September 25, 2019 Read More →

IEEFA Bangladesh: Relying on imported coal and LNG is unlikely to lower electricity bills

Renewables are cheap yet Bangladesh is still locking in expensive coal-fired power

The sharp decline in the cost of renewables around the world is a sign of what is to come for Bangladesh.

A new report from the International Renewable Energy Agency (IRENA) has found the cost of new onshore wind and solar power will be less expensive than even the cheapest fossil fuel-fired alternative by 2020 in many countries.

Bangladesh is not at this point yet. It has not seen the committed rollout of large-scale renewables that has occurred in India, Australia, and many other countries, which has driven down the cost of wind and solar.

With renewables globally becoming cheaper, plans to lock Bangladesh into decades of expensive coal-fired power makes little financial or economic sense. The uncertainty over future fluctuating prices increases the risk of a huge economic burden caused by an over-reliance on fossil fuel imports.

With renewables globally becoming cheaper, plans to lock Bangladesh into decades of expensive coal-fired power makes little financial or economic sense.

The Revisiting Power System Master Plan (PSMP) 2016 report, released in November 2018, seems to show that Bangladesh is set to hugely over-build its power sector, well in excess of what is required over the next two decades. The plan shows that Bangladesh’s reserve margin – the spare capacity in excess of demand – will reach an enormous 69% by 2026. This is despite the report’s authors stating that the reserve margin should only be 20-25%. Under this plan, Bangladesh’s reserve margin will not return to a reasonable level until the late 2030s.

THERE IS NOW SOME INDICATION THAT BANGLADESH IS BECOMING CONCERNED about the risk of building too much capacity.

Similar to where Bangladesh is now, India historically over-built coal power capacity in excess of electricity demand growth and plants were often built too far from their coal sources. Today, India’s pre-construction pipeline of coal-fired power projects has shrunk by 81% since January 2015, new projects are slow to come online, and about 40,000 megawatts (MW) of financially distressed coal-fired power projects are placing a huge burden on its banking system.

  Bangladesh is taking a major risk with its planned build out of coal-fired power plants.

Instead, an ambitious renewable energy rollout is increasingly responsible for meeting much of India’s electricity demand growth. New coal plants cannot compete with low tariffs from wind and solar power so a lack of power purchase agreements (PPAs) for coal-fired power plants is adding to stress in the sector. In addition, much of India’s coal plants that use imported coal are unviable based on current tariffs. The tariffs will have to be increased, placing an additional burden on consumers.

Bangladesh is taking a major risk with its planned build out of coal-fired power plants. These plants may themselves become financially stressed or unviable if it turns out that electricity demand growth has been over-estimated (as it was in India and many other nations). Most Indian coal plants use cheaper domestic coal, but Bangladesh’s planned coal fleet will have to use mostly imported coal. The extra expense of imported coal increases the financial risks. Additionally, Bangladesh needs to be prepared for the fact the Rooppur Nuclear Power Plant under-construction is likely to cost a lot more than US$13 billion by the time it is finished.

IEEFA SUGGESTS IT MAKES NO SENSE TO OVER-BUILD FOSSIL FUEL-BASED POWER CAPACITY when the cost of renewable energy is coming down fast. Bangladesh is missing a chance to modernise its power sector which would make electricity both cheaper and cleaner.

With the right policies in place and commitment to a utility-scale renewable energy rollout, IEEFA sees renewable energy cost declines in Bangladesh of around 10% per year. This has been achieved in other countries.

According to the World Bank’s latest Energy Progress Report, Bangladesh has been making good progress in terms of access to electricity. This is due to a combination of efforts to extend the power grid and the successful Solar Home Systems (SHS) program.

Bangladesh has been making good progress in terms of access to electricity.

Going forward, where the grid is extended, poorer communities will benefit from grid-connected utility-scale solar plants, as such technology will become ever cheaper in Bangladesh. Where it is not cost-effective to extend the grid to remote communities, solar micro- and mini-grids will make sense. Off-grid solar power solutions are most effective with batteries for power storage and this technology is also getting cheaper all the time. These systems will be able to provide people with much more energy than small solar home systems.

Much will depend on the government’s approach to land use and the recognition that there is likely to be more land available for solar power development than is generally accepted.

BOTH UTILITY-SCALE AND ROOFTOP SOLAR WILL NEED TO BE UTILIZED to address land use issues. In October 2018, Bangladesh’s first truly utility-scale solar plant (28MW) commenced operations. The proponent has already signed a memorandum of understanding (MoU) for the construction of another solar plant of 100MW. Since then, numerous other agreements for large-scale solar in Bangladesh have been signed – with interest from China, Saudi Arabia and United Arab Emirates and finance confirmed from the World Bank and the Asian Development Bank.

Floating solar is another solution for Bangladesh

International companies that use Bangladesh-based manufacturing are often under pressure to sort out pay and conditions issues within their supply chain. In the future, such concerns could extend to the use of power derived from coal in a nation that is highly vulnerable to the impacts of global heating. International companies may end up driving the take-up of rooftop solar on factories in Bangladesh.

Floating solar is another solution for Bangladesh given its land availability issues. However, it is more expensive at the moment. The Asian Development Bank is reportedly backing a 50MW floating solar system on Kaptai lake. More floating solar can be installed later once the cost has declined further.

THERE IS SIGNIFICANTLY MORE WIND POWER POTENTIAL IN BANGLADESH than previously recognised. Modern, taller wind turbines are able to make better use of existing wind resources than older models. The Bangladesh Power Development Board has consequently invited bidders for wind power projects totally around 150MW.

Bangladesh should focus on ground-mounted solar photovoltaic (PV) and wind (where the opportunity arises) for now in order to make use of available land and help quickly drive down the cost of these mainstream renewable technologies.

With the cost of renewables reducing so fast, Bangladesh ought to have a shorter term renewable energy target. A target of 25% renewable energy generation by 2030 could be appropriate and entirely achievable. By 2030, the efficiency and cost of wind and solar will have changed so much that a re-assessment of the nation’s energy future would be needed and would likely lead to a more ambitious target to 2040.

If Bangladesh were to commit to a more ambitious but entirely achievable renewable energy rollout, the cost of renewables will come down quickly allowing businesses to thrive and support a growing economy.

This piece first appeared in The Business Standard. This is an edited version of the interview conducted by researcher Maha Mirza with Simon Nicholas, IEEFA Energy Finance Analyst.

Related links:

IEEFA update: Kenya and Bangladesh can turn to renewables as coal plans stall

IEEFA Update: Bangladesh’s coal expansion plans stir criticism

IEEFA update: Coal is failing to bring relief to Bangladesh’s electricity system

 

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