Tk 26,000cr paid in FY2024, PDB in a fix
The power sector fixed cost is set to reach Tk 38,000 crore in the current financial year of 2024–25 as installed power generation capacity keeps growing amidst rather a static demand.Â
In the last financial year, 2023–24, the power sector fixed cost soared by nearly Tk 9,000 crore, marking more than 50 per cent leap in the expense, compared with the year before, taking the overall payment obligation to Tk 26,000 crore.
As the term suggests, fixed cost refers to an expense that is fixed, not subject to change under any circumstances. In the power sector, fixed cost is popularly known as capacity charge, a legally mandatory payment to be made by the government.
The capacity charge is the guarantee to return the power sector investors their capital plus handsome profit, regardless of the production of electricity.
Initially introduced to incentivise private investment in the power sector to urgently tackle an acute power crisis by the now-ousted Awami League government after its assumption of power, the capacity charge gradually turned out to be a huge burden over the last one and a half decade.
Bangladesh’s installed power generation capacity exceeded 50 per cent by 2024 with over 100 power projects implemented, scaling up the generation capacity by more than six-fold between 2009 and 2024, with the inevitable outcome of scores of power plants sitting idle with the capacity charge entitlement.
The capacity charge is generally calculated considering 85 per cent capacity use of a power plant over its lifetime which is usually 15–25 years.
‘There seems no escape from the burden of capacity charge in the next few years unless power demand drastically improves,’ said Shafiqul Alam, lead energy analyst, the Institute for Energy Economics and Financial Analysis.
A Bangladesh Power Development Board prediction said that the addition of 3,583MW of new power generation capacity in the current financial year would increase the capacity charge burden by Tk 11,379 crore.
The overall annual capacity charge payment burden is set to reach Tk 38,000 crore in the next five months, according to the BPDB.
Of the amount of capacity charge forecast to increase this year, the BPDB says that Tk 8,893 crore is due to the addition of five power plants—two gas- and three coal-based systems—in 2023–24. The power plants did not take capacity charge in the last year because they were test running.
Of the five power plants, the 1,224MW Banshkhali power plant, owned by S. Alam, is entitled to Tk 4,715 crore capacity charge annually, followed by 584MW Unique Meghnaghat power plant entitled to Tk 1,064 crore, 583MW Summit Meghnaghat power plant entitled to Tk 1,106 crore, first unit of the Matarbari power plant entitled to Tk 1,525 crore, and Rampal second unit entitled to Tk 483 crore.
In the current 2024–25, three other power plants worth 1,917MW would add to the burden of Tk 2,486 crore of capacity charge payment annually, the PDB said.
Of the capacity payment, the 2nd unit of Matarbari is entitled to Tk 1,397 crore while 718MW Meghnaghat power plants is entitled to Tk 708 crore and 624MW Payra power plant to Tk 380 crore.
Bangladesh’s installed power generation capacity stood at 27,790MW in January, with 43 per cent of the capacity depending on gas use, 21 per cent on furnace oil, 20 per cent on coal, 10 per cent on import, 2 per cent on diesel, and 4 per cent on renewable energy.
The power demand this winter remained largely around 10,000MW with the BPDB forecasting the peak summer demand to reach 17,500MW.
The interim government is not confident of meeting the maximum demand without any interruption in the coming summer and will be happy to keep the supply at 13,000MW, thanks to the dollar crisis limiting fuel import.
But, capacity charge entitlement left Bangladesh in a fix, facing the tough job of deciding which power plant to stay idle, though all of them take away capacity charge, often paid in dollars.
In a recent analysis, the BPDB said that the capacity payment requirement for gas and liquid fuel-based power plants ranges from $10 to $12 per kW per month, whereas the capacity payment requirement for a coal-based power plant is from $20 to $25 per kW per month.
A 1,000MW gas-based power plant sitting idle means the payment of capacity charge ranged between $120 and $144 million per year, the BPDB estimated.
Keeping 1,000MW of coal capacity idle, on the other hand, will cost from $240 to $300 million, the BPDB said.
Bangladesh’s annual capacity charge payment requirement exceeded Tk 10,000 crore first time in 2019–20. In 2022–23, Tk 17,156 crore was paid in capacity charge. In 2010–11, a year after the Awami government assumed power, the capacity charge requirement was Tk 2,784 crore.
The subsidy payment of the government always kept up with capacity charge payment obligation. In 2023–24, Tk 38,000 crore subsidies were paid. This year the required subsidy amount estimated by the BPDB is Tk 41,000 crore.
The overall power sector loss in 2023–24 exceeded Tk 86,000 crore.
In the 14 years after assuming power in 2009, the Awami League government paid Tk 1.04 lakh crore to 82 independent power producers and 32 rental power plants as capacity charges.
Of the capacity charge paid, independent power plants received Tk 76,242 crore, while rental power plants received Tk 28,684 crore.
Bangladesh-China Power Company was the highest Tk 7,455 crore capacity charge recipient among the 82 independent power plants, while Aggreko International Projects was paid the highest Tk 2,341 crore among the 32 rental power plants.
‘The government should take plans for rapid expansion of renewable energy and its maximum use to get rid of capacity charge,’ said Hasan Mehedi, member secretary, Bangladesh Working Group on Ecology and Development, a platform of green activists.
The top 10 independent power producers as listed by the past Awami regime as the highest capacity charge recipients included Meghnaghat Power, Rural Power Co Ltd, Summit Meghnaghat Power Ltd, Sembcorp NWPC Ltd, APR Energy, Summit Bibiana II Power Co Ltd, Haripur Power Ltd, United Ashuganj Energy Ltd, and Bangla Trak Power Unit-1 Ltd.
The top 10 rental power plants included Aggreko International Projects Ltd, KPCL, Summit Narayanganj Power Ltd, Aggreko International Projects Ltd, Dutch Bangla Power and Associates Ltd, Acron Infrastructure Services Ltd, Desh Energy, Max Power Ltd, and Power Pack Mutiara Keraniganj.