CPD Annual Review of Power Sector 2024: Imported fuel dependency drives up power costs
Staff Reporter :
The Centre for Policy Dialogue (CPD) reported Wednesday that Bangladesh’s power sector faces a heavy reliance on costly imported fossil fuels, resulting in unsustainable outcomes in both financial and environmental terms, particularly impacting affordability and public acceptance.
After examining 177 power plants of varying efficiency levels, the CPD found that while power generation capacity has grown aggressively – achieving 100 per cent grid electricity access – this expansion has depended heavily on environmentally damaging imported fuels. Such reliance has exacerbated challenges in the Balance of Payments (BOP) and strained foreign currency reserves.
Despite governmental plans to diversify the electricity mix with renewable energy, these ambitions remain largely unrealised. Since December 2021, the country’s grid-installed capacity has risen from 20,934 MW to 25,903 MW by April 2024.
However, demand has increased more modestly, with peak demand growing from 14,500 MW to 16,233 MW in the same period. The reserve margin has thus expanded from 6,434 MW (30.7 per cent) to 9,670 MW (37.3 per cent), highlighting a significant capacity excess.
The report details that private sector power generation constitutes 42 per cent of total output, with 40 per cent imported, while public and joint ventures account for 9 per cent each. The CPD also highlights inefficiencies among older, publicly owned power plants, especially diesel-run facilities which incur higher operational costs.
These Quick Rental Reserve (QRR) plants, many diesel-powered, are set to be phased out as contracts expire between 2024-2026. However, contrary to plans for phasing out inefficient plants, the government intends to add 8,082 MW of new fossil fuel-based capacity by 2030.
Bangladesh suffers one of the highest transmission losses in the region, with system losses at 11 per cent in 2023-higher than in countries like Vietnam and the Philippines.
This has been attributed to insufficient investment in grid infrastructure. Despite substantial capacity, load shedding remains common, with demand and supply gaps fluctuating. Notably, the shortfall narrowed from 7,739 MW in July 2023 to 6,100 MW in August, only to widen to 14,102 MW in September, leading to severe load shedding.
To address these challenges, the CPD underscores the need for a robust shift to renewable energy. Achieving a sustainable transition by 2041 will require a comprehensive policy overhaul, with an emphasis on equal incentives for renewable energy investors.
Policy changes, such as tax holidays and exemptions, should apply equitably across fossil fuel and renewable energy sectors. Further, to reduce load shedding and support renewable integration, BPDB must expedite transmission and distribution improvements.
The CPD concludes that without a shift from fossil fuels, Bangladesh’s power sector will continue to struggle with affordability and sustainability, ultimately undermining its transition readiness and energy security.