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How to fix the mess in the electricity sector?

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The electricity sector in Bangladesh could be considered a success story. The United Nations Sustainable Development Goals (SDGs) recognize energy as a key factor for development (cf. Goal 7). Bangladesh and all SDG participants have pledged to ensure access to affordable, reliable, sustainable and modern energy services for all by 2030. And Bangladesh appears to be ahead of the game.

In his budget speech in June this year, the Minister of Finance asserted that “thanks to the integrated development of production, transmission and distribution systems, 99% of the total population of the country has been placed under electric blanket” . In July, the country canceled 10 coal-fired power plant projects to reduce its future carbon footprint. According to a Department of Energy and Energy official, “There is a global concern about (the use of) coal and we need to embrace it. The government is committed to reducing carbon emissions.

All of this is good news, but further investigation reveals troubling and disturbing ailments. The most important conundrum for many observers is the coexistence of a surplus and a shortage of electrical power. According to the Bangladesh Power Development Board (BPDB), although we have an installed capacity of 25,000 MW, the maximum power generated is only 13,000 MW due to fuel shortage, distribution and power issues. other issues. It is estimated that $ 40 billion would be needed to build 120,000 km of distribution lines to support electricity supply for all. Bangladesh has overinvested in generation, but has failed to build electricity transmission and distribution infrastructure, creating this current quagmire.

In sum, Bangladesh has nearly 60 percent of unused capacity, but lacks institutions and power lines to use it. Another way of looking at our failures is that we are faced with a “surplus paradox,” paraphrasing a famous phrase from Nobel Laureate economist Ronald Coase.

Struggling with this eternal conundrum, the government has launched a review of its five-year-old Electricity Sector Master Plan (PSMP), but work on the project has been postponed. “June was the month when the new PSMP should have been introduced. The public anticipated the plan because it should have solved the problem of the country’s overcapacity in electricity production. However, the PSMP has been delayed and Bangladesh is now back to the drawing board. Writes Viktor Tachev of the US-based Institute for Energy Economics and Financial Analysis (IEEFA).

To compensate power plants for unused capacity, this year’s national budget alone allocated Tk 9,000 crore for “capacity charges”, in addition to Tk 5,000 to 6,000 crore for fuel subsidies. . The old PSMP envisions a 25 percent reserve capacity, instead of the 60 percent that currently exists. This is much more than the best electricity generation practices followed in other developing countries.

Unfortunately, the capacity additions over the next five years will cause the utilization rate to drop even further. “With an additional 21,000 megawatts (MW) expected to be commissioned by 2025 and only 5,500 MW of old capacity to be phased out, usage will fall below 40%, unless a growth rate is expected. very high electricity generation is not being maintained, ”IEEFA’s Simon Nicholas said in a briefing note.

Various studies have questioned the reliability and quality of the electricity produced, which has affected the financial viability of our small and medium-sized businesses. On paper, while 95 percent of the population has access to electricity, the actual number of households with reliable juice is well below the target. Small towns and especially rural areas are vulnerable without any guarantee of uninterrupted supply on a reliable schedule with adequate tension.

A US Department of Commerce publication recently identified poor transmission and distribution infrastructure, inadequate thermal efficiency in many aging power plants, and a mismatch between the types of energy required by existing plants and the fuel mix. available, as primary areas of concern. These are the proverbial Achilles heels of the electricity industry.

In its report “Electricity Sector Reform in Bangladesh”, USAID points out that only 11% of grid-connected households are in levels 4 and 5, that is, they receive more than 16 supply hours per day. Likewise, only about 11% are at level 3, receiving more than eight hours of supply. “Availability of food in the evening is the main problem, affecting around 70% of rural households and 73% of urban households. Reliability of supply is the second most pressing issue, forcing people to rely on fossil fuel backup systems. Quality of energy service is also a major concern in rural and urban areas. Reliability and quality issues have led to a decrease in the consumption share of commercial and industrial customers over the years, ”adds the USAID reviewer.

We have known for some time that outside of major cities like Dhaka and Chattogram, the quality of electricity is poor. Rural populations are the most affected by frequent power cuts or brownouts. According to The Business Standard data collected in rural and semi-urban areas of 21 districts on June 5 and 10, many of these places were without power for an average of six hours, and the longest duration of power outages was 12 hours. My own sources from the Chattogram area, including Rupkania and Rangunia under the Bangladesh Rural Electrification Board (BREB), paint a similar picture.

A Daily Star report released on September 9, 2021, titled “Frequent power cuts make life unbearable in Tangail,” says production in factories and industries has also been hit hard by the disruption in the power supply. Dr Ahsan H Mansur, executive director of the Policy Research Institute, said he has a volunteer organization in a rural area served by BREB that remains without power for almost 12 hours a day.

“We pay 12.5 Tk per unit of electricity, but we don’t get the advantage over what we pay. We have to run generators all the time… Industries are losing out due to fluctuations in power. tension and destabilization, ”he said.

“We suggested that the authorities focus on this issue so that people can trust the power grid; otherwise, the power sector will continue to be a loss-making sector,” Mansur added.

In my opinion, another major weakness has been the back and forth with political decisions. While it is laudable that the CO2-emitting coal-fired power plants were scrapped, it has damaged the government’s credibility. Decisions about the energy mix have been a measure of indecision, lack of transparency and the haphazard nature of power sector planning at the top. For example, in the summer the government bought liquefied natural gas (LNG) on the spot market, but decided to stop the practice as spot prices skyrocketed. The government has systematically subsidized the electricity and energy sector due to misguided pricing policies.

“The energy system is not a switch,” said Daniel Yergin, author and vice president of consulting firm IHS Markit. “When you go too fast, you hit the bumps.”

Incidentally, the current energy crises in China and Texas, USA, should be an eye opener for our energy planners. In China, there was widespread electricity rationing in September triggered by a coal shortage and rising prices. In the United States, during extreme winter conditions in February earlier this year, an increase in demand for electricity met with a drop in generation, forcing the state grid operator to implement progressive blackouts.

In a recent note titled “What the Texas Energy Crisis Means for Bangladesh’s Energy Security,” IEEFA experts pointed out that LNG price volatility could exacerbate Bangladesh’s energy insecurity and lead to under -increased use of the capacity supplied with LNG.

My research on the gas market leads me to believe that price volatility is likely to worsen. Natural gas prices have risen globally after some unforeseen events including inclement weather, maintenance catch-ups and supply bottlenecks. Russia and the United States have cut back on production, and Bangladesh is likely to be vulnerable to shortages or even calamity in the years to come.

As a World Bank report on the electricity sector in Bangladesh notes: “Consumers will only reap the full benefits of electrification when the quality and availability of electricity in the system increases – thanks to savings resulting from improved energy efficiency, through investments in a new generation and new sources. power, (and) through improvements in the ability of the system to transmit and deliver electricity at the consumer level.

Dr Abdullah Shibli is an economist and computer consultant, and a senior researcher at the International Institute for Sustainable Development (ISDI), a think tank based in Boston, United States.


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