Ensuring affordable & clean energy for all: key issues and concerns

As Bangladesh moves forward, issues of energy transition are expected to assume heightened importance. Energy has emerged as a key factor for productivity enhancement, increasing competitive strength and raising quality of life and well-being of citizens. Ensuring affordable and clean energy for all has thus emerged as both a demand of the present times and a key challenge in going forward. Against this backdrop, developing a sound strategic framework for energy transition and ensuring energy security and long-term sustainability of growth have emerged as a major tasks confronting Bangladesh’s policymakers and concerned stakeholders.
Historically, Bangladesh has faced formidable challenges in providing adequate electricity to its population and meeting its developmental demands. The country experienced two major difficulties in view of this. First, till 2009, electricity demand has been higher than the installed capacity. Second, the overwhelming dependence on natural gas, accounting for more than 80 per cent of the country’s electricity generation, turned out to be unsustainable in the end. The growing demand and supply gap, in the backdrop of lack of attention to exploration of new gas fields, culminated in the emergence of the energy crisis experienced by Bangladesh in the early 2000s. This led Bangladesh to increasingly rely on liquid fuels to generate electricity.
To address the attendant challenges and the emerging gaps, Bangladesh initiated a number of reforms and put in place several measures. Core reform initiatives included sectoral restructuring of public utilities, encouraging private investment in the generation sector and establishment of an independent regulatory commission for the energy sector. Many of these date back to the 1990s. Significant investment in energy was made both in the public and private sectors to expand electricity supply capacities. Investment in electricity generation helped Bangladesh close the gap between the demand for and supply of electricity. Over the last decade, the number of power plants has increased significantly. Grid connectivity was also increased, which led to greater access to electricity for the broader population.
On the other hand, almost no initiative was taken to strengthen BAPEX and invest in offshore and onshore exploration of gas. Grid reliability has remained a concern. Concerns also remained in areas of quality and affordability of electricity and the emergent energy mix. As was noted above, exploration of domestic energy resources was neglected and share of renewable energy in primary and secondary energy mix was low. The cause of energy justice suffered because of the failure of the Bangladesh Energy Regulatory Commission (BERC) to take due cognisance of consumers’ welfare. These concerns have been persistently overlooked over the past years. Not surprisingly, successive Energy Master Plans and the embedded inconsistencies came under severe criticism from energy experts and energy activists. Questions have been raised regarding the strategy and stance that inform the government’s plans in areas of energy security and energy transition over the medium to long term.
According to the World Bank, till 2014, Bangladesh’s per capita energy consumption continued to remain low compared to the South Asian averages. Energy experts in Bangladesh argued in favour of ensuring a threshold level of per capita energy consumption that corresponded to the demands of the accelerated economic development as also the needs of high levels of human development. They have been warning against the danger of falling into an energy poverty trap that could result in paying high penalties in the form of arrested socio-economic development and undermining of citizen’s well-being. They urged the policymakers to pursue the goal of energy security through the route of low carbon development.
In recent times, a number of factors have accentuated the challenges in undertaking the needed measures to ensure energy security, including the COVID pandemic, which necessitated a diversion of resources from energy-centric activities to rolling out stimulus packages and the hike in energy prices brought about by the ongoing geo-political contested environment. To note, compared to 2021, crude oil prices rose by 42 per cent in 2022. The price of LNG increased from 18.6 USD/MMBtu, on average, in 2021 to 33 USD/MMBtu in 2022 (rising to as high as 54.17 USD/MMBtu in August 2022). The average coal price in 2022 was 345 USD/MT (reaching 431 USD/MMBtu in September 2022), which was 117 USD/MT in 2021. The high primary energy prices have fuelled inflation, raised production costs and contributed to the depletion of Bangladesh’s forex reserves and the ongoing balance of payments difficulties.
Against this backdrop, there is a need to critically analyse the state of Bangladesh’s prevailing energy sector scenario and review the current policies for ensuring energy security through the lens of the goal of ensuring energy for all and transition to clean energy.
SDG 7, the implementation of which Bangladesh is committed to as part of its commitment to the SDGs, talk of ensuring affordable, reliable, sustainable and modern energy for all. As is known, access to affordable clean energy lies at the heart of SDG7. SDG 7.2 mentions about substantially increasing the share of renewable energy in the energy mix, and SDG 7.3 sets the target of doubling global rate of improvement in terms of energy efficiency. And in attaining the SDG 7, it is also crucial to ensure that energy is available at affordable price, and that no one is left behind in this regard.
Key Issues and Concerns
Bangladesh has initiated various reform initiatives at different times since its independence with a view to strengthening its energy sector. However, there are a number of concerns and controversies which have informed this journey. Some of these are discussed below.
Natural gas depletion and use of LNG as an alternative solution.
Bangladesh made natural gas the front-line energy source, particularly for electricity generation and industrial consumption, since the early 1970s. Though in more recent times, the fuel mix has changed with the country’s increasing use of liquid fuels, the share of natural gas is still significant compared to the global average. However, the fast pace of depletion of natural gas has emerged as a significant concern in recent times.
To note, production from the country’s two major natural gas fields, Bibiyana and Titas, has considerably come down over the recent past years. Bibiyana, with the original reserve of 5,755 billion cubic feet (Bcf), is left with only 250 Bcf. 70.0 per cent of the extractable natural gas has already been taken out from the Titas gas field. It is indeed highly disquieting that natural gas production from the remaining fields will likely decline from the current 2,100 mmcfd to 1,300 mmcfd by 2030 and to 580 mmcfd by 2040. At the same time system loss remains a persistent concern in the natural gas sector: according to official figures, this is to the tune of 10.0 per cent in Bangladesh whereas the global average is only about 2.0 per cent.
Instead of putting emphasis on natural gas exploration, the government in recent years (more precisely in late 2018) has given higher priority to the import of LNG and LNG-based electricity generation with a view to closing the demand and supply gap concerning primary fuel. As is known, the price of LNG in the global market is quite volatile, as also the prices of other primary fuels. This has added many new concerns, not to speak of putting the country on to the path of a vicious cycle of subsidy regime. Given the recent geo-political scenario and the ongoing domestic natural gas shortage, the LNG import bill is likely to increase sharply in the coming years, resulting in a rising and unsustainable fiscal burden. Distribution is also becoming an issue, given that the existing pipelines are too narrow for LNG distribution. No visible actions were taken by the government to develop the gas grid or other infrastructures. Consequently, efficiency concerns also persist.
Slow Progress as Regards Renewable Energy Development
In spite of plans to raise the share of renewable energy, the share remains low at only about 3.0 per cent of the total. As a matter of fact, its share in the electricity generation mix has declined sharply since 2001. Between 2016 and 2019, the average share of renewable energy in the electricity generation mix remained at 2.6 per cent, which was 1.6 per cent between 2009 and 2016. A review of relevant documents indicates several reasons driving the slow progress in renewable energy adoption. These include: lack of proper policy framework, low levels of allocation for renewable energy sector in the ADP, lack of investment in related infrastructure, and technical, institutional and socio-economic barriers. Adequate attention was not given to building and strengthening the national human resource capacity in view of the emergent needs of the sector. No time-bound road map was designed towards a renewable energy transition that took care of energy security, affordability and quality.
The first National Renewable Energy Policy (NREP) was adopted in 2008; regrettably, no new renewable energy strategy has been framed since. The earlier policy was not even adjusted in view of new developments. The successive Power System Master Plans (PSMPs) provided guidance for the development of renewable energy sources. However, the PSMPs lacked specificity of purpose and plan in this connection. Despite considerable scepticism regarding the viability of the propositions placed in the PSMPs, these went mostly unheeded. Also to note, the most recent Integrated Energy and Power Master Plan (IEPMP) does not include a strategy for the expansion of renewable energy sources.
According to the Ministry of Finance data, from 2015 to 2020, the average share of allocations for renewable energy in the ADP was only 5.8 per cent, while the bulk share (94.2 per cent) went to the development of fossil energy. Additionally, the government has failed to capitalise on private sector investment in the development of the renewable energy. Inappropriate policy design and regulations, lack of policy continuity and ineffective incentives were significant reasons driving this.
The Sustainable and Renewable Energy Development Authority (SREDA) has recently initiated work on revising the NREP 2008. The idea is to modernise the renewable energy strategy and integrate renewable energy-related policies in the overall energy strategy. However, the draft version of this policy raises a number of questions which need to be appropriately addressed. For instance, unlike the NREP of 2008, the draft NREP does not mention about the ideal renewable energy mix by analysing diversification possibilities in this regard. Furthermore, there is no discussion on the investment framework, financial risk reduction strategy, import duty issues and pricing mechanism including FiT (Feed in Tariff) schemes, - CAPEX and OPEX models, etc. All these are considered to have important implications for the growth of the country’s renewable energy sources.
Technical factors contribute to reducing the speed of uptake of renewable energy significantly, particularly given grid-based electricity. Although the adoption of renewable energy is getting more affordable, storage system remains a major concern. For instance, solar-based electricity is not feasible for meeting the night peak demand without a good storage system. Storage system development, however, requires a large amount of investment. Recent projections indicate, however, that storage costs are expected to come down significantly by 2025. This, in turn, should reduce the cost of solar-based electricity with storage systems. The current grid infrastructure will also need to be upgraded to meet the needs of the emerging energy mix.
Apart from the above, there are also concerns as regards the adoption of off-grid renewable electricity. It is worth mentioning here that Bangladesh has achieved notable success in the dissemination of Solar Home Systems (SHS), providing access to solar-powered electricity to more than 25 million people in rural areas. Evidence suggests that the country may have averted a long-term energy poverty penalty as a result of the SHS programme’s success. The programme also promoted the cause of inclusive growth and positively impacted the welfare of people in remote and difficult-to-access localities. It is plausible that the expansion of grid-based electricity has reduced the demand for SHS devices. Nonetheless, the programme’s core values remain valid since the grid reliability in many rural areas remain highly wanting and questionable. Also, these areas are subject to long hours of load-shedding.
Institutional and socio-economic factors (lack of credit schemes, high prices, after-sales issues, absence of public-private collaboration, etc.), as also technical factors (low-quality materials, inefficient use of storage batteries, low technical knowledge etc.), contribute to suboptimal levels of output of the aforesaid programmes.
The debate around overcapacity and various charges
Over the last few years, surplus electricity capacity in Bangladesh has tended to be around 40 per cent. To note, the accepted global level is about 20 per cent. One of the key reasons behind the emergence of the problem of overcapacity is the mismatch between the demand-supply prediction and the weak forecasting methods used in the PSMPs. The overcapacity of electricity generation is related to the issue of capacity charge. According to a special act, the government is committed to paying a significant amount of money as a capacity charge even as Independent Power Producers (IPPs), Quick Rental (QR), and rental power plants (RPPs) lie idle to cover their losses.
To note, the capacity charge has kept increasing since 2014. Over the last 14 years, the government has paid over 90 thousand crore Taka as capacity charges to various involved players. Over the first nine months of FY 2022, the government has paid 16,785 crore Taka as capacity charges. The growing capacity charge payments are strongly associated with the upward pressure on the cost of electricity at retail levels. Needless to say, the rising price of electricity affects consumers’ welfare adversely, especially the ones with low-income people belonging to disadvantaged groups. The government has raised charges for different related public utilities, adding about 8-9 Taka profit per cubic metre for gas sellers. Recently, an additional charge of 10 cents was introduced on the consumption of Titas gas by the households. All these violate what is stipulated in regulatory laws and result in an injustice in energy.
Policy inconsistency and lack of integration with national policies
Over the past years, Bangladesh has adopted several policies to deal with the energy sector and energy crisis. Nevertheless, analysis carried out by energy experts reveals that policymakers have failed to focus on planning at disaggregated levels, e.g., energy planning at divisional and district levels, to raise energy efficiency and to safeguard the interests of the marginalised population. The energy sector master plans are skewed largely towards import-based energy security. This has increased the degree of vulnerability from external shocks, as has manifested in recent times. There is a lack of proper strategy that would provide guidance as to how the national energy transition will be initiated and sustained over the future. Also, data provided by various involved entities contradict and are at odds with each other. This is indicative of a serious lack of coordination and collaboration across the various concerned government entities.
Recommendations: In light of the discussion above and the emergent concerns, the following policy recommendations are proposed towards Bangladesh’s energy security and renewable energy transition, keeping in the purview the objectives of access affordability and quality.
Prioritise Development of Domestic Natural Gas
Put emphasis on Natural Gas Exploration. The government should undertake renewed efforts at the exploration of gas on an urgent basis and put emphasis on the development of the natural gas sector to reverse the depleting stock of the country’s natural gas. According to the 8th Five Year Plan (FYP) data, there is a large number of unexplored gas blocks (17 onshore and 22 offshore) from which a considerable amount of natural gas can be extracted for purposes of generating electricity and use in other priority sectors. Wide-ranging inefficiencies in areas of natural gas exploration, policy implementation and administrative activities associated with gas sector governance will need to be reduced systematically. Accordingly, the government should prioritise investing in strengthening the human and technical capacities of BAPEX so that it can meet the long-term needs of the country in the areas of gas and mineral exploration. Where BAPEX has in-house exploration capacities, costly contracts with foreign companies must be avoided. The government should develop a ‘model central’ (e.g., ownership-planning-initiative) which would guide Petrobangla/BAPEX in offering contracts to eligible companies for offshore drilling in view of lack of capacities to undertake such works as present.
Mobilise Funds for Future Energy Investment. The government should develop a framework to set up a dedicated fund for development and investment in the energy sector. Exploration royalties, particularly in the case of natural gas and other minerals, could be a potential source for this fund, along with appropriate budgetary contributions.
Develop the Needed Human Resources. Priority must be given to developing the required human resources for the country’s energy sector. The needs of several areas will have to be kept in mind in this connection: exploration of new onshore and offshore wells; workover of abandoned and old wells; step-out wells in known reserves; production from fields previously considered to be expensive; development of expertise in renewal energy; management and planning of energy resources. Indeed, there should be a clear understanding that without developing human resources and raising the institutional capacity of BAPEX, it will not be possible to develop the energy sector in a sustainable way.
Take Steps to Reduce System Loss. As was noted, the system loss in the energy and gas sector continues to remain very high in Bangladesh. There are several aspects of system loss: at the distribution level, and the transmission level. At the distribution level, the loss is well within limits, whereas in case of transmission, it is evidently higher due to weak infrastructure. This needs to be addressed through the replacement of old infrastructure and technological upgradation (to reduce leakage in gas distribution). State of governance and management quality must be improved to enhance efficiency in the energy sector and reduce corruption. Steps will need to be taken to disconnect lines of defaulters/illegal connectors and recover unpaid bills. Indeed, estimates show that removal of illegal connections and identification of leakages could save about 200-300 million cubic feet of natural gas annually.
[To be continued]

The paper is the first part of a policy brief which is prepared by a team of experts with Dr A K Enamul Haque, Dean, Faculty of Business and Economics, Professor, Department of Economics, East West University as Chair and Dr Sakib Bin Amin, Associate Professor in Economics, Director, Accreditation Project Team (APT), North South University, Bangladesh and Assistant General Secretary, Bangladesh Energy Society (BES)serving as the Penholder Expert. Other team members are: Mr Abul Kalam Azad, Project Manager, ActionAid Bangladesh; Professor Anu Muhammad, Eminent Economist, Formerly with Department of Economics, Jahangirnagar University; Professor Badrul Imam, Department of Geology, University of Dhaka and Former Chairman, Petrobangla; Mr Humayun Rashid, Managing Director, Energypac; Dr M Tamim, Professor, Department of Petroleum and Mineral Resources Engineering, Bangladesh University of Engineering and Technology (BUET); Professor Dr Md Shamsul Alam, Energy Advisor, Consumers Association of Bangladesh (CAB); Ms Moshahida Sultana, Associate Professor, Department of Accounting & Information Systems, University of Dhaka; Mr Shafiqul Alam, Energy Finance Analyst, Institute for Energy Economics and Financial Analysis (IEEFA) and Mr Shahriar Ahmed Chowdhury, Director, Centre for Energy Research, United International University.
The Policy Brief exercise is the outcome of an initiative of the Citizen’s Platform for SDGs, Bangladesh hosted by the Centre for Policy Dialogue (CPD). The issues were identified and
prioritised through nation-wide consultations with local level people and organisations. The initiative was led by Dr Debapriya Bhattacharya and Professor Mustafizur Rahman, Distinguished Fellows at the CPD. [email protected]