Bangladesh's plan for significant coal- and LNG-fired power plant additions will cause substantial overcapacity, with major financial implications, said a new study.
The country already has excess power generation with only 43 per cent capacity utilisation in fiscal 2018-19.
And this low usage even before coronavirus outbreak resulted in Tk 9,000 crore ($1.1 billion) capacity payments for power plants to sit idle, necessitating both government subsidies and electricity price hikes for consumers.
The pandemic-induced lull is currently lowering power demand significantly, increasing financial stress on the Bangladesh Power Development Board (BPDB) by reducing revenue whilst capacity payments to idle plants have to be maintained, according to the study by Ohio-based Institute for Energy Economics and Financial Analysis (IEEFA).
"Based on our own forecast of power demand growth, which takes the economic impact of the COVID-19 into account, we calculate that Bangladesh is on course to have capacity that can generate 58 per cent more power than the nation needs by 2030," said Simon Nicholas, the lead author of the study report and an energy finance analyst at the IEEFA in Australia.
Overcapacity is the situation in which a nation's power sector cannot sell as much as its plants are designed to produce.
The COVID-19's impact will also mean long-term power demand would be lower than forecast, making overcapacity by 2030 worse if the current plan for coal- and liquified natural gas (LNG)-based power capacity additions go ahead as usual.
"A long-term switch from cheap domestic gas towards more expensive imported coal and LNG, combined with the severe, long-term overcapacity Bangladesh is on course to see subsidies continue to rise," Nicholas said in a press release.
The study finds that power tariffs for consumers can also be expected to increase. It argues that large fleets of big coal and LNG plants are increasingly less appropriate to meet lower-than-expected demand growth in developing nations.
Sara Jane Ahmed, the co-author of the report, highlights that there are important lessons for Bangladesh from the experience of Indonesia, which is suffering the financial impact of overreliance on coal power.
PLN, the Indonesian state-owned power utility, has seen its over-commitment to coal power lead to a rapid escalation in government subsidies, which reached an enormous $5 billion in 2018, said Ahmed, also an energy finance analyst at the IEEFA in the Philippines.
Indonesia's power development plan includes an overestimated power demand growth forecast for 2019-2028.
Such mis-forecasts compound over time and are the basis for planning too much power capacity development, resulting in overcapacity, higher capacity payments, subsidies and tariffs.
The study draws similarities to the rapidly escalating financial crisis of BPDB resulting from existing overcapacity whilst pushing forward with the completion of the Payra coal plant.
Half the capacity of Payra will sit idle forcing BPDB to make additional payments of Tk 160 crore per month.
"Bangladesh needs to heed to these lessons," Ahmed said.
In Bangladesh, 35 per cent of the electricity will be generated from coal as primary energy by 2041 from 1.7 per cent now, according to the IEEFA and the annual report of state-run Coal Power Generation Company Bangladesh.
Considering the future electricity demand, the government has undertaken initiatives to construct about 9,000MW by 2030 and 20,000MW by 2041 coal-based power plants, both in public and private sectors.
Bangladesh currently produces 2,750 million cubic feet of gas per day against a demand of 3,850 mmcfd and expected demand of 6,713mmcfd in 2041, according to state-run Rupantarita Prakritik Gas Company.
The country is looking to LNG imports to bridge the gap between the local production and the demand amid fast-depleting natural gas resources and insignificant new gas discovery.
According to the study, it is now time for Bangladesh to consider more appropriate, modular renewable energy (without capacity payments) and grid investments to meet lower demand growth and reduce the overall system cost while improving domestic energy security and resilience.
"Bangladesh is well-positioned to take advantage of deflationary renewable energy to reduce overall system cost and provide affordable energy to households and industry."
The amount of land suitable for renewables in Bangladesh is likely to be more than previously assumed.
However, some tough choices over land use may have to be made if Bangladesh is to avoid entrenching a power system dominated by expensive, imported coal and LNG with higher power tariffs and government subsidies.
The COVID-19-induced delay to coal power projects allows Bangladesh to reset energy development policy and redirect resources to support economic fundamentals and energy price stability, the study said.
The cost of renewable energy is declining in Bangladesh and with proper backing and commitment from the government, the cost of renewable energy would decline even further as has been seen in other parts of South Asia.
There is a prevailing belief that Bangladesh does not have the land available for a major roll-out of wind and solar power installations, although some evidence suggests there are more suitable sites available than previously thought.
A 2019 study found the maximum installable capacity was: onshore wind 16 gigawatts (GW), offshore wind 134GW, solar photovoltaic rooftop 35GW, solar photovoltaic utility 156GW and floating photovoltaic 31GW.
"With neighbouring India well ahead in its transition towards renewable energy, importation of ever-cheaper wind and solar power from Indian states could be part of the long-term solution," the report said.
Globally and regionally in South Asia, renewable energy is already less than two-thirds the cost of imported fossil fuels.
Given likely falls in solar module prices of 5-10 per cent over the coming decade, not only will renewable energy soon be the cheapest form of new power generation in Bangladesh, but it will also be quick to build while not adding to air pollution or carbon emissions.