The Financial Express

Power system overcapacity in Bangladesh is getting worse, says IEEFA

| Updated: January 20, 2021 17:11:21

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Overcapacity in Bangladesh’s power system has worsened and also threatens to deteriorate in near future, according to the Institute for Energy Economics and Financial Analysis (IEEFA) on Wednesday.

Data available with the Bangladesh Power Development Board’s (BPDB) latest annual report showed that overall power capacity utilisation in the fiscal year 2019-20 (FY20) was just 40 per cent, down from 43 per cent in the previous year.

It is a ‘clear sign of worsening overcapacity’, mentioned a new briefing note released by the IEEFA, based in Ohio of the United States (US). The institute [www.ieefa.org] examines the issues related to energy markets, trends and policies globally.

Author of the briefing note Simon Nicholas, an energy finance analyst with IEEFA, said that planned capacity additions over the next five years will likely see capacity utilisation decline further.

“With another 21,000MW due to come on line by 2025 and only 5,500MW of old capacity due to be retired, utilisation will drop below 40 per cent unless a very high rate of power generation growth is maintained,” Nicholas continued.

Power generation growth was only 1.26 per cent in FY20 due to negative impacts of Covid-19 on the Bangladesh economy.

IEEFA estimated that capacity utilisation will drop below 40 per cent over the next five years unless power generation growth is maintained at or above 10 per cent annually.

“Worsening overcapacity has significant implications for the BPDB’s finances as well as power tariffs,” Nicholas added in a press statement issued by IEEFA.

“Under power purchase agreements, thermal power generators receive capacity payments regardless of whether they are utilised or not,” he mentioned.

“Capacity payments to power plants that increasingly sit idle raise the per unit cost of generation. This will result in the need for higher government subsidies to bail out BPDB’s losses and/or the need to increase power tariffs for consumers.”

Under a new legislation recently passed in Bangladesh, power tariffs can now be raised multiple times each year.

“On top of the overcapacity problem, the planned future reliance on expensive imported coal and LNG will raise the per unit fuel cost for thermal power,” said Nicholas.

The press statement also mentioned that some tenders for LNG imports into Bangladesh have been cancelled due to concern over high prices during 2020. This concern is likely to intensify now that Asian LNG prices have soared to a new high in early 2021.

“It has been reported that the Bangladesh government is considering cancelling the coal-fired power project pipeline and replacing them with LNG projects. However, replacing coal power capacity with similar capacities of LNG-fired capacity will not address the nation’s overcapacity issue,” Nicholas continued.

He was of the view that instead of replacing the coal power projects with LNG, the Bangladesh government should consider using the 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,” he added.

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