Overcapacity may corrode the power economy in Bangladesh

A recent report from Institute for Energy Economics and Financial Analysis (IEEFA) states that – Bangladesh’s plan for significant coal- and LNG-fired power plant additions will lock the nation into substantial overcapacity, with major financial implications.

Power Economy Bangladesh Ieefa
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A recent report from Institute for Energy Economics and Financial Analysis (IEEFA) states that – Bangladesh’s plan for significant coal- and LNG-fired power plant additions will lock the nation into substantial overcapacity, with major financial implications.

The coronavirus pandemic is currently significantly lowering power demand in Bangladesh, and in markets globally. This is increasing financial stress on Bangladesh’s Power Development Board by reducing revenue – whilst capacity payments to idle plants have to be maintained. The pandemic is also delaying China-backed Belt and Road coal power projects in Bangladesh.

Simon Nicholas, Energy Finance Analyst with IEEFA and the author of the study communicates, “Based on current plans for coal- and LNG-fired power additions, we calculate that Bangladesh will have the capacity to generate 58% more power than the nation needs by 2030, based on our forecasts of power demand growth and taking into account the economic impact of COVID-19.”

Bangladesh already has a major power plant overcapacity with only 43% capacity utilization of existing power plants in the fiscal year 2018-19. Significant capacity payments to idle power plants are helping drive the need for increased government subsidies to the Power Development Board to cover its financial losses. In the fiscal year 2018-19, the government subsidy to the Board rose again to reach Tk80bn (US$936m). It was Tk45bn (US$530m) in the previous financial year.

“A long-term switch from cheap domestic gas towards more expensive imported coal and Liquefied Natural Gas (LNG), combined with the severe, long-term power overcapacity Bangladesh is on course for, is likely to see government subsidies continue to rise,” comments Nicholas.

According to the report, Power tariffs for consumers can also be expected to increase. The economic impact of COVID-19 means such huge subsidies are going to be harder to maintain as the government bails out flailing industries.

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