Cost 3 times higher, yet electricity being purchased from oil-run power plants

The government has been generating power from heavy fuel oil (HFO) or furnace oil-run power plants throughout the year despite the production cost of furnace oil-fired electricity being three times higher than other fuels. As a result, a significant portion of the gas and coal-fired power generation capacity remains idle over the year.

According to the Bangladesh Power Development Board (PDB) sources, currently, the production cost of furnace oil-fired electricity is on average Tk 17 a unit while the cost of gas-fired electricity is more or less Tk 4 a unit and coal-fired electricity about Tk 6 per unit.

Furnace oil-run power plants account for about 23 per cent of the country’s total power generation in the 2022-23 fiscal. Power production cost increased by 29 per cent to Tk 11.52 a unit during this period and use of furnace oil was one of the reasons for a rise in the production cost. According to PDB officials, if the production of oil-run power plants can be reduced by 10 per cent, at least Tk 90 billion can be saved.

State minister for power, energy and mineral resources Nasrul Hamid told Prothom Alo on 19 February that power production cost will reach a bearable level once gas supply is available as per demand. Even costs will drop despite the import of gas. Costs have been reduced in coal-fired power stations to some extent, but coal-run power stations are not being operated at full capacity, he added.

There are huge arrears in the power sector. Dues of foreign firms are not being paid either. As a result, gas and coal-fired power plants are not being operated at full capacity. The state minister claimed the government has been compelled to run fuel oil-run power stations. Once they receive adequate money, as well as the US dollar for import, power production can be increased by importing gas and coal.

Experts said import of furnace oil also requires US dollars, and both gas and coal can also be imported with that currency. They said electricity was procured from private oil-based power plants to provide them facilities, which is why the government-run furnace oil-fired plants are operated less.

These power stations produce electricity only 10-12 per cent of their total capacity, but 50-60 per cent of the total capacity of private furnace oil-fired plants are used. Overall, the lowest amount of electricity was purchased from government-run or PDB-owned power stations.

Consumers Association of Bangladesh (CAB) senior vice-president M Shamsul Alam told Prothom Alo on 27 February, “We have presented our analysis at the public hearing on power tariff hike in 2022. We found that private power plants receive bills showing the prices of furnace oil Tk 18 more per litre than the price the BPC (Bangladesh Petroleum Corporation) imports. This costs additional Tk 80 billion. Furnace oil-fired power stations are operated because of this expenditure.”

People are paying additional prices because of power generation at higher costs. The government is going to hike power tariff again and an announcement is likely soon. The state minister said on Tuesday the retail power tariff is likely to increase by 34-70 paisa per unit from March.

Currently, the capacity of electricity generation in the country is 26,000 MW, but power generation reaches 13,000-15,000 MW in summer and 8,000-9,000 MW in winter. To date, the highest amount of electricity, 15,648 MW, was generated on 19 April 2023.

Gas contributed 42 per cent of total power production capacity, furnace oil 24 per cent and coal 17 per cent while 11 per cent of total power generation capacity was imported, and diesel and renewable energy contributed 3 per cent.

Whether a power station is in operation or not, rent for the plant has to be paid, which is known as a capacity charge. According to the Centre for Policy Dialogue (CPD), last year 41 per cent of the capacity remained idle. The Power Development Board (PDB) paid an additional amount of Tk 260 billion for quick rental power plants last fiscal.

Since production is less than the capacity, the use of less costly fuel is profitable for power generation. Yet, power plants are running on furnace oil. According to the PDB, 52 per cent of total electricity generated last year came from gas, 23 per cent from furnace oil, 12 per cent from coal, 11 per cent from import and 2 per cent from renewable energy. The number of diesel-run power plants has been reduced because of higher costs, but power is being produced from costly furnace oil-fired plants.

There are opportunities to increase power generation from gas, coal and renewable energy. Currently, power generation capacity exceeds 20,000 MW without the oil-run power stations. The capacity of gas-fired power plants is 11,000 MW. PDB sources said the power sector has a demand of 2.32 billion cft (cubic feet) gas daily. Currently, the daily supply of gas reaches 800-850 million ctf. A maximum of 1.2 billion cft of gas was supplied last summer. At that time, more than 6,000 MW of electricity was produced from gas, but about half of the total capacity of gas-run power stations was kept idle due to the fuel crisis.

The capacity of coal-fired power plants is about 6,000 MW including India’s Adani power plant whereas the daily power generation is 3,000-3,500 MW now. Coal-fired power generation peaked at 1,500 MW in this winter.

Experts said if power plants are run on gas, coal and renewable energy, as well as if electricity is imported from India, there is no need for operating furnace oil-run power plants with higher costs. Thus, costs will drop significantly. There is more opportunity for domestic gas exploration, and that effort needs to accelerate to increase the supply of gas within the shortest possible time. Then pressure on dollars will lessen.

Meanwhile, gas and coal prices dropped in the international market. The price of liquefied natural gas (LNG) fell in the spot market to USD 10 per million British thermal units (MBtu) from USD 60 MBtu in 2022 while the price of coal dropped below USD 80 a tonne from USD 400 a tonne. The price of fuel oil also fell but not like that of gas and coal prices.

The Awami League formed the government in 2009 amid an acute power crisis. They enacted the Quick Enhancement of Electricity and Energy Supply (Special Provisions) Act, 2010, often referred to as the indemnity law, to attract quick investment in the power sector. Construction of power stations has been approved one after another under this law, which is still in effect.

Though the power generation capacity has surged, a shortage of fuel hits the power plants, resulting in frequent power outages in 2022 and 2023. This year, power outage started occurring in rural areas just when the winter ended, and more power outages may hit across the country since March.

CAB’s Shamsul Alam said that an additional Tk 300 billion is spent in the power sector. If that can be checked, there will be no need to raise the power tariff.

* This report appeared in the print and online editions of Prothom Alo and has been rewritten in English by Hasanul Banna