Energy consumption energises economic growth

Sima Rani Dey and Md Monirul Islam   | Published: June 08, 2019 21:33:59 | Updated: June 08, 2019 21:38:13

In the last six years, Bangladesh has been maintaining a gross domestic product (GDP) growth rate between six and seven per cent in a bid to reach its aspired goal of becoming a developed economy by 2041.Accordingly, Bangladesh's energy consumption has been increasing at more than eight per cent per year. Notably, electricity consumption has been increasing even faster at 10 per cent a year as it is used in most of the economic activities. In case of Bangladesh it is true that access to electricity is a composite indicator of development at the national, community and household levels. Apart from this, the expansion of economic activities with massive changes in trade and investment policies contributes to the growing use of electricity in Bangladesh.

Bangladesh is the least per capita electricity consuming economy in Asia (see Figure 1). Installed power generation capacity was 16,046 MW (including captive power) as of December 2017 and 77 per cent population has access to the electricity in Bangladesh. The installed capacity and maximum generation of electricity have been increasing over last few years, but still the state is struggling to meet the demand. The state-owned electricity utilities fail to supply demand quantity due to energy shortages and few major backdrops (poor pricing policies, lack of timely maintenance and many more) are responsible for the inability to attract adequate private investments in power business. This investment shortage can be considered as a reason behind the energy crisis.

POWER SYSTEM MASTER PLAN 2010: The Power System Master Plan 2010 (PSMP2010) was not on track because of various assumption failures. Currently, many power plants in Bangladesh cannot generate electricity as specified in terms of power for each unit. So, hydro power generation studies have become an urgent issue through the government's renewable energy promotion policy where Bhutan can play a crucial role as a cross-border electricity trading partner. The government of Bangladesh had taken PSMP2016 to assist extensive energy formulation and power development plan in 2016. Hopefully, the new PSMP study will cover previous challenges and provide feasible proposal and action plans for implementation.

ENERGY EFFICIENCY AND CONSERVATION MASTER PLAN 2030: To sustain further economic growth, heavy dependence on labour-intensive industrial sector like readymade garments (RMG) is not sufficient and it is expected that it will shift to energy-intensive industries. As a result, energy consumption in the industrial sector is expected to increase rapidly. To deal with the future rapid growth of energy consumption in Bangladesh, government has formulated few effective policies like Energy Efficiency and Conservation Master Plan up to 2030" (EECMP) in March 2015, supported by JICA. Indeed, in the 7th Five Year Plan (PSMP 2016) the target has been set so that electricity coverage can "be increased to 96 percent with uninterrupted supply to industries" by 2020.

A study conducted by Bangladesh Institute of Governance and Management (BIGM), Dhaka in 2018, analysed the causal relationship between per capita electricity consumption and per capita gross domestic product in Bangladesh over the period of 1971-2014. In this regard, the study conducted essential econometric techniques to understand the source and direction of possible causal relationship between electricity consumption and economic growth.

Co-integration test result established the existence of long run equilibrium relation between the series. VECM-based Granger causality test results revealed unidirectional short run causal relationship running from per capita electricity consumption to per capita GDP. Similarly, the causality findings substantiate bi-directional long run and joint causal relationship between electricity consumption and GDP. This indicates that electricity consumption can stimulate economic growth and the reverse is also true. These causality findings have significant impact on the formulation of essential short-run and long-run energy policy insights in favour of enlarging the electricity supply and especially renewable energy to move the process of economic growth forward.

The study findings clearly exhibit that electricity consumption can be considered as a primary condition for achieving higher economic growth for Bangladesh in the short run. Therefore, policy regarding electricity generation, distribution, management and conservation should be given priority to ensure higher growth in the short run. Efficient utilisation of domestic natural resources (gas and coal) in electricity generation as well as the enhancement of imported energy infrastructure and its flexible operation is required (as from the mid of 2018, we have already started to purchase electricity from the neighbouring countries). Likewise, joint and long run bi-directional causal relationship (greater access to electricity and high per capita GDP influence each other) indicate that adequate investment is required to ensure smooth electricity supply and on those factors which will influence economic growth in the long run. For instance, high-quality power network, promotion of green energy and improvement of human resources policies are essential to realise advanced utilisation and stable supply of energy and power for Bangladesh.

Sima Rani Dey is an Assistant Professor, Bangladesh Institute of Governance and Management (BIGM).


Md. Monirul Islam is Assistant Professor at Bangladesh Institute of Governance and Management (BIGM).



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