Bangladesh’s power sector was running seemingly smoothly until the Russian-Ukrainian war. Load shedding in urban areas was a thing of the past. We celebrated the success of 100 per cent electrification. This has been possible due to various initiatives taken by the Government of Bangladesh to increase the power generation capacity in the last decade.
This report was first published in Kaler Kontho on 30th March, 2023.
However, for the past few years, experts have been expressing concern over the risks posed by excessive import dependence on the energy sector. The audit report of The Bangladesh Power Development Board (PDB) also shows that the revenue deficit in the last fiscal year was Tk 29,750 crore. And the devaluation of the domestic currency and import dependence against the US dollar has negatively affected the reserves of foreign exchange.
At one point, the import of liquefied natural gas (LNG) was stopped for about seven months, which has affected various sectors, including factories. Although there is some relief in the price of LNG in the international market at a tolerable level, the concerns of the energy and power sector remain in the country. Again, coal-based electricity cannot be called cheap in any way. Electricity made from furnace oil and diesel is also quite expensive.
We need to restructure our energy and power sectors before we get more at risk. In the master plan of the energy and power sector under process, it is necessary to outline the use of renewable energy by moving away from the ongoing risky import-based energy system.
At the same time, the evaluation of the financial and energy security benefits of using renewable energy instead of imported fossil fuels should come under the master plan. Again, the use of storage systems to get uninterrupted electricity from renewable energy is now expensive, but the cost of storage is decreasing and will be reduced further in the future. The process of paving the way for uninterrupted renewable energy use by connecting storage in the future needs to be in the upcoming master plan.
Our neighboring country India has saved US$ 4.2 billion by using solar power in the first six months of 2022, which is equivalent to 19.4 million tons of coal. According to another statistic, solar and wind power accounted for 92 per cent of India’s new power capacity added in 2022. Again, in 2020, Vietnam installed more than 9,000 megawatts of solar power in the unused roof.
In such a situation, in a short span of time, the Government of Bangladesh had to increase the price of electricity by 5 percent at the consumer level three times. Besides, the price of gas in different sectors was increased from 14 to 179 percent. In August last year, the prices of various fuel oils were increased by a record amount. At a time when inflation, especially low-income people, was overwhelmed, the government had little option but to raise fuel and electricity prices. This shows how fragile the import-based model of our power sector is.
However, renewable energy-based electricity is now the most affordable. The cost of production of solar power on the roofs of factories and commercial buildings will be Tk 5.25 per unit or less. The cost per unit of gridscale solar power is less than Rs 8. According to the research report, it is possible to quickly achieve 2,000 MW of solar-based power generation capacity and to save more than ONE billion US dollars worth of LNG and diesel imports annually by replacing all diesel-powered irrigation systems in the country with solar-powered irrigation pumps. It is to be noted that the cost of renewable energy-based electricity will decrease further in the future. As a result, the increased use of renewable energy will reduce the average cost of our electricity generation, pave the way for foreign exchange savings and increase energy security.
Needless to say, the problems of today’s energy and power sectors are different from 2009. At that time, the government had to increase the capacity to produce electricity quickly as the power supply was insufficient compared to the demand. In today’s different situation, when more power generation capacity has been achieved than the demand and import dependence has created many problems including revenue deficit in our energy and power sectors. It is best to increase investment in affordable renewable energy by changing our traditional import-based model.
However, the lack of land has been cited as the main obstacle to the expansion of solar power. Just as it is possible to generate thousands of megawatts of solar power using the roofs of factories and commercial buildings, thousands of megawatts of renewable energy projects can be easily set up in our economic zones. And a full-fledged land survey across the country will provide accurate information about the land suitable for use in renewable energy.
Again, getting a loan is also an obstacle in the implementation of the project. In this regard, Bangladesh Bank will have to be more proactive to encourage financial institutions to provide loans for renewable energy. Bangladesh Bank can play a leading role in resolving the problems of financing renewable energy projects by sitting with various financial institutions, industries and entrepreneurs. However, financial instruments such as green bonds or green sukuks may be required to implement large projects. It is to be noted that a large industrial group in the country has used Green Sukuk to finance its solar power project. On the other hand, last year, Bangladesh Bank prepared the bond guidelines. Private entrepreneurs have to come forward to take advantage of these benefits.
On the other hand, to install solar panels on the roof, a total of four parts, including inverters, have to pay import duty ranging from 15.2 to 58.6 percent. It is logical to withdraw this duty for the expansion of solar power.
In order to create a sustainable energy system with the benefits of renewable energy, we have to take coordinated initiatives by removing the obstacles. If the issues discussed are properly evaluated, the upcoming master plan for the energy and power sector can show us the right path.
Author: Shafiqul Alam, Energy Finance Analyst, Institute for Energy Economics and Financial Analysis (IEEFA)