Bangladesh considers dropping 90% of its planned coal power

Bangladesh’s minister of power, energy and mineral resources, Nasrul Hamid, has surprised energy watchers by saying the country is planning to “review” all but three of 29 planned coal plants.

“We are keeping the three coal-fired power plants that are under construction.

“At present, we are aiming for 40 to 41 gigawatts (GW) of total generation capacity, where only 5GW is coal based,” said Mr Hamid during a webinar run by the Centre for Policy Dialogue.

“We are reviewing how we can move from coal-based power plants.”

China Dialogue website reports Bangladesh has one of the largest coal power pipelines in the world, a total of 29 power plants amounting to 33.2GW of capacity, according to a 2019 study by an Australian organisation that tracks fossil fuel investment.

If the minister’s comments become government policy, up to 26 power plants accounting for 28GW of capacity could be put under review, representing 90 per cent of Bangladesh’s coal pipeline.

“It would dramatically swing the nation’s power development away from coal,” said Simon Nicholas, energy finance analyst with the Institute for Energy Economics and Financial Analysis (IEEFA).

“Coal power is no more a cheap option and it’s becoming more expensive for imported coal.

“Hence, the government is reconsidering its earlier plan on coal-power generation in its energy mix”, Mohammad Hossain, director general of the ministry’s research body, Power Cell, commented in the webinar, echoing Minister Hamid’s suggestion to review coal power plans.

The costs of renewable energy have been undercutting coal for years and recent price crashes in oil and gas mean that these two fossil fuels are now also price competitive with coal.

Bangladesh’s coal power dream would also be highly dependent on imports of both equipment and coal, an expense and a liability in the age of COVID-19-induced lockdowns and supply chain disruptions.

In addition, Bangladesh’s Power Development Board must also pay costly subsidies to operators of underutilised power plants in the form of “capacity payments”.

With a coal power utilisation rate of just 43 per cent, from 2018-19 the government reportedly went through US$1.1 billion in payments to power plant operators.

One third of the energy ministry’s budget has been allocated to capacity payments for idle power plants in the 2020-2021 financial year.

With the IMF predicting that GDP growth in Bangladesh could slip to just two per cent this year, compared to a pre-COVID forecast of 7.4 per cent, power demand is expected to be lower, meaning capacity payments will continue to rise unless steps are taken to revise plans for new capacity.

Power Cell’s Mr Hossain also acknowledged in the webinar that the government would need to review the country’s power system masterplan considering the radically changed outlook for the economy and power demand.

The 29 coal power plants currently in Bangladesh’s pipeline are at varying stages of development.

Though of a much larger scale than elsewhere, Bangladesh’s potential pivot from coal is not an isolated incident this year.

In June, the 700MW Qasim coal power project in Pakistan was cancelled, in large part due to lack of demand.

IEEFA’s Mr Nicholas noted that these shifts on the demand side also raise huge uncertainties for the region’s number one coal exporter, Indonesia, which has been banking on growth markets in Bangladesh, Vietnam and Pakistan as the Chinese and Indian markets shrink.

The review of coal power may not be all good news for the climate though.

Firstly, three large coal power plants, amounting to 5.0GW of capacity, will still be connected to the grid, increasing Bangladesh’s carbon emissions and requiring costly capacity payments.

Secondly, as indicated by Minister Hamid in the Centre for Policy Dialogue webinar, the government is likely to turn from coal to liquid natural gas (LNG), a fossil fuel that is more or less equal to coal in terms of greenhouse gas emissions when accounted for on a whole-lifecycle basis.

Given current overcapacity in the power sector, LNG plants would also likely lie idle and be a drain on the ministry’s budget.

Some Bangladeshi researchers and advocacy groups, such as Transparency International Bangladesh and Waterkeepers Bangladesh, are pushing for an alternative power sector development path that would radically expand renewable energy.

There is some interest in developing renewable energy in the country and from foreign investors.

Last month, Power China signed an EPC contract to develop 500MW of solar and wind energy in Bangladesh, the largest ever addition of renewable capacity in the country.

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