BPDB’s open tender for power plants: Can it reduce solar power costs?
Alongside corruption, land price, grid connection cost and high customs duty on inverters play a role behind the high tariff of solar power in Bangladesh, which is multiple times higher than its South Asian neighbours
Under the Speedy Enhancement of Power and Energy Supply (Special) Act, 2010, the Awami League regime used to award solar power project contracts to private firms without a tender process.
This Special Act was criticised as the root cause of all corruption and irregularities in the power and energy sector.
Soon after the interim government assumed office, it suspended the law and decided that all future power projects would be implemented through an open tender process.
Power generated by private firms in general, and solar power in particular, has been very expensive over the past regime's tenure. To be specific, the tariff of solar power in Bangladesh is multiple times higher than the South Asian average.
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According to studies, tariffs in the Indian solar sector hover at Rs2.50-2.87/kWh (Tk3.55-Tk4.08), which is about 20-30% below the cost of existing thermal power in India, and up to half the price of new coal-fired power. India actually has one of the lowest solar energy costs globally.
"There's a prohibition on using farmlands to install solar panels. This leads to developers seeking land in remote areas in chars and other low-lying lands. This usually means the solar plant is located far from a grid substation that could evacuate the power. Therefore, long transmission lines have to be built to accommodate grid connection, driving up costs."
In Pakistan, utility-scale solar power generally costs around Tk4.77 to Tk7.16 per kWh, depending on project size, location, and financing.
On the contrary, in Bangladesh, the cost of each unit (kWh) of solar power often goes north of Tk12.
Industry insiders and experts say the scarcity of land, the consequent high price of the same, remote location of plants, the expense of establishing the grid connectivity, etc play a role behind the comparative high cost of utility-scale solar power. They also mentioned that corruption was a significant factor behind it.
Even if corruption can be checked under the new government, there should be some policy changes should the tariff of solar power be lowered.
"Land is scarce in Bangladesh, one of the most densely populated countries on the planet. Typically, the share land cost worldwide is between 3-5% of the project cost. In Bangladesh, it tends to be more than 10%," said Ishtiaq A Chisti, executive director of Distributed Renewable Energy (DRE), a renewable energy company registered in Singapore.
"There's a prohibition on using farmlands to install solar panels. This leads to developers seeking land in remote areas in chars and other low-lying lands. This usually means the solar plant is located far from a grid substation that could evacuate the power. Therefore, long transmission lines have to be built to accommodate grid connection, driving up costs," explained Ishtiaq, who also consults for global financial and development entities like IFC and USAID.
Dr Ijaz Hossain, a professor of Buet and an expert on energy and environment, mentioned that a 37% customs duty on inverters levied by the former government drove up the cost of solar power.
"Inverters are already expensive. Imposing a 37% customs duty on them worsens the situation," the professor said.
In India, the government sets up the transmission line to the plant location and then floats the tender. The company just sets up the solar power plant. Also, the land price in deserts is negligible. As a result, the price of solar power in India dropped so low, the expert said. In other countries too, distribution companies establish the grid connectivity to the plants with their own expenses, he mentioned.
Ishtiaq Chisti also echoed that in India and Pakistan, the federal government or the states or provinces typically promote solar power by providing free or very low-cost land, build infrastructures like road and jetty connections, and impose low or no import taxes on solar equipment.
He said these countries also provide new transmission lines between the solar plant and the nearest substation. If a substation requires upgrading, the government also takes care of that. In Bangladesh, all these costs are borne by the developer, further driving up the unit cost.
Industry insiders also mentioned that BPDB and other government agencies have non-transparent review committees to assess a project from the period between the application and the LOI (letter of intent) and between the LOI and PPA (power purchase agreement). This not only increases the time before the project becomes shovel-ready, it also raises the cost of the project by paying additional fees.
Another factor that comes into play is graft, sometimes couched as Corporate Social Responsibility funds. For instance, solar developers are asked to pay what's called LR (local resources) Fund to get the local DC's permission to purchase large tracts of land for the solar project.
Transparency International, Bangladesh (TIB) has been calling for ensuring transparency in the LR fund management.
"If this were a reasonable amount, fixed per acre, and transparent, it would be quite acceptable. However, the cost varies significantly between jurisdictions, depending on the level of corruption of the local officials. In navigating through the labyrinthian bureaucracy of the alphabet soup of agencies in Dhaka, the developer is expected to pay the lowly peon to the minister for nothing more than doing their jobs. This can drive up project costs significantly," said an industry insider, requesting anonymity.
Ijaz Hossain spoke openly about corruption.
"Corruption is there; one has to 'manage' a lot of officials in every step. This increases the cost too. This way, every phase adds an additional cost of Tk1 per unit of power."
Dr Hossain expressed doubt that floating tenders would be successful unless the government acquired land and allocated them for solar power plants.
Earlier, the Power Division directed the BPDB to float the tender for the development of 10 grid-connected solar power plants in the private sector, each with a capacity of 50 megawatts (MW), totalling 500 MW. BPDB, however, has failed to start the tendering as of writing this story.
The professor also suggested ways to reduce solar power tariff.
"In Bangladesh, law prohibits allocating agricultural land for projects. It is necessary for food security, but it should be amended so that if a plant needs 25% agricultural land, it should be given," Professor Hossain suggested, in order to repeal the land crisis for solar power plants.
"A favourable mentality for advancing in large scale solar electricity production is still not visible. If it was there, the production cost could have been brought from Tk12 down to Tk8 at least, if not Tk6," Professor Ijaz Hossain said.
