Overcapacity, capacity payment keep rising; more plants in the offing
With more power plants coming into operation this week, Bangladesh’s installed electricity generation capacity will reach over 26,000 megawatts, including captive and off-grid renewable power, well surpassing a government-set target of attaining 24,000MW in 2021.
Over the past decade, Bangladesh’s power generation capacity quintupled from 4,942MW in 2009 to 25,235MW now, and with four more plants coming into operation and yet another going for expansion – a total of 879MW more power will be added from this week.
During the same period – between 2009 and 2021 –retail power tariff also saw almost a 100% increase from Tk3.60 per unit to Tk7.13.
The question now arises – how much electricity Bangladesh requires and at what cost? Yet, a bigger question has arisen – are the once-power-starved and now-power-happy consumers in Bangladesh being made to pay for the high “capacity cost”.
Official and unofficial figures show Bangladesh hardly utilizes half of its installed power capacity, but each year government makes a hefty payment to power plants as “capacity cost” despite not utilizing the electricity.
Recent statistics provided by the Centre for Policy Dialogue (CPD) shows how the government’s “capacity payment” against idle plants and unutilized power has had a phenomenal rise of nearly 400% from Tk1,790 crore in 2010-11 financial year to Tk8,929 crore in 2019-20.
US-based policy think-tank, the Institute for Energy Economics and Financial Analysis (IEEFA) has cautioned that overcapacity has serious implications on power tariff and the capacity payments to power plants that increasingly sit idle raise the per unit cost of generation.
What’s capacity cost
Capacity charges are based on the highest amount of energy one estimates to use or consume during a given time in a given geographic location. Essentially, one has to pay a fee to ensure that the electricity one might use is there, whenever it’s needed. No matter, one uses that amount of power or not – for whatever reasons – the cost of that generation capacity has to be borne.
Take Bangladesh’s biggest power plant, the 1,320MW Payra Power Plant, as an example where the government is counting Tk130 crore a month in losses as it has to pay the amount as the capacity cost to this Sino-Bangla joint venture, where the power is ready for supply but the government does not have the capacity to transmit it.
In this case, the capacity payment means the government’s commitment to purchase power generated at the plant at an agreed-upon rate. The government still has to pay the plant for its generation even if it is unable to take the electricity from it.
Is Bangladesh’s power overcapacity problem getting worse?
The Institute for Energy Economics and Financial Analysis (IEEFA) said in a report in January this year that overcapacity in Bangladesh’s power system has worsened and threatens to deteriorate further in the coming days.
The US-based non-profit corporation that keeps track of energy markets, trends, and policies across the world, stated that overall power capacity utilization in the fiscal year 2019-20 was just 40%, down from 43% the previous year — a clear sign of worsening overcapacity in Bangladesh.
“Worsening overcapacity has significant implications for the BPDB’s (Bangladesh Power Development Board) finances as well as power tariffs,” said IEEFA’s Energy Finance Analyst Simon Nicholas.
“Under power purchase agreements, thermal power generators receive capacity payments regardless of whether they are utilized or not. 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.”
In June this year, the Centre for Policy Dialogue (CPD) said that electricity overcapacity is becoming a growing concern for the power sector as it is creating fiscal and financial burdens for the country.
Payment of capacity charges to power plants is a growing expenditure for BPDB, particularly for rising unused and under-utilization of capacity, said CPD Research Director Khondaker Golam Moazzem, presenting a paper on the power sector.
The power sector is one of the major areas of success of the government over the last decade, the CPD noted. But the transmission and distribution systems did not make considerable progress in commensurate with that of power generation, it added.
More plants in the offing
Last week, Bangladesh Power Development Board (BPDB) announced that four more power plants will come into operation and one will go for expansion this week thereby generating 879MW of electricity in an already saturated market.
The plants are: Bibiyana-III 400MW Combined Cycle Power Plant in Habiganj; Chittagong 100MW Power Plant Unit-2; Meghnaghat 104MW Power Plant in Narayanganj; Modhumoti 100MW Power Plant in Bagerhat; and upgradation of Sylhet 150MW Power Plant to 225MW Combined Cycle Power Plant in Sylhet.
State Minister for Power, Energy and Mineral Resources Nasrul Hamid has said recently that the electricity generation capacity reached to 25,235MW now (including captive power) which was 4,942MW in 2009.
“We have brought around 99.5% of the population under electricity facilities due to the bold and dynamic leadership of Prime Minister Sheikh Hasina,” he said.