Power cost keeps spiralling

Capacity payments for under-utilised independent power producers (IPPs) are heavily affecting the power generation cost, putting pressure on the government to raise the tariff, said a recent study.

The rising power purchase cost and further dependence on imported fossil fuels like LNG are enhancing the need for hiking power tariff, said the US-based Institute for Energy Economics and Financial Analysis (IEEFA) in its report, which was prepared based on the annual reports of the Bangladesh Power Development Board (BPDB).

Capacity payment is a sort of penalty that the buyer pays to plant owners if it fails to buy a certain portion of power readily available.

The cost of electricity purchased from IPPs now represents more than 50 percent of BPDB's total operating expenses for the first time.

A 58 percent increase in the IPP costs in fiscal 2020-21 was partly as a result of increased power units purchased from the plants -- 34.6 Terawatt-hour [TWh], up from 25 TWh the previous year.

The per unit cost of each kilowatt hour [kWh] power purchased from the IPPs rose to more than Tk 8/kWh last fiscal year from Tk 7/kWh in fiscal 2019-20.

The study cited the case of the Payra coal-fired power plant, which is receiving capacity payments whilst half the plant stands idle because of insufficient transmission infrastructure.

The Payra plant is the "largest single contributor to the increase", it said, adding that the cost of each unit of power purchased from the plant increased 36.5 percent year-on-year to Tk 8.6/kWh in fiscal 2020-21.

Only two out of seven towers of the Dhaka-Payra power transmission line have so far been installed in the Padma river, said Golam Kibria, managing director of Power Grid Company of Bangladesh.

Installation of the rest of the five will be completed by June. However, setting up of the transmission cables will not be done before December, he added.

The BPDB is paying Tk 130 crore a month in capacity charges to the Payra power station, the study said.

Thanks to the BPDB's very large operating loss, the government's subsidy bill hit a record Tk 11,780 crores in fiscal 2020-21, up from Tk 7,440 crore the previous year.

And the total capacity payments increased a whooping 76 percent to Tk 13,200 crore in fiscal 2020-21.

The IEEFA projected that with more coal-based IPPs under construction and with large capacity LNG-based IPPs planned, the BPDB's IPP cost is likely to continue going up significantly.

According to the BPDB, 12,967 megawatts (MW) of new power capacity is under construction and 19,651 MW more is planned to be added by the end of fiscal 2024-25.

Power plants with a total capacity of 3,990MW would be shut down by fiscal 2024-25, according to the BPDB's annual report for fiscal 2020-21.

Overall power plant utilisation will drop further by fiscal 2024-25 as a result of these large capacity additions, the report said.

The IEEFA said even if power generation grows at a very high rate of 12 percent per annum until fiscal 2024-25, the overall power capacity utilisation may drop to just 38 percent.

The report said though the power utilisation saw a slight improvement last year, it remains very low at 41.7 percent.

In January, the BPDB proposed a bulk power tariff increase by up to 64 percent to cover its shortfall of Tk 32,500 crore.

Khondaker Golam Moazzem, research director at the Centre for Policy Dialogue, said capacity payments are increasing due to decreasing utilisation of the power plants'.

Despite this, the government is approving new power plants. As a result, capacity charges and subsequent subsidies are swelling which have become a headache for the government, he told The Daily Star.

Such waste of revenue led to the hike in power price, Moazzem said.

"But we think the liability of these ineptness shouldn't be justified by burdening the consumers with high electricity prices," he added.