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Is expensive power the only solution?
M. Tamim
IN 2009, the average electricity production cost was below Tk.3/kWh. The energy mix for power production was roughly 82% gas, 10% oil, 4% hydro and 4% coal. Within a span of three years the oil contribution of power production has shot up to 30%; reducing gas component to 67% and the average production cost has more than doubled to Tk. 6.5/kWh. As a result the government was forced to raise the electricity tariff several times recently.
Bangladesh power Development Board (BPDB) has been the sole custodian of power sector management with the support of the Energy Ministry. In 1998, BPDB predicted that the peak demand would be 6,000MW in 2007. This was done during the time when the last two major base load plants (Meghnaghat 450MW and Haripur 360MW) came on stream.
Since then the power situation gradually worsened.
Despite warnings from PDB and concerned citizens, all attempts to establish base load power plants failed due to indecisions over the awarding of projects. Till 2007 the principal barrier to electricity generation was lack of power plants, a scenario that rapidly changed when we faced acute gas shortages in 2008. More than 500MW generation got stranded due to gas shortage, especially in Chittagong.
Primary fuel shortage was a new challenge to all but none could escape the mind set of the politically rewarding process in setting up new power plants. At the end of the previously elected government's tenure the idea of oil based rental power plants was coined and a number of companies were selected (ironically not due to gas shortage!). This was a makeshift short-term arrangement for not being able to add base load generation.
An earlier measure taken due to failure of adding grid power was allowing captive power generation for the industries. That measure although inefficient, saved the sector. The caretaker government picked up the idea of rental units and signed ten oil based power deals. The quickest way of bringing power to the grid is oil based small plants. Knowing very well that this could not be a long-term solution, the term "three year quick rental" was coined to remind everyone that the expensive solution was for shortterm only. The initial thought was not to expand the oil based production beyond 2,000MW.
Al resented the idea of quick rental for the first six months and criticised its pitfalls in the same way they are facing themselves today. The reality of a daunting gap between electricity supply and demand forced them to go the rental way. They had no other choice but what they failed was to envision a long-term solution to replace the expensive oil based solution that they strongly criticised at the beginning of their tenure.
At the same time expanding oil based power plants beyond 3,000MW was done without analysing financial and infrastructural involvement. Since 2010, the 5-year planning PDB put forward is basically a non-starter mainly due to lack of secured fuel supply and assured financial support for the projects.
Majority of the proposed base load large capacity projects are on paper only with the exceptions of the two Bibiyana plants and the Shahbazpur combined cycle power plant. In the l,40,000MW plan, 4,000MW is gas based (!), another 2,000+ is dual fuel and about 3,600MW is dependent on imported coal. The 500MW import from India is advancing slowly but more likely to be added to the system by 2013.
Supplying power at high price is argued showing that the cost of not supplying a kWh to the economy maybe anywhere from Tk 25 to Tk 50. The 50% share of total power consumption in the household sector in Bangladesh defeats this argument from an economic point of view although there is no denying of productivity loss due to energy shortage.
The obvious pressure at the present scenario is perhaps more political. Two countries in this subcontinent have gone towards a liquid fuel path — Sri Lanka for its prolonged civil war and Pakistan for its political indecision and internal feuds.
Both are paying high price for this decision, Pakistan by facing 8,000MW of load shedding; mainly due to its inability to pay for the high price
oil, and Sri Lanka by administering one of the highest electricity rates in any developing country.
Pakistan has huge potential in hydrocarbon and hydro power but the proxy war within the country and the perpetual indecision on national issues pulling the country wide apart -- especially energy wise. On the other hand Sri Lanka is quickly correcting the forced mistake they committed by establishing a 300MW imported coal based power plant that will be expanded to 600MW soon. They have also declared that no more liquid fuel based power plant will be set up. Sri Lanka's 40% power comes from Hydro and they have no other energy source within the country.
Frequently asked is how long the "3-5 year short term rental" will last in Bangladesh? As a result of extended use of liquid fuel, can our economy sustain the pressure of prolonged (high) cost of oil import? Are we going to end up like Pakistan (bankrupt from oil bill) or like Sri Lanka (a very high electricity tariff)? Whichever way we look at, Bangladesh simply cannot afford to bear the high cost of oil/electricity — neither
the government nor the public.
Only a steady and secured supply of alternate primary fuel at sustainable price can save the country from a disaster like Pakistan. Once the fuel is assured, a sensible commercial framework of business will automatically bring in investment (finance). This can be done either by importing fuel or indigenous supply. Securing long-term coal or LNG import deals at a flat rate is becoming very difficult. Recently Indonesia, South Africa and Australia, the three major coal exporting countries adopted a new policy that stipulates benchmarking of coal prices to international market rates that increased the cost of long-term coal contracts for Indian companies from $50/ton to $10()/ton. The long-term Australian coal price forecast (FOB) by Citi is $130-160/ton. After peaking in February to $120/ton, the present price has fallen to $90/ton (FOB). Including freight and tax, this good quality coal will cost about $170/ton or more at the coastal power plants of Bangladesh.
The other option is LNG import. In addition to their present supply of 7.5 million ton, India wanted 5 million ton/year of LNG from Qatar but it refused the price Qatar asked for the gas last month. Qatar wanted at least 14.5% of Brent crude price; at 110$/barrel that would mean about $16/Mcf at Qatar port.
Add shipping and taxes would cost $20/Mcf to the Indian consumers. The $5/Mcf price initially coined by Petrobangla for imported LNG in Bangladesh that was doubled to $10 later is just a pipedream. The weighted average gas selling price in Bangladesh is just $1.6/Mcf!
The stoppage of coal development and gas exploration despite the presence of clear economic advantages has forced the governments to take short-term and expensive oil based rental power plants. Our current economy simply cannot afford or sustain the burden of importing expensive energy either. Apart from supply interruption risk, the international energy price volatility is also a source of great uncertainty.
If the entire country is offered for exploration by the IOCs, any new gas will not cost more than $3/Mcf (including profit gas) and that is without any financial risk to Bangladesh. The question of any export does not arise now as the current deficit including suppressed demand in the local market is more than Ibcf per day (very different from 1999).
Production cost of our own coal will not exceed more than $90/ton even using the most expensive extraction process.
Along with efficiency improvement, using mainly indigenous primary fuel (50% coal, 30% gas, 8% renewable including hydro) and some imported liquid fuel (12%), the average electricity production cost can be maintained atTk.4/kWh even for a production of 20,000MW for the next 20 years. This will require a lot of preparation, planning, engineering, financing, integration, managing and most importantly determination and courage to implement, but this is a far better theory than the one being chalked up by PDB.
This will ensure sustainable solution meeting the three basic requirement of energy security — affordability, availability and accessibility.
The writer is Professor, Department of Petroleum and Mineral Resources Engineering, BUET.