IEEFA Update: Signs in Bangladesh of a Budding Electricity-Sector Transition

Delays in Coal-Fired Plant Construction; Material Progress Toward Utility-Scale Solar Generation

Bangladesh’s latest national power-development update shows a small but notable shift under way: Construction of new coal-fired power plants is being delayed while a nascent solar industry begins to take root.

The country nonetheless remains perilously dependent on fossil-fuel imports and has yet to truly embrace adoption of renewable energy on a scale that would improve Bangladesh’s energy security and diversity of supply.

We detailed the problem—and the possibilities—last November in an IEEFA report that recommended a greater commitment to renewable energy as a commercially viable alternative to  plans for more thermal power stations fuelled by imported coal and LNG (see “Bangladesh Electricity Transition: A Diverse, Secure and Deflationary Way Forward”).

While it’s encouraging to see the latest list of development projects from the Bangladesh Power Development Board (BPDB) include commissioning of an additional 392 megawatts of utility-scale solar projects in 2018-19, the ambition doesn’t yet match up to IEEFA’s call for 10 gigawatts of operational solar capacity by 2024-25. It’s a material step in the right direction, though. Better yet, further investment in Bangladesh solar is in the offing with four additional projects announced.

Importantly, this first significant wave of domestic deployment of solar will drive down solar costs in Bangladesh, providing impetus for more solar installation to meet the nation’s expanding electricity requirements.

Neighbouring India is setting a crucial example as it bears the fruits of its push into utility-scale solar power. Since the publication of our report, India has seen double-digit declines in the cost of solar generation. In February of this year, the Rewa solar project reported a record low tariff of Rs 2.97/kWh (US$46/MWh), breaking the previous record of Rs 4.34 by 32 percent.

Even the new record may not last long. Bidding process for the Bhadla solar project in Rajasthan is expected to produce a tariff of Rs 2.90/kWh, confirming that Indian solar power is now cheaper than electricity produced by Indian state-owned NTPC’s coal-fired fleet.

Bangladesh is still a long way from implementing projects at tariffs as low as those recorded in India, but a policy commitment to reverse auction-driven solar development will quickly push down prices. The upshot: Bangladesh solar will be cheaper than new import-coal-fired power. While new import-coal-fired power in Bangladesh has been proposed at Tk 6.6045/kWh (US$80/MWh), that price doesn’t include the cost of externalities such as carbon emissions and air and water pollution. Once some initial scale has been achieved, IEEFA sees solar tariffs in Bangladesh of US$70-75/MWh well within reach, and declining by 10 percent annually from there.

THE PROPOSED EXPANSION OF THE COAL-FIRED ELECTRICITY INDUSTRY IN BANGLADESH HAS BEEN PUSHED BACK, according to the BPDB 2015-16 report. Key delays now include five plants associated with the Orion Group, now put off one to two years, while the 1,200-megawatt Maheshkhali and the 700-megawatt Matabari proposals no longer appear on the development list at all.

In addition, the 1,320-megawatt Rampal import-coal-fired proposal, an especially controversial project, has had its commissioning date pushed back again, to July 2020. That delay is due in no small part to a realization that the expensive, heavily subsidised power plant could be completely outclassed by solar power within a few years if power-development planners were to commit to transition. Such thinking has gone mainstream. The president of the World Bank last month played up the consensus in noting that “the incentives are clear that moving towards solar is better than continuing with the building of coal plants.”

Rampal holds special significance for its enormous cost and risk (see our June 2016 report, “Risky and Over-Subsidized: A Financial Analysis of the Rampal Power Plant”) and for serving in effect as an epic mistake if it were to be built. Developing nations like Bangladesh can ill afford to commit to energy projects and policies that place new and unnecessary burdens on their already struggling economies.

Simon Nicholas and Sara Jane Ahmed are IEEFA energy finance analysts. 

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