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Brand-new power and energy sector assets, including major power plants, are getting stranded, presenting the Bangladesh Power Development Board with new overcapacity challenges.

Stranded assets are investments that have stopped yielding return before the expiry of their economic life.

Fuel shortage, especially gas scarcity, is responsible for the assets to go stranded amidst forecasts from energy experts about the situation worsening as more power-generation projects are set to complete without securing the requisite energy supply.  

Climate discussions offer a tangible stranded asset risk for fossil fuel investments due to energy transition and direct physical threats from increased natural disasters.

‘Bangladesh’s current stranded asset problem, however, is the creation of its flawed energy policy. It’s an additional burden created for the people by corrupt politicians, in addition to the climate threat,’ said Hasan Mehedi, member secretary, Bangladesh Working Group on Ecology and Development, a platform of green activists.

Bangladesh’s power and energy projects, mostly approved under the indemnity law without tender over the last one and a half decades during the rule of the ousted Awami League regime, were overwhelmingly lucrative for the involved private investors, passing on the entire economic burden, resulting from unequal deals, on the shoulder of the ordinary consumers.

Regardless of the use of power and energy infrastructures, either it is power plants or pipelines or floating liquefied natural gas regasification unit, the investors were guaranteed up to 16 per cent return on their investment, thanks to the capacity charge provision, which also took care of loans, their interests, and other costs.

In the 14 years since 2009, Bangladesh paid Tk1 lakh crore in capacity charge to power plants alone. Half the current installed capacity of 27,645 megawatts remains idle.

The account of the idle capacity is calculated excluding the gas-based 800MW power plant in Khulna’s Rupsha, which was ready to be commissioned early last year, according to BPDB sources.

The Rupsha power plant even does not have access to gas to run pre-commissioning tests. The plant cost $1.14 billion, mostly given as loans by the Asian Development Bank, the Islamic Development Bank, and the Japan Fund for Poverty Reduction. The Bangladesh government also gave $300 million.

The plant awaits its gas supply to be commissioned, which is unlikely to happen anytime soon, particularly with the gas supply declining – both domestically and in the form of falling liquefied natural gas imports.

At the end of April, an analysis of daily Petrobangla data shows, the local gas production fell by 170.9mmcfd while the LNG import dropped by 159mmcfd, compared to the year before.

About 30 kilometres from the Rupsha power plant is located the 225MW dual-fuel Khulna power plant, commissioned in 2013-14. The plant was built with $235 million from the ADB. The plant has been running at a reduced capacity on diesel as there is no gas supply.

A BWGED analysis revealed that the Khulna power plant generated electricity three times costlier than the national average, mainly due to the low plant factor and the consumption of costly diesel.

In 2019-2020, the plant factor of the Khulna power plant plunged to 0.3 percent, producing a unit of electricity for a staggering Tk 533.

The best use of the power plant – at 50.5 per cent of its capacity – was recorded in 2017-18.

In the past financial year, the plant factor stood at 5.6 per cent. Over the past 11 years, the government paid Tk 1,824 crore in capacity charge to the power plant. The capacity charge will take away an overall Tk 4,200 crore until 2030.

The Khulna and Rupsha power plants were never meant to receive gas, the supply of which started dwindling a long time before they were built.

The 165km pipeline extending between Bheramara and Khulna, which was expected to supply gas to the two power plants, received gas supply for only 17 days in the decade since it was completed in 2015.

The gas flow measured at 30mmcfd on the rare-gas-supply days against the pipeline’s capacity to transport roughly 160mmcfd. The pipeline project was undertaken in 2005 but its construction was delayed.

‘We don’t have a proper answer to the question about the pipeline’s use,’ said Suman Mallick, manager, Gas Transmission Company Limited.     

‘The pipeline is sitting idle,’ he said.

The pipeline was built with $230 million funding from the ADB.

Loans given by multilateral development banks such as ADB enjoy a grace period of about five years, implying that the interest on their loans would have to be paid after the grace period.

The interest rate could be up to 3.5 per cent and the loan repayment period could extend over up to 25 years.

The ADB also invested $200million in building the gas-based 718MW JERA power plant at Meghnaghat in Narayanganj. The plant is ready, according to the BPDB, but could not be commissioned because of the gas crisis.       

The two other major power plants, the operations of which were seriously hampered because of fuel shortage since they rolled into operation, are the Meghnaghat 583MW power plant, owned by the Summit Group, and the Meghnaghat 584MW power plant, owned by the Unique Group.

The debt providers of the power plants also included multilateral development banks such as Asian Infrastructure Investment Bank and International Finance Corporation.

The per-unit capacity charges to the Mghnaghat 583MW and Meghnaghat 584MW power plants are Tk 3.67 and Tk 3.78 respectively. The capacity charge to the 225MW Khulna power plant is Tk 3.06.

By the beginning of 2027, four new gas-based power plants worth 1,865MW are set to come online in the public sector alone, besides a 1,247MW coal-fired power plant, another privately-owned 590MW gas power plant, and the 2,400MW nuclear power plant joining the power generation fleet over the intervening time.

‘The number of out-of-operation power plants will increase in the coming years, potentially intensifying the stranded asset problem,’ said Shafiqul Alam, lead energy analyst, Institute for Energy Economics and Financial Analysis.

Gas accounts for 43 per cent of the current installed generation capacity while coal and furnace oil each makes up 20 per cent of the generation capacity.    

A year-wise gas availability assessment since 2009 by the BPDB shows that the energy supply reached 1,000mmcfd only in five years.

The current gas demand in the power sector is over 2,000mmcfd, according to Petrobangla. The gas demand calculation did not include fuel needed for running most of the power plants discussed in the report.

Bangladesh currently has 143 power plants in operation, mostly fossil fuel-based and many of them with a lifetime until 2046.

A rapid development of renewable energies leading to cheaper power generation is set to cause the abandonment of fossil fuel reserves and plants soon, according to a study published in 2017 by the International Renewable Energy Agency.

Solar power prices fell by 80 per cent since 2010. The IRENA said that solar photovoltaic global costs were 56 per cent lower than fossil fuel and nuclear options in 2023.     

‘Stranded assets are delaying energy transition by creating huge economic liabilities,’ said Rayyan Hassan, executive director, NGO Forum on Bangladesh.

‘These liabilities, unfortunately, serve as assets of fossil fuel investors,’ he added.