A multifaceted approach to fixing the power sector’s core problems and consistent actions from now through to 2030 can help cut the government’s subsidy burden to nearly zero, the report found.
Bangladesh can achieve the savings by shifting half of the industrial demand, met by captive generators, to the grid, adding 3,000 megawatts (MW) of renewables, reducing load shedding to 5 percent from the fiscal (FY) 2023-24 level and limiting transmission and distribution losses to 8 percent.
“With the reserve margin hovering around 61.3 percent, Bangladesh’s power sector has an overcapacity problem which contributes to the BPDB’s persisting subsidy burden” said report author Shafiqul Alam, Lead Analyst – Bangladesh Energy, IEEFA. “Despite a series of power tariff adjustments, the hefty revenue shortfall and subsidy allocation will likely persist in the foreseeable future. IEEFA’s proposed roadmap for reform suggests improving power demand forecasting methods by factoring in the role of energy efficiency to reduce overcapacity.”
The report finds that during the fiscal year (FY)2019-20 to FY2023-24, the BPDB’s total annual expenditure increased 2.6-fold against revenue growth of 1.8 times, prompting the government to allocate a combined subsidy of Bangladeshi Taka (Tk)1,267 billion (US$10.64 billion) to ensure power supply to keep the economy afloat. Yet, the BPDB recorded a cumulative loss of Tk236.42 billion (US$1.99 billion). In FY2023-24 alone, the government gave a Tk382.89 billion (US$3.22 billion) subsidy to the BPDB.
“Our roadmap recommends limiting new investments in fossil fuels-based generation while promoting renewable energy deployment” added Mr Alam. “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.”
In order to bring the subsidy burden down to nearly zero, Alam recommends ensuring industries fully rely on the national electricity grid.
“Additionally, the country should gradually transition to electric systems from gas-driven appliances, like boilers” Mr Alam said. “This will help increase the BPDB’s revenue from selling additional energy while reducing capacity payments to idle plants. The window to make Bangladesh’s power sector sustainable is rapidly narrowing, but there is still time to get the sector back on track by following a suitable roadmap.”
As the first step of the reform, the report calls on the government to forecast power demand from 2025 by factoring in energy efficiency gains and demand shift measures. IEEFA’s projection by factoring in such variables shows that the country’s peak power demand in 2030 is likely to be 25,834MW as against the Integrated Energy and Power Master Plan’s (IEPMP) forecast, made in July 2023, of between 27,138MW and 29,156MW.
Simultaneously, the IEEFA roadmap also suggests halting investment in fossil fuel-based power and limiting the use of oil-fired plants to 5 percent of total power generation. If these steps are taken along with the anticipated 4,500 MW of fossil-fuel-based power plant retirements, the report expects Bangladesh will have a system capacity of 35,239 MW.
Finally, the country can consider a conservative goal of installing a total combined grid-connected renewable energy capacity of up to 4,500 MW by 2030 to help reduce mostly expensive oil-fired power generation during the day. The use of battery storage of 500 MW 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.
For additional information:
Institute for Energy Economics and Financial Analysis (IEEFA)
