Providing electricity to people

M. Asaduzzaman

Preamble: Discussing the power situation in the country has become a kind of depressing exercise. One apparently sees, literally speaking, darkness all around. The basic reason, on the face of it, is rather simple. There is not enough supply of power to meet the demand because not enough power has been planned for and produced. The situation had been developing for about two decades without much being done about it except hand wringing and blame games. Many reasons for the failure over years may be cited and there is no dearth of such analyses. I myself over years discussed some of the relevant issues including those of governance of the sector and its reform process. These still remain relevant, of course. However, the most important reason at the moment is that the Government is unable to ensure the supply of natural gas, the main primary fuel, used to produce electricity. Thus, the country is apparently forced by the exigencies of the situation to turn to the present proposed remedy of dual fuel power plants, rental power plants and the like with a heavy dependence on independent power producers (IPP). Question is if this is enough and if everything that needs to be done is being done with the national interest in mind. While the immediate needs of power may be met, if it can be met, by the present measures if these can be implemented, how does the long run prospect look like? I will try to discuss some of the related issues in the rest of this brief submission. Let us begin with a short description of the present situation.

At the cost of repetition, let me first draw attention to two aspects of supply of electricity. First, electricity being a transformed energy has to be produced by using a primary form of energy such as oil, natural gas, coal, nuclear fuel such as uranium and those from renewable sources (such as sunlight, wind, wave, falling water, or biomass). Even lightning (apparently non-exhaustible though availability at any given time is uncertain) is being experimented with for its capture. In any case, so far technically and commercially most important primary sources are natural gas, coal and oil and wherever available hydropower. If a country does not have an uninterrupted supply of the primary fuel, this must be ensured with proper forward planning for exploration, drilling/mining and/or imports. Apart from the supply of primary fuel, there is also a broad management issue regarding electricity supply.

The broad management issue came into prominence worldwide in the 1980's and the 1990's and goes by the name of reform of the electricity sector and had been attempted with different degrees of success in many developing countries. The reform process had basically two specific objectives. The first is to separate or unbundle the three major elements in the supply chain of electricity which are generation (i.e., production), transmission (i.e., carrying electricity through high tension cables from generation plant to the major consuming centres) and distribution (supplying electricity to the individual consuming units). While transmission and distribution may have their own problems and without a seamless operation of the three elements one can not expect a trouble-free supply, the main problem now is shortage of generation in comparison to total demand. The shortage occurs mainly, though not entirely, due to the shortage of natural gas which is the main primary fuel for generation of electricity in the country.

Photo: Driknews

The present maximum demand for electricity fluctuates between 4,500 to 5,600 megawatts (MW). This may rise over the next two years to 7,000 MW. The possible maximum generation varies between 3,800 MW and 4,600 MW. The estimated demand supply gap currently is 2,000 MW in peak hours. By 2015, according to the government, it has plans to raise electricity output to 10,000 MW by 2013 and to 15,000 MW by 2015. These are very ambitious targets. The Government claims that within the last two years more than 1130 MW has been added as new generation capacity from 21 plants. However there appears to be some confusion regarding the information provided by the government. It says in the headline in a newspaper supplement published on 13th January 2011 that the Government plans to add 14,720 MW of new generation capacity by 2016. It did not say how much of the old capacity will be decommissioned by then. Later in a table in the same supplement it says that the cumulative production plan (not stated if all of it is new) between 2010 and 2016 is 14,720. Does this plan include or exclude the old plants existing before 2010 is not clarified. This is important because most plants existing since before 2009 have more or less outlived their useful lives. Whichever is correct, the fact remains that the plan calls for action on a war footing.

Probably this is not happening as one can read between the lines of newspaper reports. The Prime Minister, it is known from various accounts, is very sincere and forthright in her efforts and on occasions she has categorically stated that she wants no excuses from concerned officials and the ministries and given explicit instructions to take all possible measures for speedy improvement of power supply. Yet, we learns from newspaper reports that a powerful minister who has no explicit role in power sector development but sits in the relevant purchase committee has blocked the least cost bidding for the 4th or the fifth time for no clear reason. So these problems are there and the ambitious target may be missed if the remaining 3 years is used up this way. But there is likely to be at least some progress as the government has already contracted for 2941 MW of power from 33 plants during the last two years. If these come on stream on time, the situation will be far more bearable in the not too distant future. But it is the future beyond that we must think about now.

We must note here that our planning process so far has hardly taken demand management, particularly through pricing mechanism, seriously. A half joking idea is that this is not sexy enough nor is it politically very saleable. As I would concentrate much of my discussion below on the supply side issue of generation and financing for that in the long run, a few words on demand management should be mentioned here.

Electricity is used for several kinds of services (lighting, heating, cooling, mechanical work such as lifting or motion, entertainment etc.) obtained through the use of various devices and equipments such as light bulbs for lighting or a motor for lifting water. How far these equipments cost to buy and their efficiency influence both the consumers' propensity and intensity of use of electricity. And how much they cost depends on the tax and subsidies given for their manufacture directly or indirectly and on imports. An inefficient bulb may be cheaper to produce but should be taxed compared to an efficient one to change their relative prices so that people opt more for the efficient devices and equipments. There is so far no idea in the country how far this has been attempted, if ever at all. There should be a thorough investigation of these issues by the Ministry of Finance along with the Ministry of Power.

Photo: Liton Rahman/Driknews

Second is the issue of cost of power to the people. This has actually two parts. One is the cost of inefficiency in power production and the second is the cost when this is accounted for. Now the institutional arrangement is that the Bangladesh Power Development Board (BPDB) is the immediate sole buyer all power (whether produced by it or by the private sector). BPDB uses the facilities of a transmission company called Power Grid Company of Bangladesh (PGCB) against a fee or wheeling charge. The power is then sold to the distribution companies such as Dhaka Electric Supply Company (DESCO) which ultimately sells it to the consumers (households, commercial and industrial establishments and others). The ultimate charge to the consumers varies by consumer type (domestic, commercial or industrial) and by whether it is retail or wholesale and bulk. The government has very recently raised the retail and wholesale prices where the retail one is far lower than the wholesale price. Be that as it may, the justification that has been given for the price rise is that the cost of production is going up so the government needs to adjust the sale prices upwards.

We have already pointed to the inefficiency of the present plants in producing electricity. Analyses done recently indicate that there is about 20% inefficiency on the average in power production by BPDB. Even if half of this could be averted, there will be substantial increase in supply possibly without any major investment. The inefficiency may be due to several factors, technical, managerial and others. The BPDB or the Power ministry officials usually have little interest in improving the situation in the existing plants. A major technical factor is that many plants have neared or gone past the end of their useful life and running them lowers over-all efficiency. Given new technology, for example, it is possible to generate more power out of the same amount of gas than before. In fact even then, the cost of production of BPDB before the present spate of private and rental contracts had been lower than those by the IPPs (independent power producers). Now that the emphasis is more on private and quick rentals much of which will depend on liquid fuels (such as diesel and furnace oil) which are far more costly and given current upsurge in prices going to be costlier in future, the cost of supply from the private companies will be far higher than it is now and certainly above those by BPDB. In fact, by 2016, the Government plan is to install (new or whatever) a cumulative capacity of 14, 720 MW of which 8516 or 58% would be from the private sector. Hence the average cost to BPDB for procuring the electricity generated by that time and between now and then would increase. BPDB already being under heavy cash crunches will have no other way but to pass on the costs or a part of it to the ultimate consumer. There will be an issue of cross-subsidisation across consumer type as well as a block subsidy (if the Government so decides) against the purchase of electricity. The cost of generation and the principle to apply in purchase therefore will determine to a considerable extent what we as consumers will ultimately pay. There can be no doubt that in future electricity will be costlier. The question is how transparently this costing is done is a major contentious issue.

In the literature and practice one finds various types of costing formula such “cost plus mark up”, “average cost or yardstick cost plus mark up”, and “take or pay” (in which case even if the electricity is not purchased, it has to be paid for). Obviously, unless there is a strong regulatory supervision the risk of cheating is high in the first case while the “take or pay” is the most disadvantageous to the purchaser (BPDB). A yardstick pricing perhaps is the best. We do not know what kind of supervisory/regulatory mechanism is there to ensure that BPDB is not being taken for a ride. If it is and if the purchase formula is cost plus, almost certainly BPDB will be charged higher than is the case and will either end up paying higher subsidy for sale to consumers or charging them at rates far higher than stipulated recently.

Photo: R S C Anjan/Driknews

Whichever is the case, a planned pricing over time may be studied and put before the people along with pricing of electricity using devices. The people may grumble and some would of course dub this as anti-people, yet, this will help them in planning their own demand for electricity and curb excess consumption.

While talking about excess and unnecessary consumption, the government should either ban all kinds of illumination including that by itself or price them very high so that this is discouraged. The other way of pricing is the so called two part tariff in which one pays at far higher rates at peak hours (depending on consumer) and lower rates at other times. Note that the mobile phone companies are doing this all the time. Of course one would need different and tamper-proof meters for that than at present. Such measures, if put in practice may take some time to be effective and fault free, but even then every bit would help in the long run and should be attempted. After all one kilowatt hour saved by one is in effect one kilowatt hour extra power produced.

Now let me get to the really worrying issue which is the supply of primary fuel. First thing first here. The Government must without delay get into the extraction of coal from Fulbari through open cut mining. That is the preferred method if geology is considered. True it will have certain environmental and social consequences. But the consequences of not having electricity is far more adverse than having it with own coal. Second, by all means the government may try to get the electricity cooperation with neighbouring countries but it should be sure to draw the contracts in a manner that is transparent and takes Bangladesh national interest into account. The pricing formula whether for trade or joint venture is extremely important and should be clearly stated in the contract to avoid future conflicts.

The issues of supplementary infrastructure development must be kept in mind in some cases such as those the 1350 MW joint venture plants in Khulna with India. This applies in general for all contracts for trade in electricity, of course. In all these case, very strong supervisory role of a technically competent, perhaps an independent and internationally reputed agency, will be needed. The cost for this will be money well spent to avoid conflicts later on. While I support all these activities of the government in principle for the short and medium term development of the power sector, I would suggest that the government is not becoming bold enough and not taking cognizance of the other developments that are taking place technologically as well finance-wise. This relates to the independent developments in technology as well as possible future obligations of Bangladesh under the climate change negotiations.

Nuclear power plant has been proposed and in the longer run of at least 10 years that is a good move. But question arises on two issues. First why has the government not gone for MoUs with countries which have far better experience than the one it has signed one with. France, for example is a leader in this field and for safety and other reasons, it is them that the Government should have turned to. Possibly the French offers were much higher priced. But in that case, the government could move to other potential sources of funding. Second, while these are not as mature technologies, advanced experimentation is going on micro nuclear as well as fuel cells. What prevents the government for piloting some of these? If we do that now, when these become really mature technology we will be well-placed to acquire them and more importantly we will have some of the necessary skill to run them. It is in the same vein that I would like to argue for a wholehearted thrust on the renewable sources such as solar, wind and if possible wave energy for electricity. The objections usually are often on the ground of financial cost which lowers the rate of return.

Photo: Shaikh Mohir Uddin/Driknews

The government is trying to experiment with a 5 MW solar grid-connected electricity plant in Kaptai and initial estimates do not indicate its economic viability even when the value of avoided carbon emission is included. On the other hand, there is a recent and somewhat rigorous study which indicates that the situation may actually be quite favourable. The study shows that while Bangladesh theoretically receives approximately 70 PWh (peta watt hours) of solar energy every year, i.e., several thousand times the current electricity generation in the country, due to various limitations, the country's technical potential of grid-connected solar PV in Bangladesh is much lower at somewhat more than 50,000 MW which is three times or more of the intended capacity by 2016 as discussed earlier. In any case, depending on various parameters such as discounting rates, and life time, the cost per unit electricity production varies from 13 to 18 BDT which is likely to be cost-competitive with grid-connected fuel-oil based power generation which is around 15 - 18 BDT. If clean development mechanisms, carbon tax, and oil price increase are considered, the unit cost would be lower than the grid-connected fuel-oil based power generation. These are highly favourable and hopefuls signs for Bangladesh to attempt to move to a greener electricity production. While there is a dearth of information on wind-based electricity potentials, present technological situation which allow 1 MW towers to be built, should similarly allow Bangladesh to leapfrog into this greener future. Here there are good examples before us.

Several countries, most notably China, have taken a very clear policy goal for generation of power from renewable sources and they are leaders in the world in this. China has a Renewable Energy Law which helped institutionalisation of the efforts at what has been dubbed as the Green Leap Forward. By 2009, Chinese RE capacity reached 55 gigawatts (GW) of small hydropower (the largest in the world), 22.68 GW of wind power (and rising), 4 GW for biomass, and 300 megawatts-peak (MWp) for PV. Over the next 5-year Plan China would like to raise the amount and share of electricity from renewable very substantially. In 2008, China had a wind power capacity of 12 GW and planned to raise it to 30 GW by 2010 and further to 100 GW by 2020. These are ambitious plans and would entail overcoming several barriers. But recently, the Chinese government has gone to the extent of stating that they would sacrifice growth for now to an extent for far greater benefits in the longer term to the country and the world in general. We must learn from and collaborate with the Chinese in developing the renewable sector fast.

The present attempts at developing the renewable sources in the country are therefore really puny in comparison to what may be possible. Question is does this mean that Bangladesh should shun the present power development plans of depending on oil-based expansion and secondly why should Bangladesh go for apparently financially costlier technology when it is so difficult to get finance for the present proven technology and thirdly where would the money come from.

The answers to all these actually lie in Bangladesh's possible future obligations for mitigation of climate change which is lowering of green house gas emission. We do not have any obligation at the moment for mitigation. But if we receive the finance and technology including help in capacity building, we should do that. While not yet ready although work is going on the procedures for release of the fund pledged at Copenhagen of 30 billion dollars, this would probably happen this year or the next. If Bangladesh can show that it is trying to lower its emission which should not be difficult given that oil-based generation is far more emission-intensive than gas-based or certainly the renewable based ones, we should be able to get a good slice of the fund set aside for mitigation. More importantly, by 2020, US$ 100 bn is pledged for every year. If we begin to do the ground work from now on we should be able to make Bangladesh a renewable-based country.

All of us aspire to become a lower middle-income country by 2020 or thereabout that means some of the privileges we now enjoy in various international fora and arrangements may no longer be applicable and we will have to compete with other similarly developing countries for any share of resources or opportunities. That also will mean that the Nationally Appropriate Mitigation Actions (NAMA) which is mandatory for the developing countries barring LDCs under the Bali Action Plan of UNFCCC will also have to be abided by Bangladesh.

In fact, Bangladesh should immediately initiate a move towards a low and at an opportune time a zero carbon economy. Measures for raising the supply of gas through a better reservoir management and more intensive exploration should be a part of that as natural gas is the least polluting among fossil fuel while its increased supply will ease the present national problem of primary fuel for power production. That all these should be part of mitigation and low carbon development has been approved as such as part of the Bangladesh Climate Change Strategy and Action Plan. Bangladesh should be able to access the money earmarked for mitigation under the Green Climate Fund to which the US$ 100 bn every year will accumulate by 2020. What I am proposing is that we should study the Chinese and other country experiences including America and India, have our own policy and laws for aggressive development of the renewable electricity sector and implement them. And for that we must begin to work from now on. Let the Government implement the present plan for power production as it has drawn as an interim measure, but a vigorous planning process for a sustainable energy development and greener Bangladesh at and beyond 2021 must start now.

The writer is Research Director, Bangladesh Institute of Development Studies.