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Bangladesh can reduce its subsidy burden by Tk 138 billion by making four power sector reforms, said a report released on Wednesday by the US-based Institute for Energy Economics and Financial Analysis. 

The report also laid out a roadmap implementing which Bangladesh can bring down its current overcapacity of over 60 per cent to nearly zero by 2030.

Power consumption in Bangladesh is rising but it failed to keep up with power generation capacity increase, the report said, adding that the rising overcapacity necessitated massive subsidies from the government.

‘The window to make Bangladesh’s power sector sustainable is rapidly narrowing, but there is still time to get the sector back on track by following a suitable roadmap,’ said Shafiqul Alam, the report’s author and also a lead analyst at IEEFA.

The report highlights that Bangladesh can achieve the savings by shifting half of the industrial demand, met by captive generators, to the grid, adding 3,000 MW of renewables, reducing load shedding to 5 per cent from the fiscal 2023-24 level and limiting transmission and distribution losses to 8 per cent.

The IEEFA report estimated that shifting half the industrial captive power demand to the national grid would save Tk 34.14 billion while the installation of 3000MW renewable capacity, mostly solar, would save Tk 72.71 billion.

Minimising transmission and distribution losses and load shedding would save, respectively, Tk 24.44 billion and Tk 6.65 billion.

In 2023-24, the government paid Tk 382.89 billion as subsidy to BPDB, the report noted, advising that Bangladesh should gradually shift to electric systems from gas-driven appliances, like boilers, to increase the demand for grid electricity.

Alongside this, industries should fully rely on the grid, keeping gas-fired captive generators as backups. These will help increase BPDB’s revenue from selling additional energy while reducing capacity payments to idle plants, the report said. 

‘The steps can bring down the subsidy burden to nearly zero,’ said Shafiq.

This December the overcapacity is likely to exceed 66 per cent, up from 63.6 per cent recorded in the same month in 2023.

The report stated that the BPDB’s total annual expenditure increased 2.6-fold against revenue growth of 1.8 times between FY2019-20 and FY2023-24. The mismatch was made up with the payment of Tk 1,267 billion in subsidy.

Yet, the BPDB recorded a cumulative loss of Tk 236.42 billion for the period, the report said.

The report advised reviewing the power demand forecast, particularly from 2025 by factoring in energy efficiency gains.

IEEFA’s projection by considering such variables shows that the country’s peak power demand in 2030 is likely to be 25,834MW against the Integrated Energy and Power Master Plan’s forecast, made in July 2023, of between 27,138MW and 29,156MW.

In October, Bangladesh’s installed generation capacity stood at 27,740MW.

The IEEFA roadmap suggests halting investment in fossil fuel-based power and limiting the use of oil-fired plants to 5 per cent of total power generation.

If these steps are taken along with the anticipated 4,500MW of fossil-fuel-based power plant retirements, the report expects Bangladesh will have a system capacity of 35,239MW by 2030, enough to meet the demand. 

Finally, the report said, the country can consider a conservative goal of installing a total combined grid-connected renewable energy capacity of up to 4,500MW by 2030 to help reduce mostly expensive oil-fired power generation during the day.

From July 2023 to May 2024, the use of expensive oil-fired plants in meeting peak demand contributed 10.9 per cent of the total power generation, accounting for 32 per cent of fuel expenses.