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Expensive fuel use inflates power generation costs

Jan 31, 2024

| Emran Hossain

Bangladesh’s expense on fuel for generating electricity increased by a third last year compared with the year before, but it hardly increased electricity output—only about three per cent.

Part of the increase in fuel expenses was somewhat expected, given recent fossil fuel price spikes, energy experts said, adding that the rest of the increase was owed to the use of relatively expensive fuels and inefficient machines. Analyses of data regarding fuel use in 2023 released in the Bangladesh Power Development Board’s annual report brought the matter to light. Inistitute for Energy Economics and Financial Analysis lead energy analyst Shafiqul Alam carried out one of the analyses.

Oil-fired power plants accounted for 23 percent of overall power generation in the past year, but they cost 50 percent of the overall expense, he said. The average power generation cost of all operational oil-fired power plants was around Tk 23 per unit, against the average power system cost of Tk 11.5 per unit, he said.

‘While coal and imported gas were also expensive in the international market in the past fiscal year, the high cost of oil-fired plants eventually contributed to soaring power generation costs in the country,’ said Shafiq. Some oil-fired power plants generated electricity at more than Tk 40 per unit in the past year, he said. Bangladesh last year spent Tk 96,084 crore, up from Tk 72,424 crore the year before, on fuel.

The Bangladesh Working Group on Ecology and Development, a platform of green activists, said that in the past year, a unit of power produced using diesel cost eight times more than power generated by gas and three times more than power produced by burning coal. Heavy-fuel oil was over four times more expensive than gas and more than 37 per cent more expensive than coal in producing a unit of electricity in the past year, according to the BWGED.

Oil-based power plants are generally way more expensive than gas and coal power plants, but some of them are even more expensive because their machines have become old. In July 2022, the government announced its decision to stop generating power from diesel-based power plants.

However, data released by the PDB showed that electricity generation from diesel increased by more than 75 per cent in the past year compared with the year before, requiring a 94 per cent increase in diesel fuel spending. Heavy fuel oil use also remained significant, as heavy fuel expenses decreased only 2 per cent compared with the year before.

‘The dollar crisis forced the government to rely so much on oil-fired power plants,’ energy expert Ijaz Hossain told New Age. The reason for preferring oil to gas or coal was that the government avoided spending dollars from its own pocket amidst depleting foreign reserves, he said.

The government did not need to pay private importers immediately. According to the BPDB source, the government owes over Tk 35,000 crore to private power plant owners at the moment. Most oil-based power plants, which account for 30 per cent of the installed generation capacity of 24,911MW, are privately owned.

Power Cell’s director general, Mohammad Hossain, said that oil-fired power plants were used when gas and coal capacities were unavailable or there was a disruption in the gas and coal supply chains. ‘We have plans to stop using diesel in power generation this year,’ he said. An analysis of data from the Power Grid Company of Bangladesh revealed that in most cases, 40 per cent of the gas capacity in the past year remained idle.

Almost a similar amount of coal capacity remained idle most of the days in the past year, according to PGCB’s daily generation reports. A plant is considered idle when it is available for power production but not being used. Idle power plants generate huge capacity charge every year. The use of oil-fired power plants, on the other hand, reached about 60 per cent at times.

High fuel prices played a significant role in keeping gas power plants idle. Disproportionate expansion of imported gas-based power generation capacity and gas import infrastructure also played a role in keeping gas-based plants idle last year. After importing over 900mmcfd amidst depleting local reserves, gas-based power plants received half the fuel they needed to operate. Bangladesh has the infrastructure to import 1,000mmcfd.

Last year, gas accounted for 11372MW, followed by furnace oil with 6492MW, coal with 2692MW, import 2656MW, diesel with 1010MW, solar 459MW and hydro 230MW. Fossil fuels accounted for 97 per cent of the installed generation capacity last year but 99 per cent of the overall power generation. The overall power generation stood at 88,450 million units in the year, following a 3.32 per cent increase compared with the year before.

Coal accounted for 11.40 per cent of electricity produced in the past year, while gas accounted for 52 per cent of electricity, heavy fuel oil for 21 per cent, diesel for about 3 per cent, imports for 12 per cent and renewable energy for less than 2 per cent of electricity. The coal capacity remained idle mainly because of the dollar crisis and technical problems. Bangladesh’s biggest 1320MW Payra power plant remained closed and half-used because of a coal shortage.

Coal suppliers refused to continue their supply after failing to receive payment for months. Still, power generation from coal almost doubled in the past year compared with the year before. The fuel cost of coal power plants increased by 2.25 times. Power generation from gas increased only by three per cent from 30 per cent in the past year, leading to a 40 per cent increase in the fuel cost.

The PDB annual report showed that diesel prices increased by 98 per cent in 2023 while HFO prices jumped by 147 per cent, gas prices by 215 per cent and coal prices by 36 per cent, compared with 2021. The fuel cost of imported power, also based on fossil fuels, also increased by 46 per cent. Imported power accounted for 10 per cent of the installed generation capacity.

‘The fuel cost story testifies to the growing unviability of fossil fuels, especially for economies like Bangladesh,’ said Hasan Mehedi, member secretary, BWGED. The cost of power generation from renewable energy – hydro, solar, and wind – increased as well. The per unit cost of hydropower increased by nearly 21 per cent, while solar power cost increased by more than 18 per cent, and wind power by more than 22 per cent.

The increase in renewable energy costs also surprised energy experts, for they had largely declined around the globe in the past year. They said that Bangladesh’s uncompetitive power procurement structure, protected by an indemnity law, pushed up renewable energy costs, just like power generated from fossil fuels.

Fuel costs are one of the two most important parts of power generation costs. The other part is operation and maintenance costs, including the capacity charge. Considering both costs, the cost of producing a unit of electricity from coal increased by more than 35 per cent, while electricity from gas became 89 per cent expensive, electricity from HFO 19 per cent and electricity from diesel 42 per cent more expensive than the previous year.

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