With the finances of national utility the Bangladesh Power Development Board in disarray thanks to rising capacity payments for often-inactive conventional power plants, renewables offer the hope of fiscal sustainability, according to the Institute for Energy Economics and Financial Analysis.

Bangladesh’s new power system masterplan must focus on renewables and grid investment, instead of liquefied natural gas (LNG), to replace coal, according to U.S.-based analyst the Institute for Energy Economics and Financial Analysis (IEEFA).

The South Asian nation is drawing up a new, post-coal Integrated Energy and Power Master Plan, with financial assistance from the Japan International Cooperation Agency (JICA).

Cleveland, Ohio-based IEEFA has published a report which says it is high time Bangladesh turned its back on planned LNG, as well as coal-fired power plants, and reset its planning regime to establish a new, financially sustainable power system.

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In the IEEFA report, energy finance analyst Simon Nicholas called upon masterplan financiers JICA to focus on grid investment and renewables to improve grid electricity reliability and limit the nation’s dependence on expensive, imported fossil fuels.

Such a move would lessen the likelihood of electricity prices rising, according to Nicholas, who wrote: “Building domestic, low cost clean energy [generation] capacity would help improve the eroding financial status of the Bangladesh Power Development Board (BPDB), which is burdened by the country’s capacity over-expansion, based on imported fossil fuels.”

Power price

State-owned utility the BPDB last month proposed a bulk power tariff increase of up to 64% to make up a BDT325 billion ($3.8 billion) shortfall in its accounts. “[The] BPDB is sinking under the increasing cost of power generation and purchase based on imported coal, liquefied natural gas (LNG) and oil,” wrote Nicholas.

In the last fiscal year, a record high government subsidy was required to cover the BPDB’s operating losses, which doubled from the previous 12-month period. Power tariffs could rise even further, the IEEFA study pointed out, if the new power masterplan continues to focus on imported fossil fuels.

The U.S.-based thinktank pointed out the BPDB is financially hamstrung by the fact it has too much power generation capacity and is committed to making power generation capacity payments to underused power plants, with the capacity payments bill rising to BDT132 billion ($1.5 billion) in the last fiscal year.

The largest single contribution to that account was associated with the Payra coal-fired power plant, half of which stands idle, according to IEEFA, because of insufficient power transmission facilities.

“With more IPPs [independent power producers] due to come online – and more coal and LNG plants being planned – BPDB’s operating losses can be expected to worsen, going forward,” wrote Nicholas.

Gas price

The nation was also forced to pay record high LNG prices last year as the cost of the fuel rocketed worldwide. With analysts not expecting a reduction in gas price volatility any time soon, Nicholas wrote: “Becoming increasingly dependent on imported fuels such as LNG will result in larger government subsidies to bail out the BPDB’s losses, and large power and gas tariff increases for Bangladesh energy consumers.”

The alternative, wrote the analyst, would be for the power masterplan to focus on the raised clean energy ambition of state body the Sustainable and Renewable Energy Development Authority and the goals enshrined in the national Mujib Climate Prosperity Plan, named after the nation’s founding father Sheikh Mujibur Rahman.

“If Bangladesh wishes to start enjoying the benefits of low-cost renewable energy, as much of the rest of the world is doing, the government’s ambitious wind and solar targets need to be locked into the new IEPMP [Integrated Energy and Power Master Plan],” he added.