Bangladesh’s energy sector: Short-term success vs long-term sustainability

Originally posted in The Business Standard on 09 March, 2023

Bangladesh’s energy demand will increase in the coming years, and relying only on short-term solutions may create long-term strains on the country’s energy independence

Bangladesh’s existing energy and power sector relies heavily on imported primary fuel. More than half of the country’s electricity is generated through domestic natural gas and imported liquefied natural gas (LNG). The international primary energy market is becoming increasingly volatile, particularly as a result of the Russia-Ukraine war.

Consequently, the higher costs of primary energy in the international market have created enormous pressure on the government’s budget. On the other hand, Bangladesh is a signatory to the Paris Agreement on Climate and thus it is determined to reduce carbon emissions. The country also chairs the Climate Vulnerable Forum (CVF), a 48-nation platform with a mandate to attain 100% renewable energy by 2050. In addition, some sustainable development goals (SDGs) focus exclusively on energy transformation towards green and clean energy.

To attain a clean energy transformation, the government unveiled a milestone policy document during COP-26 titled – “Mujib Climate Prosperity Plan,” setting an ambitious renewable energy (RE) target. The most remarkable announcement however was made by the Prime Minister during the same event calling for an RE target of 30% by 2030 and 40% by 2041.

As global dynamics shift away from coal plants, the Government of Bangladesh cancelled 10 coal plants in 2021. Some of these cancelled projects are to be replaced with LNG-generating stations.

In addition, to cope with gas shortages, Bangladesh plans to rely more heavily on LNG imports. However, import prices for LNG are more volatile and import costs are too high. According to Petrobangla’s estimates, LNG import costs are approximately 40 times higher than those of domestic production and 17 times higher than those of the international oil companies. The Covid-19 pandemic and the Russia-Ukraine war are adding further pressure to global LNG import prices.

The current volatility of the country’s energy scenario has once again raised several questions about the legitimacy of policymakers’ approach to LNG-based power production. Policymakers’ focus on identifying short-term solutions is not new, but these short-term approaches are hampering the sustainability of the country’s energy sector.

The transition to LNG-responsible power systems due to the country’s inability to meet the growing demand with its depleted gas reserves can be labelled as a short-term approach. Standing on the brink of LDC graduation in 2026, SDGs by 2030, upper middle-income country by 2031, and a developed country by 2041, Bangladesh’s energy demand will increase in the coming years, and relying only on these short-term solutions may create long-term strains on the country’s energy independence.

In this aspect, the new Integrated Electricity and Power Master Plan (IEPMP) should have been a crucial one, however, the draft of this plan does not seem as forward-thinking as it should be.

Undoubtedly, there are some policy-wise improvements in the IEPMP which have been missing in the previous policies. The inclusion of policies for developing new power plants in the southern areas of the country, plans for improving the electrical distribution, or the improvement of infrastructure for energy imports will all contribute to improving the country’s energy sector. However, the absence of proper directives as per the targets is also prevalent in the draft just as it was in previously formed policies of the energy sector.

In this IEPMP draft, there has been an emphasis on the diversification of renewable energy sources and targets to replace total energy sources with 40% of renewable sources have been set. The transition to renewable energy requires not only huge investments but also the right commitment and development partners, which our country’s energy situation has been missing for years. This is the main reason why despite the formulation of the Renewable Energy Policy in 2008, Bangladesh has not been able to increase the proportion of renewable resources in its energy resources to a significant proportion over the years.

However, the partnership with Jica will not only ensure adequate funds for Bangladesh but also potentially provide it with the proper strategy and technical capabilities to successfully transition itself into the era of renewable energies.

Also, the import of renewable energy from neighbouring countries like Bhutan and Nepal is mentioned in the draft IEPMP. The implementation of these policies depends on the effectiveness with which policy-makers can negotiate with other parties. South Asia is one of the least integrated regions in the world and the effectiveness of its regional organisation – Saarc has often been questioned.

In the draft IEPMP, there have been discussions of developing the intra-regional power transmission system within Saarc member countries, and initiatives of developing power systems in the southern parts of the country fall under this plan. Owing to the regional animosity and complexities among Saarc member countries, intra-regional trade initiatives between these countries often fail to be implemented successfully.

Thus, while these plans and policies may seem promising on paper, however, it will be very interesting to see the actual implementation of these policies. Furthermore, the actual effectiveness of such policies depends on how they are implemented.

In recent years, energy demand has grown significantly as a result of the country’s economic progress and it will grow disproportionately in the years ahead. Therefore, exploring our resources is mandatory to meet its ever-increasing demand. However, while the success rate of gas discoveries has almost doubled in comparison with the overall rate, the country’s gas exploration initiatives have not been satisfactory. It is not just the inefficiency of authorities like Bapex that can be held accountable here, but also the bureaucratic incompetence and complexity of the existing system.

The prospects for oil and gas reserves in the southeast part along the maritime border between Bangladesh and Myanmar were determined from the geological analysis. The resolution of the maritime controversy between these two countries by the International Court of Justice in 2012 opened the way for prospects for both countries. Whereas Myanmar moved forward with active oil and gas exploration programs after the settlement of the boundary disputes to capitalise on the early mover advantage, Bangladesh failed to take this opportunity due to collaboration problems with the International Oil Companies (IOCs).

Bangladesh’s energy policies have changed frequently over the years. Since the energy sector is capital-intensive and unpredictable, neither the oil companies nor foreign investors have ever had the confidence to invest on a large scale. For this reason, the country’s energy sector has never achieved energy independence.

Now is the time for our policymakers to set priorities instead of continually changing policies and strategies. The other thing our decision-makers need to keep in mind is that instead of focusing on short-term solutions, we should be focusing on long-term ones. Formulating sophisticated policies to achieve renewable energy targets or relying on imports of foreign energy resources is not going to help us get a proper energy mix. Instead, we need to focus on the efficient extraction and use of our oil and gas reserves.

At the same time, we must develop the infrastructure necessary for the deployment of renewable energy. Major investments are required to achieve energy independence, and financial reforms are also required to attract these investments.