The Power Development Board (PDB) could save Bangladesh Tk 138 billion (US$1.2 billion) in annual losses, which are currently covered by government subsidies, through reforms in the electricity sector, according to a new report. Institute for Energy Economics and Financial Analysis (IEEFA) published the report on Wednesday. Bangladesh can achieve the savings by shifting half of the industrial demand, met by captive generators, to the grid, adding 3,000 megawatts (MW) of renewables, reducing load shedding to 5% from the fiscal (FY) 2023-24 level and limiting transmission and distribution losses to 8%, said the report. Writ petition filed against integrated energy and power master plan seeking climate justice The report found that during the fiscal year (FY)2019-20 to FY2023-24, the BPDB’s total annual expenditure increased 2.6-fold against revenue growth of 1.8 times, prompting the government to allocate a combined subsidy of Bangladeshi Tk1,267 billion (US$10.64 billion) to ensure power supply to keep the economy afloat. Yet, the PDB recorded a cumulative loss of Tk236.42 billion (US$1.99 billion). In FY2023-24 alone, the government gave a Tk382.89 billion (US$3.22 billion) subsidy to the BPDB. To bring the subsidy burden down to nearly zero, it recommended ensuring industries fully rely on the national electricity grid. “With the reserve margin hovering around 61.3%, Bangladesh’s power sector has an overcapacity problem which contributes to the BPDB’s persisting subsidy burden. Despite a series of power tariff adjustments, the hefty revenue shortfall and subsidy allocation will likely persist in the foreseeable future,” said the report’s author, Shafiqul Alam, lead analyst – Bangladesh Energy, IEEFA. No more IPP in power sector with govt guarantee to buy electricity: Adviser IEEFA’s proposed roadmap for reform suggests improving power demand forecasting methods by factoring in the role of energy efficiency to reduce overcapacity. “Our roadmap recommends limiting new investments in fossil fuels-based generation while promoting renewable energy deployment. Further, it suggests modernisation of Bangladesh’s electricity grid to encourage industries to shift to grid power rather than operate gas-based captive plants and minimise load shedding,” he added. “Besides, the country should gradually transition to electric systems from gas-driven appliances, like boilers. This will help increase the PDB’s revenue from selling additional energy while reducing capacity payments to idle plants,” said the author. As the first step of the reform, the report urged the government to forecast power demand from 2025 by factoring in energy efficiency gains and demand shift measures. IEEFA’s projection by factoring in such variables shows that the country’s peak power demand in 2030 is likely to be 25,834MW as against the Integrated Energy and Power Master Plan’s (IEPMP) forecast, made in July 2023, of between 27,138MW and 29,156MW. Simultaneously, the IEEFA roadmap also suggested halting investment in fossil fuel-based power and limiting the use of oil-fired plants to 5% of total power generation. Bangladesh seeks top international law firm for power deal review  If these steps are taken along with the anticipated 4,500MW of fossil-fuel-based power plant retirements, the report expects Bangladesh will have a system capacity of 35,239MW. “A system capacity of 35,239MW will help Bangladesh meet the peak demand of 25,834MW by 2030. It will bring the reserve margins down 66.1% in December 2024 to 36.4% (including variable renewable energy) and 20% (excluding variable renewable energy) in 2030. A reserve margin of 20%, excluding variable renewable energy, is comparable to countries like India and Vietnam,” the author mentioned. The report said Bangladesh can consider a conservative goal of installing a total combined grid-connected renewable energy capacity of up to 4,500MW by 2030 to help reduce mostly expensive oil-fired power generation during the day. The use of battery storage of 500MW with a backup for three hours will help reduce the operation of oil-fired plants in the evening, too. If batteries become more economical in the future, Bangladesh may consider their increasing use during the evening peak. IEEFA examines issues related to energy markets, trends and policies. The Institute’s mission is to accelerate the transition to a diverse, sustainable and profitable energy economy.

At the upcoming 29th Conference of Parties (COP29) in Baku, dubbed the “climate finance COP”, representatives of different countries should deliver key decisions to design policies and regulations and offer institutional support that encourages banks to lend more to the renewable energy sector, said a new briefing note by the Institute for Energy Economics and Financial Analysis (IEEFA). The note analyses global renewable energy investment trends and projected gaps to meet the goal of tripling renewable energy capacity by 2030 from 2023. It finds by reorienting capital from the fossil fuel sector to renewable energy, banks can bridge the International Energy Agency’s projected annual investment gap of US$400 billion from 2024 to 2030. “With only six years remaining, the 2030 goal for renewable energy seems a stretch too far, but enhanced cooperation between developed and developing countries and conducive local policies may bridge the gap,” says the note’s co-author Vibhuti Garg, Director – South Asia, IEEFA. “Negotiators at COP29 in Baku should back their ambition to triple renewable energy up with a consensus on additional climate finance, supported by the developed countries, to fill the gap of catalytic funds in the developing and least-developed countries,” she adds. The note finds that under different estimates, global investment in renewable energy has been growing, highlighting the attractiveness of renewable energy among investors. It rose from the range of US$329 billion - US$424 billion in 2019 to US$570 billion - US$735 billion in 2023, implying a jump of 73% - 78% during this period. However, the average annual investment to attain the goal of tripling renewable energy will require between US$1 trillion and US$1.5 trillion from 2024 through 2030. As such, the average funding gap between 2024 and 2030 will reach US$400 billion per annum. Read: New climate finance goal must empower small-scale farmers: IFAD President “While bank credit flows to the fossil fuel sector is declining, it was still a whopping US$967 billion in 2022. On the flip side, low-carbon development projects, including renewable energy, received US$708 billion in the same year. By reorienting more capital to the renewable energy sector, banks can bridge the projected investment gap,” says the note’s co-author, Shafiqul Alam, Lead Analyst – Bangladesh Energy, IEEFA. The note highlights several ways to encourage banks to change, like prioritising lending for renewable energy, offering banks credit enhancement support, integrating climate change into banks’ policies, interoperability of green taxonomies, making financed emissions disclosures mandatory and monetary policy tools.“Governments can create partial credit risk guarantee instruments to reduce credit risk, encouraging banks to accelerate credit flows to the sector. Multilateral Development Banks (MDBs) and bilateral financial institutions, with support from local governments, can provide risky and concessional capital to local banks and help create partial risk guarantee instruments,” says the note’s co-author Labanya Prakash Jena, Consultant – Sustainable Finance, IEEFA. Read: Govt, UNDP, IIX to launch “Orange Bonds" for inclusive growth and climate action Besides, the central bank can use moral suasion to nudge commercial banks to increase capital flows toward the clean energy sector while moving away from thermal power plants.

In the post Covid-19 era, renewable energy could be the best suitable option for Bangladesh to reset its power sector development policy to come out of the obligation for capacity payment to idle power plants, says a recent study.