Distributive policy

A complete overhaul of the electricity sector policy is badly needed

EVER-INCREASING generation overcapacity, born of faulty policies, and almost no improvement in network capacity, in terms of transmission and distribution, have already hit the electricity sector hard and will continue to do so unless the government make a major policy change. The situation, if left unaddressed, would leave the state-owned Power Development Board further mired in crippling losses and give consumers little respite from rising utility rates. electricity. A study by the American Institute of Energy Economics and Financial Analysis published on February 11 indicates that the losses incurred by the Power Development Board have doubled in fiscal year 2021 compared to those of the year previous one, creating a situation that could force a continued increase in electricity tariffs, as growing overcapacity and overreliance on energy imports would increase the cost of electricity generation. The study report says the Power Development Board recently requested a 64% increase in tariffs as it faced a shortfall of 325 billion taka, largely due to soaring overcapacity spending. which amounted to 132 billion taka in fiscal year 2021. The increase in losses justified an increase in subsidies of around 60% to 117.8 billion taka in fiscal year 2021, from 74.4 billion taka for the financial year 2020.

Bangladesh could only use 42% of its installed capacity of 22,031 MW – which included 32% of the coal capacity of around 1,768 MW and almost half of the gas capacity of 11,450 MW – during fiscal year 2021, although there has been an increase in power demand. And, for the first time, as the study report indicates, the cost of purchasing electricity from independent power producers accounted for more than half of the total operating cost of the power utility, the cost of purchase from independent power producers increased by 58% on the previous year and Bangladesh spent about Tka 540 billion on power purchases in FY21, with producers supplying half of purchased electricity. The Payra power station, which sits idle with no transmission infrastructure, is a major blight as the government pays out Tk 1.3 billion every month in capacity payment, which is guaranteed to private power producers, regardless of the production capacity used or not. In addition, production and purchasing costs are increasing due to the dependence on imported coal, liquefied natural gas and oil for electricity generation. Growing overcapacity, due to a projected addition of 12,967 MW of new capacity by FY2025, would worsen the situation, further straining the government and further hurting consumers.

The study recommends a reset of power sector plans and a shift to renewable energy rather than a switch to liquefied natural gas from coal in power generation. It also recommends that the government stop setting up coal and liquefied natural gas power plants. The problem of overcapacity in power, as experts say, results from vested interests, the politicization of the sector and foreign pressure. The government must completely revise its energy policy and avoid the current problems. The government also needs to start relying on local experts, rather than foreign consultants who are often widely blamed for the mess.