Electricity Consumers in Bangladesh Pay Over Tk 16,000 Crore in Capacity Charges
Consumers of electricity in Bangladesh have been burdened with paying an exorbitant amount of Tk 16,785 crore in capacity charges to power plants within the first nine months of the previous fiscal year. This staggering sum was utilized for the daily power generation capacity of 22,118MW. However, a critical issue arose as the government was unable to utilize more than 14,000MW per day due to the country’s electricity demand not surpassing this threshold.
Challenges in Power Utilization
The government operates under an agreement with power plants that mandates the payment of “capacity charges” based on the plant’s capacity and establishment costs, regardless of whether the electricity is purchased or produced. Presently, the demand for electricity in the country fluctuates between 14,000MW and 14,500MW, while the government’s power production hovers around 12,000-13,000MW, resulting in persistent power outages.
Ongoing Financial Strain
Despite recommendations for austerity measures to combat escalating inflation, the government continues to bear the financial burden of unutilized power capacity payments. The Bangladesh Power Development Board (BPDB), the sole buyer of electricity in the country, disbursed Tk 18,977 crore to 101 power plants in the 2020-21 fiscal year and Tk 18,123 crore to 102 plants in the prior year.
Recent Developments
A recent government decision to cease operations at diesel-fired power plants due to dwindling fuel supplies has further exacerbated the situation. As a result, a substantial portion of daily power capacity, ranging from 1,000-1,500MW, remains unutilized, while capacity charges persist. Additionally, the government announced up to two hours of nationwide load shedding to manage the power deficit.
Expert Recommendations
Experts have proposed renegotiating capacity payments with power plant owners to alleviate the financial strain on the government. With declining foreign exchange reserves, the necessity to pay capacity charges in dollars has compounded the financial challenges. The Institute for Energy Economics and Financial Analysis (IEEFA) highlighted the substantial increase in capacity payments from Tk 8,929 crore in 2019-20 to Tk 13,200 crore in 2020-21.
Addressing the Issue
Dr. Khondaker Golam Moazzem, Research Director at the CPD, emphasized the need for the government to review existing agreements with power plant owners and eliminate capacity payments from renewal contracts. Additionally, phasing out inefficient or defunct power plants from the national grid could mitigate the financial burden on consumers and the government alike.
Impact on Power Plants
The Bangladesh-China Power Company limited, owner of the 1,320MW Payra coal-fired power plant, faced significant capacity charges amounting to Tk 2,277 crore in the first nine months of the previous fiscal year. Delays in utilizing the plant’s capacity have resulted in substantial monthly payments, highlighting the financial strain on power plants as well.
In conclusion, the issue of capacity charges in Bangladesh underscores the need for comprehensive reforms in the power sector to ensure efficient utilization of resources and mitigate financial burdens on both the government and consumers.