Merchant power policy on cards

The government is formulating a merchant power policy to unburden its power and energy sector liabilities.

The merchant power policy is expected to end the era in which the government has been the sole buyer of all electricity produced currently in the country—over half of it by private power producers, also known as independent power producers, IPP in short, while the rest is generated by state-owned power plants.

Currently, the government is also responsible for managing fuels, mostly through imports, for most of the independent power producers, while recognising their entitlement to capacity payment that refers to the obligatory condition under which IPPs are paid anyway regardless of electricity generation.

Fossil fuel imports, particularly the import of liquefied natural gas, and capacity payment, mostly made in dollars, are considered by economists and energy experts among the key reasons behind Bangladesh’s depleting forex reserves.

Bangladesh is grappling with the worst economic crisis in decades with nearly double digit inflation, triggered to a great extent by excessive energy expenses, plaguing the country for over two years.

‘The IPPs have destroyed the power sector,’ said power, energy and mineral resources adviser Muhammad Fouzul Kabir Khan. 

‘Governments buying electricity is no longer in fashion,’ he said, explaining that the new policy being formulated would allow independent power producers to generate and sell electricity on their own.

The independent power producers could use the national grid for a fee, he said, adding that the power tariff would be settled based on negotiations between power producers and their customers.

The government, however, could retain 20 per cent power generation capacity, leaving the task of meeting the rest of the power demand with IPPs.

The adviser made the statement while speaking as chief guest at a discussion on transition to renewable energy at the Economic Reporters’ Forum auditorium in Dhaka on Saturday.

The government’s role as the sole buyer created a huge burden as it struggled to pay power producers with installed electricity generation capacity worth thousands of megawatts remaining unused due to energy crisis.

The Bangladesh Power Development Board owed Tk 44,338 crore to power producers at the end of the last fiscal of 2023–24, as the national power company could clear only half of its dues to power producing companies.

Last fiscal, the power development board cleared 49.7 per cent of its total dues. It paid more than Tk 43,882 crore to 115 power producers, revealed the official data, with 78 per cent of the payment—Tk 34,410 crore—going to 24 IPPs.

Bangladesh’s current subsidy requirement in the power and energy sector is over Tk 50,000 crore, including Tk 34,000 crore subsidy, required for power sector alone.

Fouzul Kabir Khan said that land scarcity barring renewable energy expansion was a myth as unused government land and rooftops offered huge potentials for electricity generation using solar energy.

‘The earlier we all realise that there is no alternative to renewable energy expansion to ensure energy security the better,’ said Fouzul.

He said that the past Awami League government’s lack of commitment prevented renewable energy expansion.

Hasan Mehedi, member secretary, Bangladesh Working Group on Ecology and Development, one of the organisers of the discussion said that in the last decade Tk 2.87 lakh crore was invested in fossil fuel against only Tk 4,500 crore spent in renewable energy sector.

Centre for Policy Dialogue research director Khondaker Golam Moazzem urged authorities for adopting financing instruments to facilitate transferring of foreign direct investments and investment from multilateral development banks into the renewable energy sector.

He also urged steps from the banks to extend loan payback period to 10–12 years from existing six years, which was too short a period for renewable energy investors.

Findings of a study released in the discussion revealed that Bangladesh currently required a staggering Tk 87,000 crore in investment in the next six years to achieve its renewable energy goal.

The current trend, however, is unpromising as a little more than Tk 2,000 crore had been invested in the last six years, said Gouranga Nandy, chairman, Centre for Environment and Participatory Research, while presenting the study findings.

City Bank country business manager Ahsanur Rahman said that renewable energy investment was still not considered profitable by companies despite banks committed effort to direct financing in that direction.

Banks barely escaped the risk of losing their capital by lending to investors of fossil fuel-based projects who went on the verge of defaulting on loan payment as the government struggled to pay their dues.

‘Bonds released by the government eventually saved the day but the fact remains that banks could not profit from their investments in the power sector,’ he said.

The other two co-organisers of the discussion were the Economic Reporters Forum and Coastal Livelihood and Environmental Action Network.

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