Fuel crisis cuts electricity in Bangladesh, sparking energy debate

A labourer waits to load coals into the oven of a brickyard

A labourer waits to load coals into the oven of a brickyard in the outskirts of Bangladesh's capital Dhaka January 21, 2007. REUTERS/Adrees Latif

What’s the context?

As gas prices rise on global markets, pushing up the cost of power production, will Bangladesh turn back to coal or boost renewable energy?

  • Global energy price hikes push Bangladesh to curb power supply
  • Observers blame dependence on high level of imported natural gas
  • Energy security debate considers domestic coal boost, renewables

DHAKA -  Robiul Islam, 29, sits in the dark at his home in the Kalurghat neighbourhood of Chattogram city, suffering through yet another power cut, as Bangladesh struggles with costly and inadequate natural gas imports amid a global hike in energy prices.

"Over the last two months, we are seeing power outages that we have not seen in quite a few years," Islam told the Thomson Reuters Foundation by phone.

The South Asian nation boasts an electrification rate of 97% - meaning nearly all of its population has access to electric power - and has increased its total power generation capacity to 25,700 megawatts (MW), against peak demand of about 15,000 MW.

But since June, the country has seen a return of frequent power outages, or "load-shedding", as the government tries to keep down rising fuel costs.

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Nasrul Hamid, state minister for power, energy and mineral resources, wrote in a Facebook post that with energy prices soaring on the world market due to the ongoing conflict between Russia and Ukraine, Bangladesh is experiencing a shortage in its gas supply that is hampering electricity generation.

But observers say the roots of the crisis go back way before Russia's invasion of Ukraine led to an oil and gas squeeze.

Bangladesh's power sector has increasingly relied on imports of fossil fuels, including Liquefied Natural Gas (LNG) which is a "very volatile commodity" that risks becoming too expensive for poorer importing countries, said Simon Nicholas, a researcher at the U.S.-based Institute for Energy Economics and Financial Analysis (IEEFA).

The share of Bangladesh's power generated from natural gas stands at about 60%, with a quarter of that gas imported.

Experts have called for more exploration and expansion of gas production at home to reduce reliance on imported fuels.

The Bangladesh Power Development Board (PDB) has also faced financial pressure because of the over-capacity it created through costly support for independent power producers (IPP) in the private sector.

They receive capacity payments from the government - a set fee based on the amount of power that plants can generate - even when they remain idle.

Nicholas said that in the fiscal year 2020-21, the cost of electricity purchased from IPPs represented over half the PDB's total operating expenses for the first time.

In that year, the government also made capacity payments of 132 billion taka ($1.40 billion) to the IPPs and paid out an equivalent amount of subsidies to state-owned power utilities.

Rising business costs

The government launched austerity measures two weeks ago, including scheduled load-shedding, controls on air-conditioning use and reduced working hours to ease pressure on fuel imports.

But power outages and energy price hikes will nonetheless  drive up business costs, said Rizwan Rahman, president of the Dhaka Chamber of Commerce and Industry.

Electricity and other energy, including diesel and gas, accounts for 15-20% of production costs across the main energy-intensive industries, especially textiles, cement, steel, leather and plastic products, he added.

Electricity prices went up both in 2019 and 2020, he noted, while gas tariffs recently rose by nearly 23% - which will in turn drive up power costs further.

"The frequent and unpredictable tariff hikes undermine industrial efficiency and production," he said, adding that this deters foreign and local investment.

In addition, production processes are delayed by power cuts, making it harder to meet manufacturing deadlines for exports, hampering shipments and reducing competitiveness, he said.

So far, however, the power crisis has yet to result in any significant corporate shutdowns or unemployment, he added.

But on the ground, small business owners like Shishir Karim, who runs a restaurant in a shopping mall in downtown Dhaka, are already feeling the effects.

The mall now shuts at 8pm to comply with the government's energy-saving directive, and while restaurants are exempt, Karim says most of his evening customers are staying away.

"I am losing a large chunk of my business," he said. "The financial stress is quite severe for me."  

Wage cuts

Labour rights advocates, meanwhile, are concerned about the potential impacts of austerity measures on workers.

Quamrul Ahsan, a trade union leader who heads the National Workers' Federation (Jatiya Sramik Federation) and is an advisor at the Bangladesh Institute of Labour Studies, said any reduction in working hours should not lead to a corresponding cut in wages. 

Mohammad Tamim, professor of petroleum and mineral resources engineering at the Bangladesh University of Engineering and Technology, said businesses and workers had gained some breathing space after the ravages of the pandemic, but the power crisis now threatens to worsen the situation of the poor.

Bachhed Miya, a worker in a textile factory in Gazipur, used to earn 48,000 taka ($507.35) a month before COVID-19 struck.

"When the pandemic hit, I lost my job in the textile factory. Now I earn just around 30,000 taka and have to borrow to run my family," he said, fretting over the prospect of another round of layoffs.

Bangladeshi experts fix a solar panel

Bangladeshi experts fix a solar panel as part of efforts to maintain bio-diversity in the area and develop eco-tourism on Saint Martin Island November 29, 2004. With an area of eight square km, Saint Martin is 550 km (344 miles) from Dhaka and 12 km (7.5 miles) from the mainland. Bangladesh's only coral island, it is now one of the main tourist destinations. Picture taken November 29, 2004. REUTERS/Rafiqur Rahman

Bangladeshi experts fix a solar panel as part of efforts to maintain bio-diversity in the area and develop eco-tourism on Saint Martin Island November 29, 2004. With an area of eight square km, Saint Martin is 550 km (344 miles) from Dhaka and 12 km (7.5 miles) from the mainland. Bangladesh's only coral island, it is now one of the main tourist destinations. Picture taken November 29, 2004. REUTERS/Rafiqur Rahman

Renewables or fossil fuels?

Bangladesh's existing master plan for its power sector, released in 2016, envisioned a rise in the share of coal to 35% of power generation in 2041, up from just 5.6% in 2020.

Since then, the government cancelled plans for 10 coal power plants, out of funding and environmental concerns. But it is now turning back to coal to help manage the power crisis.

From September, a handful of new coal-fired power plants, including Rampal and Payra, are due to start or ramp up their operations, which could help ease electricity shortages.

Professor Tamim said Bangladesh should also explore the possibility of mining its own coal, adding that its 2021 climate action plan under the Paris Agreement allows for the development of additional coal-fired power production, providing it is fitted with the latest technology to boost efficiency.

But the IEEFA's Nicholas said coal was not cheap, with prices likely to remain volatile even as overall global demand declines.

"Coal-fired power is looking increasingly expensive relative to renewable energy," he added, urging Bangladesh to limit its reliance on expensive fossil fuel imports, including LNG, "as far as possible".

Instead, Dhaka should deepen its commitment to renewables and energy efficiency, he said, adding that a new energy master plan due next year will show whether the government is shifting away from imported fossil fuels and towards clean energy.    

"The current global energy crisis further demonstrates the importance of wind and solar which have no fuel costs and give improved energy security," said Nicholas.

Estimates have indicated that as much as 5,000 MW of solar power could be generated on industrial rooftops - and by 2041, total rooftop solar capacity could be increased to 12,000 MW. 

Bangladesh's existing renewables capacity is insufficient to serve growing national demand for power, noted Rahman.

After a decade of supportive policy, only 300 MW has been added to the grid from renewable sources - partly due to serious challenges such as land scarcity for building solar parks in a densely populated country, said Tamim.   

He urged the government to step up financial and policy support for all renewables - whether energy from waste, rooftop solar or solar-powered irrigation and street-lights.

"Every bit counts," he added.

($1 = 94.6100 taka)

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