Imported coal- and LNG-based power sector plan to deepen financial stress: Study

Power Division engages PwC to assess economic impact of Covid-19

Dhaka
July 01, 2020, 08:14 AM
by

UNB News
Dhaka
Publish- July 01, 2020, 08:14 AM
Update- July 01, 2020, 12:01 PM

Imported coal- and LNG-based power sector plan to deepen financial stress: Study

Bangladesh’s current masterplan to increase power-generating capacity, that accommodates increasing dependence on expensive, imported coal and LNG, puts it on course for even deeper financial stress emanating from the power sector and percolating through the entire economy, similar to the strains already being felt amid the Covid-19 pandemic in some other countries as well.

Such an observation was made by a study conducted by the Institute of Energy Economics and Financial Analysis, a reputed international energy research organisation.

According to the study, Bangladesh will have 58 percent surplus power in 2029-30 if it keeps adhering to the existing power system master plan 2016 where special emphasis was laid to build power plants powered by imported coal and LNG.

Power Division officials said the country’s current power generation capacity is 22,000 MW while maximum demand is 12,000-13,000 MW leaving an idle capacity of between 9,000 MW-10,000 MW.

The IEEFA study said Bangladesh will be stuck in a vicious circle of an obligation for making “capacity payment” to private power plant owners without receiving their electricity.

Commenting on the study, State Minister for Power, Energy and Mineral Resources Nasrul Hamid said Power Division has been aware of the future impact of Covid-19 and a reputed international consultancy firm was engaged to conduct a study on the entire matter.

“We have already engaged PriceWaterhouseCoopers (PwC) to conduct a thorough study to ascertain the economic impact of Covid-19 on the power sector,” he told UNB.

He noted that PwC has already started its job and is expected to submit its report within one and half months.

“Once we receive the PwC study report, we will start discussion with the government policy makers, multilateral donor agencies and international banks and financial institutions,” Nasrul Hamid said.

While releasing its study report, IEEFA said its forecast considers the likely economic impact of Covid-19. It mentioned that the IMF has forecast that Bangladesh’s GDP growth in calendar year 2020 will drop to just 2% before rebounding in calendar year 2021.

“This reduction in economic growth will reduce power demand growth, and demand by 2029-30 will be lower than previously forecast, making the overcapacity situation in Bangladesh worse.”

If all the plants planned within the Revisited Power System Master Plant (PSMP) were built, the IEEFA said, the reality is that overcapacity would lead to significantly lower capacity utilisation of the new coal and LNG plants.

These expensive assets would lie idle for much of the time, with operators or contractors potentially receiving significant capacity payments without, it added.

In an indication of what may lie ahead, contractors of the almost-complete Payra coal-fired power plant are reportedly receiving capacity payments of Tk160 crore (US$19m) a month, whilst half its capacity lies unused, due to a delayed transmission line connection, said the study report.

Bangladesh already has excess capacity that has entailed significant capacity payments to plants lying idle. Overall power capacity utilisation in Bangladesh for 2018-19 was just 43%, while capacity payments to idle plants reached Tk90bn (US$1.1bn) in 2018-19, it said.

The current power capacity addition plan set out in the Revisited PSMP looks certain to lock in an extremely high level of overcapacity out to at least 2030. This suggests that there will be capacity payments to idle plants for the long term if the planned coal- and LNG-fired power plants come online.