Bangladesh Power Development Board can Save $1.2 Billion through Electricity Sector Reforms
A comprehensive strategy aimed at addressing the fundamental challenges of the power sector, along with sustained efforts from now through 2030, can significantly reduce the government’s subsidy burden. According to a recent analysis, Bangladesh could save about $1.2 billion by implementing several key measures.
The proposal suggests shifting half of the industrial demand currently met by captive generators to the national grid. Additional strategies include integrating 3,000 megawatts (MW) of renewable energy, reducing load shedding to 5% from the fiscal 2023-24 level, and capping transmission and distribution losses to 8%.
Bangladesh’s power sector confronts an overcapacity issue, with the reserve margin at 61.3%. This overcapacity is a major contributor to the Bangladesh Power Development Board’s (BPDB) ongoing subsidy challenges. Despite numerous power tariff adjustments, significant revenue shortfalls and subsidy requirements are expected to continue.
The roadmap proposed for reform recommends enhancing power demand forecasting techniques by incorporating the impact of energy efficiency to mitigate overcapacity. An effective forecasting method could balance demand with available capacity, significantly aiding in controlling the economic inefficiencies within the sector.
From fiscal year 2019-20 to 2023-24, BPDB’s total yearly spending soared 2.6 times compared to revenue growth of 1.8 times. Consequently, the government allocated approximately 1,267 billion Bangladeshi Taka (US$10.64 billion) in subsidies to maintain power supply, even as BPDB recorded cumulative losses of Tk236.42 billion (US$1.99 billion). Notably, in FY2023-24 alone, a subsidy of Tk382.89 billion (US$3.22 billion) was extended to BPDB.
To alleviate the subsidy burden, it is vital to redirect industrial reliance fully to the national electricity grid. Furthermore, transitioning from gas-driven appliances to electric systems, such as electric boilers, could enhance BPDB’s revenue by increasing energy sales while reducing capacity payments to idle plants. Although the opportunity to make Bangladesh’s power sector sustainable is quickly diminishing, adopting the right measures could steer the sector back on course.
A crucial step in the reform process involves the government forecasting power demand starting in 2025, taking into account energy efficiency improvements and demand shifts. Projections incorporating these variables estimate that the country’s peak power demand in 2030 might reach approximately 25,834MW compared to the Integrated Energy and Power Master Plan’s forecast of between 27,138MW and 29,156MW.
The reform strategy also suggests halting investments in fossil fuel-based power and restricting oil-fired plant usage to 5% of total power production. Such actions, coupled with the planned retirement of 4,500 MW of fossil-fuel-based power plants, would result in an estimated system capacity of 35,239 MW.
Bangladesh is advised to set a cautious objective of installing a combined grid-connected renewable energy capacity of up to 4,500 MW by 2030. This would primarily reduce reliance on expensive oil-fired power generation during daylight hours. Additionally, employing 500 MW of battery storage with a three-hour backup could diminish the operation of oil-fired plants in the evening. If batteries become more cost-effective, their use could be expanded during peak evening hours.
In conclusion, through careful planning and implementation of energy reform strategies, Bangladesh can not only cut its subsidy burden significantly but also transition towards a more sustainable and efficient power sector.
