Grid shifts, renewables could eliminate $3.2b power subsidy
Staff Reporter :
By reforming the country’s electricity sector, Bangladesh could save around Tk 138 billion (US$1.2 billion) in annual losses, which are currently covered by government subsidies, according to a new report from the Institute for Energy Economics and Financial Analysis (IEEFA), published yesterday.
The report suggests that Bangladesh could achieve these savings by shifting half of the industrial demand currently met by captive generators to the national grid, adding 3,000 megawatts (MW) of renewable energy, reducing load shedding to 5 percent from the projected level for fiscal year (FY) 2023-24, and limiting transmission and distribution losses to 8 percent.
The IEEFA report highlights that, between FY 2019-20 and FY 2023-24, the Bangladesh Power Development Board (BPDB)’s annual expenditure increased 2.6-fold, while its revenue grew by only 1.8 times. This imbalance led the government to allocate a combined subsidy of Tk 1,267 billion (US$10.64 billion) to maintain power supply and support the economy. Despite this, the BPDB recorded a cumulative loss of Tk 236.42 billion (US$1.99 billion).
In FY 2023-24 alone, the government provided a subsidy of Tk 382.89 billion (US$3.22 billion) to the BPDB. To reduce this subsidy burden, the report recommends that industries transition to relying fully on the national electricity grid.
According to the report, Bangladesh’s power sector faces an overcapacity issue, with a reserve margin of around 61.3 percent, which contributes to the BPDB’s ongoing subsidy challenges. Despite several power tariff adjustments, the report suggests that the substantial revenue shortfall and subsidy requirements are likely to persist for the foreseeable future.
IEEFA’s proposed roadmap for reform includes improving power demand forecasting by incorporating energy efficiency measures to reduce overcapacity. The roadmap also advocates for limiting new investments in fossil fuel-based power generation while encouraging the growth of renewable energy.
Additionally, it calls for the modernisation of Bangladesh’s electricity grid to facilitate industries’ shift to grid power rather than continuing to operate gas-based captive plants, and to minimise load shedding.
The report further suggests that the country should gradually transition from gas-driven appliances, such as boilers, to electric systems. This would help boost the BPDB’s revenue by selling additional electricity, while reducing capacity payments to idle plants.
As the first step in the reform, the report urges the government to forecast power demand from 2025, taking into account energy efficiency improvements and demand-shifting strategies.
IEEFA’s projections indicate that the peak power demand in 2030 could be 25,834MW, compared to the Integrated Energy and Power Master Plan’s (IEPMP) forecast from July 2023, which ranges between 27,138MW and 29,156MW.
In parallel, the IEEFA roadmap suggests halting new investments in fossil fuel-based power generation and limiting the use of oil-fired plants to 5 percent of total power generation. If these measures are implemented, alongside the expected retirement of 4,500MW of fossil fuel-based power plants, the report projects that Bangladesh will have a system capacity of 35,239MW.
A system capacity of 35,239MW would meet the projected peak demand of 25,834MW by 2030. It would also reduce the reserve margin from 66.1 percent in December 2024 to 36.4 percent (including variable renewable energy) and 20 percent (excluding variable renewable energy) by 2030. A reserve margin of 20 percent, excluding variable renewable energy, would be comparable to countries like India and Vietnam.
The report further suggests that Bangladesh could aim for a conservative target of installing a total combined grid-connected renewable energy capacity of up to 4,500MW by 2030, which would help reduce the reliance on expensive oil-fired power generation during the day.
The use of 500MW of battery storage, with a three-hour backup, would also help reduce the operation of oil-fired plants in the evening. If battery storage becomes more economical in the future, Bangladesh may consider increasing its use during the evening peak.
IEEFA is an institute that focuses on energy markets, trends, and policies. Its mission is to accelerate the transition to a diverse, sustainable, and profitable energy economy.