A negative-sum game in the energy sector

Cancellation of coal plants vs. continuation of quick rental power plants

Originally posted in The Daily Star on 8 July 2021

Recently, reports of two contradictory developments in the power and energy sector have befuddled readers in Bangladesh. The first report was published on June 28, stating that the state minister for power, energy and mineral resources in a press conference announced that the government decided to scrap 10 coal-fired power plants that are either at a planning stage or at an early stage of implementation. The news got much attention both within and outside the country, owing to its perceived relation with the development of the clean energy sector. Civil society members, activists, think tanks including CPD, and private-sector actors who support the development of clean energy welcomed the decision as a first step in the right direction.

Within a week, however, it was reported that the government is mulling further extension of five oil-fired quick rental power plants. The news perplexed readers, particularly stakeholders of the power sector, as it was not long ago that a shutdown of quick rental power plants by 2024 was discussed at the Parliamentary Standing Committee on Power and Energy (New Age, March 2021) and highlighted by the same state minister in a discussion meeting more recently (TBS, May 4, 2021). Even the 8th Five-Year Plan document has been strategised accordingly (Planning Commission, 2021). All this created high expectations that the government may soon announce the closure of all rental and quick rental power plants without any further extension of their operations.

The two developments—cancellation of coal plants on the one hand, and extension of quick rental power plants on the other—represent a contradictory policy response on clean energy. In other words, what we are seeing is a negative-sum game in our power sector. Playing such a game will further hinder the development of the much-desired clean power sector in the country.

The latest news also raised doubts about the political commitment of the top leadership of the country. In various international platforms, Bangladesh has expressed its commitment about shifting from fossil-fuel-based power generation to renewable energy-based power generation. Since Bangladesh is one of the most climate vulnerable countries in the world—sixth in the world—and has been seeking international cooperation for adaptation and mitigation, its promotion of fossil-fuel-based power generation through different actions (or inactions) has weakened its case to some extent. Hence, Bangladesh needs to make bold and clear decisions about how it will gradually shift from fossil-fuel based power to renewable energy in the coming years. Lack of clarity sends a wrong signal, and so far, despite repeated urgings, the government hasn’t been able to provide a clear direction in achieving its clean energy goals.

Cancellation of coal-fired power plants

Although the state minister for power and energy announced the decision to scrap 10 coal-fired power plants, five of those would be transformed into LNG-based power plants. In other words, the announcement is rather confusing as it indicates moving from one fossil fuel (coal) to another (LNG). In fact, moving to LNG-based power generation would make the power sector dependent on a single energy source with little scope for diversification of our energy mix, which would severely hamper power generation through renewables. While the fate of the 10 power plants has been announced, the decision about the remaining coal-fired power plants is not clear. The 10 now-discarded projects are among the 18 planned coal-fired plants that were reportedly approved since 2008. The question is: what would happen to the rest of the plants which are at different phases of implementation (i.e. LOI, NOA, planning phases)?

The ministry earlier decided to allow the operation of three coal-fired power plants which have seen considerable progress in their implementation, such as the Patuakhali power station, the Rampal power station and the Matarbari power station. Apart from these, there had been public announcements about the implementation of a number of other plants. We think the government should immediately disclose information of all public and private coal-based power plants and send an unequivocal message that it will not allow any new investment in coal-fired power generation in the country.

The state minister in his press conference also announced that a total capacity for coal-fired power generation of 10,000-12,000 MW will be developed by 2030. We think the combined capacity of the three ongoing projects along with the Barapukuria plant would be the limit of our coal-based power generation capacity (4415 MW). These coal-based power plants, each with the lifespan of 25-30 years, need not continue operations for such a long time. Considering the depreciation of power plants, relative availability of renewable energy at cheaper rates, further rise in global pressure against fossil fuel, particularly coal, in the coming years—these plants should be discontinued much earlier, judging from the economic, financial and environmental cost-benefit point of view.

Quick rental power plants

A total of 21 rental and quick rental power plants are currently in operation with a power generation capacity of 1396 MW. Of these plants, nine use expensive heavy fuel oil (HFO). However, only one-third of their total capacity is currently being utilised with the generation of 400 MW of electricity. Bangladesh Power Development Board (BPDB) could not utilise most of their capacity, but a huge amount of capacity payment has been made every year to these power plants. Besides, the operational efficiency of these plants has been declining over the years, raising electricity generation costs and further burdening the BPDB. Moreover, these plants use expensive petroleum (HFO/HSD) as fuel which contributed to high electricity costs and thereby increased the burden of BPDB.

Since the government has principally decided to close rental and quick rental power plants, there is no reason to give these plants further time extensions, even under the clause of “no electricity, no pay”. Moreover, if these rental and quick rental power plants get further extensions, the drive for renewable energy-based power generation will continue to face setbacks. All things considered, it is only fair that the government disallows further extensions of any rental and quick rental power plant. Moreover, it should officially announce their closure by 2024 and give a clear roadmap of how it intends to do so.

Dr Khondaker Golam Moazzem is Research Director, Centre for Policy Dialogue (CPD), and Project Director, CPD Power and Energy Study.