Power sector reforms could cut annual losses by $1.2 billion: IEEFA report

The Bangladesh Power Development Board (BPDB) could save Tk13,800 crore ($1.2 billion) annually by implementing reforms in the electricity sector, according to a recent report by the Institute for Energy Economics and Financial Analysis (IEEFA). 

The reforms include more focus on renewable energy sources, reducing transmission and distribution losses, and optimising industrial electricity usage.

The report highlights that Bangladesh can achieve the savings by shifting half of the industrial demand, met by captive generators, to the national grid, adding 3,000MW from renewable energy, reducing load shedding to 5% from the fiscal 2023-24 level, and limiting transmission and distribution losses to 8%, read a press release.

Shafiqul Alam, lead analyst of Bangladesh Energy at IEEFA, and the report's author, highlighted overcapacity in the power sector as a key issue.

He said, "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," he added.

He said IEEFA's proposed roadmap for reform suggests improving power demand forecasting and limiting new investments in fossil fuel-based generation, and limiting oil-fired power plants to 5% of total generation.

"The roadmap further 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. We find that taking such consistent actions can help reduce the sector's subsidy burden," Shafiqul added.

"The country should gradually transition to electric systems from gas-driven appliances, like boilers. This will help increase the BPDB's revenue from selling additional energy while reducing capacity payments to idle plants," he said.

According to the report, between FY2019-20 and FY2023-24, BPDB's annual expenditures grew 2.6 times against a 1.8-fold revenue increase, prompting Tk126,700 crore ($10.64 billion) in government subsidies over the period. Despite the subsidies, the board recorded cumulative losses of Tk23,642 crore ($1.99 billion).

In FY2023-24 alone, the government gave a Tk38,289 crore ($3.22 billion) subsidy to the BPDB.

In order to bring the subsidy burden down to nearly zero, Shafiqul recommended ensuring industries fully rely on the national electricity grid. 

According to the release, by 2030, Bangladesh's peak power demand is expected to reach 25,834MW, as per IEEFA's projections – lower than the Integrated Energy and Power Master Plan's (IEPMP) forecast of 27,138MW to 29,156MW, made in July 2023.

With anticipated retirements of 4,500MW of fossil fuel-based plants and the addition of renewable energy, the country's system capacity could stabilise at 35,239MW, achieving a reserve margin of 20%, excluding variable renewable energy, which is comparable to nations like India and Vietnam.

IEEFA also proposed a conservative goal of 4,500MW in grid-connected renewable energy capacity by 2030 to help reduce mostly expensive oil-fired power generation during the day, and battery storage of 500MW with a three-hour backup to reduce reliance on oil-fired plants in the evening.

Shafiqul Alam emphasised that the sector's success will depend on effective policies, renewable energy expansion, and adjustments to gas tariffs to attract industries to grid power.