Capacity charge to swell 56 pc

Against 3.7pc rise in electricity production

Mahfuz Emran : Bangladesh produced a total of 87.024 billion kilowatt-hours (kWh) of electricity in last fiscal year 2022-23. Bangladesh Power Development Board (BPDB) spent Tk 950.32 billion ($8.66b) to buy this electricity from the government, private and rental power stations. Of which, Tk 260 billion ($2.37b) was spent as capacity charge of the power stations. According to BPDB information, the electricity production in the country in FY 2022-23 increased by about 3.7 percent as compared to FY 2021-22. During the same period, the capacity charge swelled by 56 percent.
Another 5,500 megawatt of electricity is going to be added to the production in the ongoing FY 2023-24. Coal and gas-based larger power stations are among the producers of these added electricity. People involved in this sector fear that the capacity charge is likely to surpass Tk 300 ($2.73b) billion when these power stations will be included in the system.
Experts say that the government is hiking the electricity price to get out from subsidy. But, taking the increase of production cost and capacity charge into consideration, it is highly doubted that despite the price hike, PDB may not be able to withstand the financial pressure.
According sources at PDB and Power Division, PDB spent Tk 950.32 billion ($8.66b) in buying electricity in the last fiscal. Of it, an estimated Tk 262 billion ($2.39b) was spent on capacity charge also known as rental charge of the power stations. In 2021-22 fiscal, PDB spent Tk 714.93 billion ($6.51b) for electricity and Tk 167.85 billion ($1.53b) as capacity charge. That means in just one year the capacity charge saw a surge of 56 percent. Out of the amount, the government (See Page-7)
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organization had to spend the most on private and rental power stations.
In last fiscal, PDB purchased 34.253 billion kWh of electricity from private and rental power stations spending Tk 627.67 billion ($5.72b). In the previous fiscal, the organization purchased 40.174 billion kWh of electricity with little over Tk 520 billion ($4.74b). This calculation shows that despite buying 15 percent less electricity from the private and rental stations, the cost increased by about Tk 105 billion ($956m). Due to the increase in spending to buy electricity from the private and rental plants, PDB’s average per unit production cost increased from Tk 8.84 (8 cents) to Tk 11.33 (10 cents).
Experts say that all this is happening because of wrong planning. Financial risk in this sector is gradually on the rise due to the absence of proper estimation and timeliness.
Energy expert and former professor of Bangladesh University of Engineering and Technology Dr Ijaz Hossain said, “The whole affair is the consequence of wrong planning. The capacity charge has increased significantly due to the error in estimating capability and demand. There is also problem with the current estimate done by the Power Division with regard to demand of electricity. The demand of electricity will not increase if we do not enhance our economic activities. Capacity charge will not go down even if the subsidy is cut because new larger power stations are going to be added to the system.”
The government is giving a huge amount of subsidy every year due to the increase in spending. The effort to keep the price down at the consumer level through subsidy is actually creating a crisis for PDB. According to PDB audit report, in 2022-23 fiscal, the government provided subsidy of Tk 395.35 billion ($3.6b) in the power sector. The amount was Tk 296.58 ($2.7b) in the previous fiscal.
The Power Division mentions hike in imported fuel price and dollars as the reason for the increase of cost of electricity. In last fiscal, the loss incurred by PDB for the devaluation of taka against dollar stood at Tk 14.59 billion ($132.91m). The amount was Tk 6.59 billion ($60m) in 2021-22 fiscal.
When approached for comments, a senior PDB official told, “In order to lower the loss, the government is trying to get rid of the subsidy by increasing the price of electricity. If the financial difference can be lessened gradually, things will be good at some stage.”
Individuals concerned say that in order for PDB to reduce the loss, there is no alternative to getting out of the existing purchase agreements. At the same time, old and inefficient power stations will have to be shut down. This will save PDB a lot of money, believe the former policy makers of the sector.
“In the beginning, one-sided power purchase agreements will have to be cancelled to get rid of the huge loss,” BD Rahmatullah, former director general of Power Cell, the government body responsible for formulating guidelines and research told.
“At least, the clause that states that capacity charge has to be paid whether PDB purchases electricity or not will have to go. There is no scope for PDB to make profit with this type of agreements in place. Agreements on the short-term power plants cannot be renewed on the condition of ‘no electricity, no payment’, because PDB has set up two time more power stations than the demand,” he added.
Some of the energy experts feel that it is an act of cheating with the consumers to increase the price of electricity time and again without cutting down the illogical spending on power stations. They say that the government will have to find a way to lessen the production cost before removing the subsidy.
“It is illogical to increase the price of electricity to withdraw the subsidy without cutting down the production cost,” Consumers Association of Bangladesh (CAB) Senior Vice President Shamsul Alam told.
“There should be a clear explanation as to how much is the capacity charge, how it is determined and who is fixing this,” he added.
The Power Division says that with the arrival of large power stations, the government will get rid of the old and inefficient plants. At the same time, it was decided not to operate the expensive diesel-run power stations.
“Capacity charge exists in every country. The country has received private investment in the power sector as the issue of investment protection was prioritized protecting,” Power Cell Director General Mohammad Hossain told.
“It is said that the capacity charge has increased in last years. We have also taken this into consideration and decided to buy electricity on ‘no electricity, no payment’ basis from the plants that going to expire. The government is planning to get rid of the subsidy to make the power sector solvent. Therefore, price is increased in limited way.”
On September 5, 2023, State Minister for Power, Energy and Mineral Resources Nasrul Hamid informed Parliament of the capacity charge given to the power stations. From January, 2009 till June, 2023, the Awami League government paid 73 private and 30 rental power stations an amount of Tk 1.05 trillion ($9.57b) as capacity charge. Majority of the amount went to Summit Group, Agrico International, United Group, Payra Power Plant, Rural Power Company Limited, Bangla Track Group, Orion Group and KPCL (Summit-United) Power Plant.