Power System Overcapacity Problem in Bangladesh Getting Worse: IEEFA

Overcapacity in the power system of Bangladesh has worsened and threatens to deteriorate further according to a new briefing note by IEEFA.

Overcapacity in the power system of Bangladesh has worsened and threatens to deteriorate further according to a new briefing note released by the Institute for Energy Economics and Financial Analysis (IEEFA). Data from the Bangladesh Power Development Board’s (BPDB) latest annual report shows that overall power capacity utilisation in the fiscal year 2019-20 was just 40 percent, down from 43 percent in the prior year – a clear sign of worsening overcapacity.

Simon Nicholas, an energy finance analyst with IEEFA, believes that the planned capacity additions over the next five years will likely see capacity utilisation decline further. “With another 21,000 megawatts (MW) due to come on line by 2025 and only 5,500 MW of old capacity due to be retired, utilisation will drop below 40 percent unless a very high rate of power generation growth is maintained,” he said.

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Power generation growth was just 1.26 percent in 2019-20, barely keeping pace with population growth, as the economic impacts of COVID-19 were felt in Bangladesh. The report estimates that capacity utilisation will drop below 40 percent over the next five years unless power generation growth is maintained at or above 10 percent per annum.

A new Power System Master Plan (PSMP) is currently being prepared for release in 2021. It has been reported that overcapacity and fuel issues in the country are amongst the priority issues to be addressed in the new plan.

“It has been reported that the Bangladesh government is considering cancelling the coal-fired power project pipeline and replacing them with LNG projects. However, replacing coal power capacity with similar capacities of LNG-fired capacity will not address the nation’s overcapacity issue,” said Nicholas. “Instead of replacing the coal power projects with LNG, the Bangladesh government should consider using the land set aside for these projects for renewable energy installations. This could effectively jump-start Bangladesh’s utility-scale solar and wind power build-out and push down renewable energy tariffs as happened in neighbouring India.”

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It adds that the Sustainable and Renewable Energy Development Authority’s (SREDA) draft National Solar Energy Roadmap recommends aiming for a high-deployment solar installation program with a target of up to 30,000 MW of solar to be installed by 2041.

SREDA sees 12,000 MW of this 30,000 MW target coming from rooftop solar. Rooftop solar capacities of this scale look entirely achievable given that Vietnam was able to add an astonishing 9,000 MW of rooftop solar in 2020 as the global roll out of renewable energy accelerates.

As per the author another key part of a successful response to Bangladesh’s overcapacity problem would be an investment in the transmission and distribution system. Not only would this enable the installation of larger capacities of renewable energy, but it would also help better utilise existing thermal power capacity.

“A switch in focus from thermal power capacity installation towards grid investment would make better use of Bangladesh’s surplus capacity and see a reversal of the nation’s declining capacity utilisation, thereby reducing the impact of capacity payments on the per-unit cost of power,” concluded Nicholas.