289 crore or $3.22 billion subsidy to the BPDB.
While BPDB’s installed power system capacity surged 125 percent between June 2016 and October 2024, its financial troubles brewed due to tepid power demand growth, use of expensive fuels, limited success with renewable energy, and unfavourable economic conditions, according to the report.
Over capacity in power generation has been identified as a major problem for a country like Bangladesh that has limited renewable energy. Its reserve power is estimated to reach 66.1 percent by December 2024.
According to IEEFA’s assessment, the country’s peak power demand in 2030 is likely to be 25,834MW, which requires a system capacity of 35,239MW with 36.4 percent reserve margin.
However, the government’s Integrated Energy and Power Master Plan’s (IEPMP), formulated in July 2023,estimated the demand between 27,138MW and 29,156MW.
As such, IEEFA recommends halting investment in fossil fuel-based power and limiting the use of oil-fired plants to 5 percent of total power generation.
“With the reserve margin hovering around 61.1%, Bangladesh’s power sector has an overcapacity problem which contributes to the BPDB’s persisting subsidy burden. Despite a series of power tariff adjustments, the hefty revenue shortfall and subsidy allocation will likely persist in the foreseeable future,” says Shafiqul Alam, the report’s author and Lead Energy Analyst for Bangladesh at IEEFA.
IEEFA proposed a reform roadmap that suggests improving power demand forecasting methods by factoring in the role of energy efficiency to reduce overcapacity.
“Our roadmap recommends limiting new investments in fossil fuels-based generation while promoting renewable energy deployment. Further, it suggests modernisation of Bangladesh’s electricity grid to encourage industries to shift to grid power rather than operate gas-based captive plants and minimise load shedding. We find that taking such consistent actions can help reduce the sector’s subsidy burden,” Shafiqul added.
Additionally, the country should gradually transition to electric systems from gas-driven appliances, like boilers. This may help increase the BPDB’s revenue from selling additional energy while reducing capacity payments to idle plants.
Besides, the country can consider a conservative goal of installing a total combined grid-connected renewable energy capacity of up to 4,500MW by 2030 to help reduce mostly expensive oil-fired power generation during the day.
The use of battery storage of 500MW with a backup for three hours will help reduce the operation of oil-fired plants in the evening, too. If batteries become more economical in the future, Bangladesh may consider their increasing use during the evening peak.
“However, the success of Bangladesh’s efforts to fix the power sector’s problems will hinge on how it makes policies more conducive, whether it shifts focus from GDP-centric demand projection to other factors, like energy efficiency gain, modernises the gird, adjusts gas tariffs to attract industries to use grid power and addresses the challenges of renewable energy expansion,” Shafiqul noted.
