Bangladesh’s power sector stranded assets are increasing by leaps and bounds, exposing a new Achilles heel of Bangladesh Power Development Board (BPDB), which bled fiscally dry after pursuing a flawed energy policy during the 15-year rule of the past Awami League government.
With large power plants awaiting commissioning for months or sitting substantially idle after launch, the stranded asset problem is more pronounced than ever before.
Newly-built or under-construction fossil fuel-based power plants worth about 7,000MW are set to add to BPDB’s financial burden, energy experts said.
The 2,400-MW nuclear power plant expected to join the power fleet by next year might deepen the problem even more, energy experts pointed out, rendering many power plants currently in use redundant amid a rather dull economic scenario with no increase in power demand for almost a year.
“Stranded assets might become a significant burden for the BPDB over the next three years,” said Shafiqul Alam, lead energy analyst, the US-based Institute for Energy Economics and Financial Analysis.
assets are investments that have stopped yielding return before the expiry of their economic life.
With an installed power generation capacity of 28,132MW, the peak power demand this year barely touched 16,000MW, marking a drop in the demand compared with last year.
The decline in the power demand is due to industrial consumption declining. There were widespread power outages during this summer as for one reason or the other about half of the installed power production capacity could not be used.
Mounting stranded assets imply an increase in capacity charge payment. The BPDB paid over Tk 1 lakh crore in capacity charge, a sum payable by the government to private power producers regardless of electricity produced, guarantying the investors 16 per cent return.
The payment of huge capacity charge, often in dollars, incurred the BPDB astronomical losses while draining Bangladesh’s foreign currency reserve.
An acute fuel shortage, owed to factors such as the dollar crisis and inadequate import infrastructure, was to a great extent responsible for creating stranded assets.
Machinery problem was also a reason behind some power plants going frequently out of order.
“Some power plants regarded as stranded assets were dropped from the official list over the last several years,” said Hasan Mehedi, member secretary, Bangladesh Working Group on External Debt, a platform of green activists.
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Energy experts believe the need to scrap more power plant will become more evident over the next few years to keep overcapacity from further growing to reduce energy subsidy.
Years of arbitrary energy project implementation without any tender, protected under a controversial indemnity law, bred power projects that would remain under use or unused within years of or immediately after their costly construction.
Some Scrapped Power Plants Performance Record
At least seven power plants worth 582MW were scrapped since 2013. Three of the scraping took place after the incumbent government took over last year.
power plants included some of the most controversial business groups with a shady record of doing business under Awami League rule.
Two of the power plants - Bosila 108MW and Jamalpur 95MW - were scrapped in September last year after passing of only 50 per cent of their supposed lifetime.
Based on furnace oil, Bosila 108MW power plant, which commenced operation on 22 February 2017 for 15 years, was supposed to retire on 21 February 2032.
The plant did not generate any electricity in the three years prior to itsscrapping.
The Jamalpur power plant, also based on furnace oil, was supposed to retire on November 28 in 2031 after running for 15 years. Jamalpur had also been out of operation for a while before it was scrapped.
Companies owning both the power plants were at the center of shady loan deal scandal, one of them involving Tk 1,732 crore.
Independent private power plants contracted to supply uninterrupted electricity for 15 years are allowed to have time off for maximum 17 per cent of their lifetime for repair and maintenance.
The power purchase agreement with a power plant is liable for termination for willful and unexcused abandonment for 30 consecutive days without BPDB’s consent.
Failure to return to operation for 30 days after repair and maintenance also makes a power plant eligible to be cancelled, among other reasons.
An analysis of official data revealed that the furnace oil-based Kathpotti 52 MW (Sinha) power plant was scrapped in December last year, more than five years before it was supposed to retire. The plant produced no power in a year before it was scrapped.
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The diesel-based 110MW Bheramara power plant scrapped in June 2013 after three years of operation gave its best output in 2011-12 with 26.7 per cent of its generation capacity used.
In the three years of operation, the power plant took away over Tk 510 crore in capacity charge.
Despite poor power generation record, the purchase deal with the power plant had been extended for eight years until December, 2018.
The furnace oil-based 105MW Nawapara power plant was scrapped months after its tenure was extended for eight additional years after the completion of its initial deadline in early 2014.
power plant used sub-standard machines. The Nawapara power plant’s best production record comes with the use of 16.7 per cent of its capacity in 2011-12.
Brand New Large Power Plants Facing Stranded Asset Risk
The gas-based 800MW power plant in Khulna’s Rupsha has been awaiting commission since early 2024.
There was no gas even to test-run the power plant, built with $1.14 billion, mostly given as loans by the Asian Development Bank, the Islamic Development Bank, and the Japan Fund for Poverty Reduction.
The fuels crisis is unlikely to be over soon with domestic gas reserve fast depleting.
Bangladesh’s capacity to import gas is also limited because of infrastructure shortage.
Construction of new infrastructure to raise liquefied natural gas import capacity from the existing 1000mmcfd could take three to six years, given the type of infrastructure – floating storage and regasification unit and land-based LNG terminal. No such infrastructure construction is currently going on.
Constructed with $235 million given by the ADB, the 225MW dual-fuel Khulna power plant, commissioned in 2013-14, has been running at a reduced capacity on diesel as there is no gas supply.
In 2019-2020, the plant factor of the Khulna power plant plunged to 0.3 percent, producing a unit of electricity for a staggering Tk 533.
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The best use of the power plant – at 50.5 per cent of its capacity – was recorded in 2017-18.
Gas shortage delayed the commissioning of the 718MW JERA power plant at Meghnaghat in Narayanganj, built with $200million ADB loan.
Following commissioning, the JERA power plant often remained shut down due to gas shortage. Similar situation caught the two large gas-based Meghnaghat power plants - 583MW and 584MW.
The public sector is building four new gas-based power plants worth 1,865MW which are set to be operational by the start of 2027.
During the time, another private gas-based power plant worth 590MW will come online beside a 1,247MW coal-based power plant.
On August 13, Power Grid Company data showed, power generation peaked at 15956MW at 9:00pm, with 36 percent generated from Gas, 19 per cent from furnace oil, 28 per cent from coal, and 15 per cent from import.
The day’s peak generation was achieved using less than 50 per cent of the installed gas generation capacity, 55 per cent of the installed oil generation capacity, and 78 per cent of installed coal generation capacity.
Energy transition, replacing fossil fuels with renewable energy, threatens to add to Bangladesh’s stranded asset capacity over time amidst forecast of coal and gas power generations becoming too costly – financially, physically and environmentally, compared with new technologies.
“The problem highlights the mismatch between forecast and reality,” said Zahurul Islam, member, generation, BPDB.
“Careful planning is needed to deal with the stranded asset problem,” he said, explaining, “Industrial power consumption will have to be increased and construction of new power plants in the pipeline will have to be delayed or cancelled for the time being."