Shaping the future of Bangladesh’s energy sector

Originally posted in The Daily Star on March 27, 2023

It is worth noting that decisions need to be taken considering the overall scenario, not just the crisis situation.

Bangladesh has undeniably made good progress toward reaching the development goals outlined in Vision 2021 and Vision 2041. Experts argue that energy is part and parcel of this development journey. In addition to the standard reform policies ranging from institutional restructuring to pricing reform, the government has announced a few notable policies during this time, such as welcoming the privately owned quick rental power plants in 2010, developing the Mineral Resource Development Act in 2012, implementing the Power System Master Plans of 2010 and 2016, establishing a nodal agency for renewable energy development, introducing the Gas Sector Master Plan of 2017, Rooftop Solar Policy in 2018 and Mujib Climate Prosperity Plan.

The progress made in the energy sector can be seen through a number of indicators. For example, installed generation capacity increased from 5,272 MW in 2009 to 22,482 MW in 2022 (an increase of more than 300 percent), and the country achieved 100 percent grid electricity coverage when it only used to be around half of the population in 2009.

Apart from increasing electricity access, the government has also formulated policies around growing affordability for these energy sources by managing prices and gradually shifting towards cheaper alternatives. The government has continuously emphasised fuel diversification in the electricity generation fuel mix by ruling out mono-fuel dependency on natural gas and promoting alternative fuels. This has enabled the energy consumers to avail the most readily available and least-cost energy options to aid the economy to grow.

Having increased access and affordability, the government has now prioritised and realigned the policies to achieve applicability and acceptability. Improved access has been complimented by increased applicability of energy technologies, including technologies for the exploration and extraction of non-renewable energy, induction of renewable energy technologies, and technologies to improve energy efficiency in energy processing, transformation, and final consumption. Thus, the government wants to adopt state-of-the-art modern technology for the highest efficiency and lesser emissions.

On the other hand, increased acceptance of the environmental impacts of the chosen energy sources and technologies is necessary to ensure energy sustainability. Therefore, the government realised there may be better solutions than coal-based electricity production and discontinued some coal-fired mega power plants. It has also been said that by 2041, Bangladesh will start a green energy transition and generate 40 percent electricity from renewable sources.

Nevertheless, the recent global energy crisis due to geopolitical tensions, such as the ongoing Russia-Ukraine conflict, coupled with the wild swing in energy prices and currency devaluation, may affect energy security and hamper Bangladesh’s development process. For instance, prices of key energy sources, such as crude oil, increased by 42 percent in 2022 compared to 2021. The average LNG price rose from $10.8 per MMBTU in 2021 to $18 per MMBTU in 2022, and the average coal price increased from $117 per MT in 2021 to $267 per MT in 2022.

Given the context, the policymakers may consider reshaping the existing energy policy framework or developing a few new short-term, medium-term, and long-term strategic policies to tackle the crisis to ensure future energy security and continue the government’s mission and vision. It is also worth noting that decisions need to be taken considering the overall scenario, not just the crisis situation. The short-term crisis may be exogenous and temporary, but policies should be designed keeping the future in mind. Moreover, if required, the government could also make a provision for regular revision of energy policies. The following recommendations may be worth considering for Bangladesh’s energy sector.

First, by strengthening demand side management, the government can promote social awareness among the general people for the efficient use of energy appliances to achieve lower energy consumption coupled with facilitating the implementation, execution, and dissemination of different energy efficiency programmes. An energy-responsible citizen is expected to refrain from using excess electricity, especially during an energy crisis.

Second, it is evident that Bangladesh’s natural gas sector still suffers from around 10 percent system loss. Thus, the government may identify and cut illegal lines, create meter upstream and downstream points, and implement strict regulations to ensure transparency.

Third, a recent labour force survey indicates that about 75 percent of the energy sector’s workforce falls under the low- and medium-skilled category, whereas only 25 percent falls under the high-skilled category. Therefore, developing a skilled energy sector labour force is required to ensure sectoral activities.

Fourth, it is worth noting that the share of imported liquefied fuel started rising in electricity generation to run the quick rental power plants since 2009. If Heavy-Fuel Oil (HFO) and High-Speed Diesel (HSD) had not been introduced during the 2009 crisis, the situation could have been bad. However, recent hikes in the international oil price market have made it difficult for Bangladesh to run quick rental power plants. The Bangladesh government has already taken many initiatives to reduce the dependency on imported liquid fuels. Once nuclear power plants start production, as a move to promote clean energy, the government may also reconsider phasing out the quick rental power plants by discontinuing agreement renewals.

Fifth, the government could further enhance the scope of renewables for electricity generation by exploiting all renewable energy options and speeding up the development of renewable projects. For instance, it is imperative to reduce duties and taxes on power sector-related purchases such as solar inverters and panels, reduce price distortions, address the prevailing market barriers, and encourage investment by local and foreign private investors. It should be kept in mind that numerous studies reveal that marginalised people show a lower adaption likelihood for renewable energy devices like Solar Home System (SHS) due to high prices and maintenance costs. However, with the development of technology, solar energy has become cheaper, and higher investments should be made in these renewable sources. The government could also encourage microfinance institutions to develop a business model for poor people to expedite the use of solar energy, mainly in remote and off-grid areas.

Solar irrigation is also a feasible solution for quickly facilitating a renewable energy transition. Other solar development initiatives, like solar panels next to highways and riversides, may generate significant amounts of solar power. Besides, developing sound renewable energy storage systems and implementing smart metering, smart grid development should also be carried out to improve the overall grid reliability. The development of renewables would further open up the opportunity to replace fossil fuels like natural gas and oil with renewable energy sources to run Captive Power Plants (CPPs).

Sixth, the government might consider welcoming public-private collaboration to reduce inefficiency in resource exploration and policy implementation. Additionally, there should be a focus on increasing onshore and offshore gas exploration by creating amenable Production Sharing Contracts (PSC) to attract International Oil Companies (IOCs). Furthermore, given the international oil price volatility, big companies may be interested in investing abroad, and Bangladesh should explore this type of opportunity for offshore drilling and indigenous coal extraction.

Lastly, the government could also explore the possibility of Cross-Border Electricity Trading within the South Asian region to improve energy security. With a harmonised policy framework and regional solid energy cooperation, Bangladesh could access the hydropower generated in Nepal and Bhutan, channelling it through India.

Dr Sakib Bin Amin is an Associate Professor of Economics at North South University (Bangladesh). He holds a Ph.D. in Economics from Durham University (UK).