Reforms, policies that can fix the electricity sector

In over 15 years of the previous government, Bangladesh’s energy sector was almost destroyed. This would require not only a long recovery time, but also many unpleasant and difficult decisions. The country became heavily dependent on imported fuels and energy. Capacity fees for private power plants and payments to international oil companies (IOCs) for gas extraction must be paid in hard currency. There are many other requirements associated with hard currency, such as the construction of transmission and distribution infrastructure, regasification fees and gas exploration. To meet the nation’s entire energy and electricity needs would require more than $20 billion annually, an amount that will continue to increase as demand increases and gas production declines, and is expected to exceed $30 billion by the end of the decade.

Poor planning, mismanagement and corrupt practices of the last government have caused disruptions in the energy and electricity sectors, which can be linked to: i) the adoption of the Special Provisions Act in 2010; ii) excess generating capacity and oil-fired power plants; iii) arbitrary slowdown of gas exploration; iv) lack of control of losses in the transmission and distribution of gas fuel; and v) failure to increase renewable energy penetration.

For the latest news, follow The Daily Star’s Google News channel.

The Rapid Development of Electricity and Energy Supply (Special Provisions) Act, 2010 was intended to accelerate the construction of oil-fired power plants and the supply of liquid fuels (diesel and fuel oil) to these power plants in order to overcome the acute electricity shortage at that time. It was supposed to be an ad hoc measure aimed at bypassing the rigorous and time-consuming tender procedure for public sector contracts. However, the Act was applied en masse to all significant contracts in the electricity sector. Taking advantage of this right, the government began building power plant after power plant with no regard for fuel availability or actual electricity demand. What should have been a technical decision was made by engineers, bureaucrats and politicians. Even though the country needed a combination of different types of power plants (baseload, intermediate and peaking), it was considered more profitable for politicians and their friends to build large baseload, steam-gas, gas and coal-fired power plants rather than the much-needed small or single-cycle gas-fired peaker plants that can replace very expensive oil-fired plants. New megaprojects, of course, meant huge bribes and other benefits.

The construction of oil-fired power plants, accounting for nearly 25 percent of total generating capacity, was a serious crime made possible by this act. These additions have driven up electricity prices and put enormous pressure on our foreign exchange reserves. The grid was designed to always depend on oil-fired power plants. The fuel mix was designed in such a way that removing these plants would lead to load shedding and therefore great social suffering. No effort was made to remove these expensive power plants, which were in use throughout the day, even during hours when solar power was available. Calculations show that strategically integrating solar power plants into the grid could prevent $500 million worth of liquid fuel consumption annually.

Natural gas theft has always been a serious problem in Bangladesh’s energy sector, but under the last government’s rule of over 15 years, it has grown to gigantic proportions. Bangladesh’s oil, gas and minerals company, also known as Petrobangla, has proposed a new term for losses in the gas sector system called Unaccounted for Gas (UFG): loss of gas due to theft and leakage in transmission and distribution lines. In recent years, the UFG rate has increased: the average for 2020, 2021 and 2022 was 9.8%. International good practice states that this loss does not exceed two percent. A gas network with technical losses in the system exceeding three percent requires immediate remedial action. The problem with gas theft in the industrial and domestic sectors is non-technical system failures. Domestic consumption is 11%, but no one knows the actual amount because most domestic connections are not metered. Experts and industry insiders say it cannot be more than six percent. There are illegal lines and connections throughout the country. Therefore, as much as five percent of all gas is stolen in the domestic sector. When we add this to non-technical UFG, gas losses amount to over 10 percent of the total gas delivered. The fact that we do not have enough gas to meet demand and have to import liquefied natural gas (LNG) means that any loss of gas must be accounted for as an LNG loss. At an LNG price of $15 per MMBtu, gas losses amount to approximately $1 billion annually.

A set of reforms and/or policy changes are needed to prevent these types of losses from continuing to occur.

Power plant construction policy

To prevent overcapacity of power plants and incorrect generation planning, it is recommended:

* Decisions on the construction of new power plants should be made by a committee, preferably located at the Bangladesh Energy Regulatory Commission (BERC), and consisting of competent technical specialists.

* Lowest cost planning should be followed.

* The reserve margin (excess generation capacity over peak demand) should only exceed 15 percent if there is sufficient justification that it is required to accommodate intermittent renewable energy sources.

* Fuel supply must be ensured by the appropriate authority before approval by BERC.

* Liquid fuel power plants can only be used as peak load power plants (maximum daily use must be less than four hours).

* During the day, use solar power plants powered by batteries or simple cycle gas-fired power plants.

Gas exploration policy

In order to fully resume and continue gas exploration without hindrance, adequate resources must be provided until experts and BERC are satisfied that further exploration will no longer be profitable. This point can be reached when the exploration success rate drops below 1:10, i.e. when more than 10 exploration wells will be required to achieve one success.

Gas use policy

One of the difficult issues facing all Bangladeshi governments is the allocation of gas to different sectors; another issue they haven’t resolved is deciding whether the sector should continue to exist. All sectors have been given equal priority. The prioritization of supplies to key sectors of the economy has become an urgent issue. To ensure a reliable supply of gas to the industrial sector, the possibility of the sector importing its own gas should be considered. In addition to these policy reforms, rules and regulations are needed to reduce losses in the system and prevent theft.

Renewable energy policy reform

The previous government failed miserably to increase renewable energy penetration. Even though there are several limitations to the implementation of renewable energy projects, most experts believe that a 10 percent share of renewable energy in the fuel mix could be achieved. The most glaring failure is the continued use of fossil fuels to generate energy during the day; this can easily be replaced by rooftop solar installations or grid-connected photovoltaic power plants. New policies need to be formulated, taking into account the realities of the need to achieve net zero emissions. Annual targets should be set for utilities and penalties should be imposed if they are not achieved.

Dr. Ijaz Hossain is former Dean of Engineering at Bangladesh University of Engineering and Technology (BUET).

The views expressed in this article are those of the author.

Follow The Daily Star Opinion on Facebook for the latest views, commentary and analysis from experts and professionals. To submit your article or letter to The Daily Star Opinion, please see our submission guidelines.