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The Financial Express

New plan for power sector: An analysis

| Updated: May 25, 2021 20:15:47


New plan for power sector: An analysis

The power and energy sector has made significant progress in ensuring access to electricity over the last one decade.  Despite the progress, the sector has confronted a number of weaknesses and challenges including over-reliance of fossil-fuel, over-generation capacity and consequent fiscal and financial burden. These issues need to be addressed in a planned manner through revising the plans and policies, changing the energy mix towards clean energy, enhancing the efficiency and better coordination between generation, transmission and distribution of electricity. The Ministry of Power Energy and Mineral Resources (MoEPR) has commenced the procedure of drafting the new Power and Energy System Master Plan (PESMP), estimating the demand, supply, and energy mix for Bangladesh. Considered to be the principal policy paper for the energy and power sector, this document will contribute to undertake necessary changes in the energy-mix, improvement in efficiency and better coordination within the system.

It is appreciated that the government has been focusing more on the energy sector, which is evident from the title that explicitly mentions energy. The drafting of the new document, guided by the PSMP 2016, has been reported in the media for the past six months. The Government of Bangladesh (GoB) has signed an agreement with Japan International Cooperation Agency (JICA), which JICA has subsequently mentioned in its website. According to the website, the new plan's target is to promote a low or zero-carbon transformation of the total energy supply and the demand system. Therefore, it is expected that the new plan will deliver the future outlook of the power sector in transitioning towards clean power.

Earlier PSMPs have been criticised due to certain limitations. Firstly, the projected demand has been made on a weak benchmark, over-projection on long-term economic growth and per capita income, and lack of systematic rigour. This over-projection of demand has consequently created excess capacity in power generation, which in turn caused inefficient use of the public fund. Due to such faulty power sector development, the debt burden of the Bangladesh Power Development Board(BPDB) is growing.

NETWORK OF BANGLADESH'S POWER SECTOR: Through the provision of primary energy for all kinds of economic activity, the power sector has provided a significant contribution to the overall GDP of Bangladesh. The sectoral contribution to GDP has increased by 16.3 per cent per year, which is notably higher than any other sector. The share of GDP has also increased to 1.3 per cent in 2020, from 0.95 per cent in 2009. This performance is reflected in the global ranking (quality of electricity supply as a percentage of output), as Bangladesh has raised its ranked to 68th in 2019 from 124th in 2005. Electricity generation has increased 19.3 per cent between the years 2009 and 2020. The demand varies throughout the day and night, to manage which, several load management activities have been undertaken through load factoring. Even though as much as 41.5 per cent of the energy capacity remains unutilised, the excess capacity still keeps increasing, albeit at a decreased rate. Transmission line length has increased by 5.15 per cent during 2020, which is still not as much as expected. In addition, the system loss, though having decreased to 8.99 per cent in FY2020 from 9.12 per cent in FY2019, remains a source of concern as there is further scope of system loss reduction.

LIMIITATIONS OF THE PSMPS: Throughout the world, different methodologies have been used to calculate the power projection of various countries. In Bangladesh, the GDP growth rate is considered to be the most crucial variable for calculating the PSMP's demand estimates. However, the problem that arises is that a linear relationship is considered between GDP and electricity demand, which is often not applicable in low or lower-middle-income countries with a gradual rise in demand. Previous PSMPs in Bangladesh have used other additional variables while considering GDP growth rate as the primary variable. The 2005 PSMP used historical electricity consumption alongside GDP; GDP per capita, electricity consumption, and maximum load data were used in 2010; the GDP elasticity was used in PSMP 2016.

A puzzling trend has been observed in the projection of demand and actual consumption of electricity. The gap between projected demand and maximum demand has narrowed down over time, from 38.3 per cent in FY2011 to as low as 4.4 per cent in FY2020. In fact, the difference was negative in FY2019. This trend suggests that the existing electricity demand has been by and large fulfilled by BPDB all across the country. However, suppose BPDB is fulfilling nearly 96 per cent of the electricity demand in the country, in that case, the existing demand for electricity throughout the country remains astonishing. The generation capacity has also increased over time with little consideration of the projection made in the earlier PSMPs.

Excess capacity will be a problem since, by 2025, the total energy capacity will be 36,018MW (including coal-fuelled power plants) if it rises according to projections. In contrast, the demand will only increase to 24,952 MW. Longer-term demand projections, for example, of the next 20 years, weakens the plan since power sector plans get updated and reviewed every five years, therefore, easily accommodating the current and mid-term demand of the economy.

The limited number of variables also weakens the plans since the GDP growth rate is not the only factor influencing the power demand. Moreover, most of the growth in the economy of Bangladesh originates from the service sector, where energy usage is low. Therefore, attributing the GDP/GDP growth rate to a service sector-led growth is prone to create a faulty estimate. In addition, it seems that the team involved in drafting the PSMP might be influenced by the wish list of the government, which might create a biased estimate of electricity in the absence of rigorous methodology. Furthermore, lack of data remains a key weakness in estimating appropriate power demand. Although there is no current dedicated data wing under the ministry or BPDB for data collection and preservation, the new plan under JICA mentions that the data system will be strengthened.

ENERGY-MIX OF THE PSMPS: Natural gas has been considered the dominant fuel for generating electricity in the previous PSMPs. However, due to the depletion of domestic supply, the utilisation of natural gas in the power sector has declined from the PSMP 2010 onwards. As natural gas's domestic production did not increase much since 2010, the gap in energy demand was filled by crude oil and oil products. Petroleum has been more widely discussed in PSMP 2010 and 2016 due to the increased unavailability of natural gas and coal. According to PSMP 2010, the power sector observed the highest demand for the rise in petroleum, from 4.9 per cent in 2006 to 6.6 per cent in 2010. Due to the shortage of natural gas, GoBstarted importing LNG in 2019.

Despite coal being one of the most widely discussed energy-mix for power generation, the government has recently announced scrapping all but three coal-fired power plants across the country, towards which considerable progress is being made. Although scrapping coal power plants will be a welcome initiative for clean energy, this stance, however, is yet to make it to the official gazettes. The 8th FYP remains unclear on the perspective on clean power. The GoB has not made significant progress in terms of renewable energy. Despite projecting in PSMP 2010 that renewable energy will cover 5 per cent of the total electricity demand in 2015, the actual capacity was much less. Hydropower initiatives remain in progress, as ascertaining the adverse impact on people's livelihoods in 9 possible hydropower plant project sites remains underway. Nuclear energy projections of the PSMP 2016 forecast that the first unit Rooppur Nuclear Power Plant will have a capacity of 1200MW when starting operations in 2024, and the second unit of 1200MW will be generated by 2025.

The fuel cost is an essential factor in determining the energy-mix, which makes domestic gas the cheapest option and coal the second cheapest. Production of the latter is reduced due to environmental impacts. Since a large part of the fuel is now being imported, BPDB has to take the burden of meeting the import payment, which was 24.1 billion USD during 2016-2020.

Moreover, the fuel mix still happens on an ad-hoc basis, which, according to experts, is often influenced by political and other interests. The lack of a comprehensive plan and lack of investment in transmission systems is also a key impediment towards a strong power sector plan, thus lacking to ensure a better functioning transmission and distribution(T&D) system.

Limited authority of SREDA means that few renewable energy projects are being implemented. Moreover, lack of awareness of energy-efficient equipment remains a concern, which also happens due to these types of equipment being costlier to buy. Besides, consumers are being made to bear the tariffs imposed upon electricity, which was not supposed to be paid by them.

The electricity supply cost has also been sky-rocketing according to the PSMP2016, from approximately 4.5 billion USD to 41.4 billion USD in 2041, increasing 9.3 per cent per annum.

FORECASTING TECHNIQUES FOR DEMAND PROJECTION: The forecasting of energy projections with minimum error depends on selecting an appropriate model, which can be on the aggregated level, at the lowest level, or even both. With good forecasting being the initial condition for efficient and effective power demand prediction, the two core forecasting frameworks, namely the top-down or bottom-up approach, are used for these forecasts. In the top-down approach, the aggregate level forecasts are proportional to individual per location forecasts, thus achieving a better prognosis at an aggregate level. On the other hand, the bottom-up approach is a cumulative forecast since the forecast is developed for each series and then combined to generate a cumulative estimate of the aggregate series. More countries, however, use more modern methodologies such as ANN, ARIMA, MLR, SSA, SVM, Holt-Winters, modified Holt-Winters exponential smoothing, and Singular Spectrum Analysis, which are not being used in the energy projections in Bangladesh. Since the economy is growing, a linear relationship between GDP growth and electricity consumption will be no longer valid in the coming days. The nature of the economy will be much more complicated, where different kinds of variables need to be considered, and non-linear estimates will need to be considered in terms of the said variables.

RECOMMENDATIONS: Despite the limitations of the previous plans, drafting the new PSMEP during the Covid-19 pandemic has been a much-appreciated initiative. The pandemic has created a new reality for Bangladesh's power and energy sector, which needs to be taken into cognizance while formulating the plan. Reviews need to be made of earlier methods and estimates. PSMPs should not do such long term projections like 20 years rather it should be planned and monitored in every 5 years. According to the earlier PSMPs, the power sector is close to meeting the existing demand with the current generation. However, with load-shedding still a concern even within Dhaka, this points to a discrepancy in meeting the existing demand. The sector will also need to address a number of challenges emerging due to the pandemic, such as excess capacity, huge capacity payment, inefficiency, use of expensive energy, and high financial burden.

Furthermore, using outdated methods have resulted in inaccurate projections of energy, for which the new PESMP should be drafted using the four principles of applying advanced methodologies for forecast, taking into account the weaknesses of the earlier forecasts, aiming to reduce excess capacity in a phased-out process, ensuring due importance in transitioning towards clean power by gradually replacing fossil fuel with the phasing in of renewable energy. Data management needs to be institutionalised within BPDB to ensure reliable projections of energy in future PSMPs.

In conclusion, the PSMEP should show a clear path towards energy transformation in order to focus on opportunities for the generation of renewable energy, and effectively address the existing climate change issues, and the Paris Accord.

 

Khondaker Golam Moazzem is Research Director, Centre for Policy Dialogue (CPD. [email protected]

Helen Mashiyat Preoty, Research Intern, Centre for Policy Dialogue (CPD)

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