An exclusive interview of Simon Nicholas, Energy Finance Analyst at the Institute for Energy Economics and Financial Analysis (IEEFA) by researcher Maha Mirza
In an exclusive interview, researcher Maha Mirza speaks to Simon Nicholas, Energy Finance Analyst at the Institute for Energy Economics and Financial Analysis (IEEFA), Sydney, Australia on overdependence on fossil fuel in Bangladesh and the prospects of using more renewable energy in the future
As the world adopts more stringent carbon policies and new emission-regulations, the cost of coal-based power generation has increased significantly. Meanwhile, solar and wind power in some cases have already achieved grid parity by producing electricity at the same cost of coal. Yet, Bangladesh government has decided to use coal as one of its major sources of electricity generation. The government’s Power Sector Master Plan (2016) targets to expand its coal based electricity generation from 3% to 30% by 2030. The government has already planned to set around 22 coal-fired power plants (a total of 20,000 MG/hr generation capacity), predominantly depending on imported coal. Do you think it would be financially viable for the Bangladesh government to adopt a coal intensive energy plan?
S. N: Here in Australia it is not only cheaper to generate power from renewables than new coal power plants, renewable power is also often cheaper than existing power plants. This is thanks to the continuing decline in the cost of renewable energy and an increase in the cost of coal supply.
A new report from the International Renewable Energy Agency (IRENA) has found that the cost of new onshore wind and solar power will be less expensive than even the cheapest fossil fuel-fired alternative by 2020.
Bangladesh is not at this point yet as it has not seen the committed rollout of large-scale renewables that has occurred in Australia, India and many other countries, which has driven down the cost of wind and solar.
However, the sharp decline in the cost of renewables around the world is a sign of what is to come for Bangladesh. As such, plans to lock the country into decades of expensive coal-fired power makes little financial or economic sense. There is also the huge economic burden of over-reliance on fossil fuel imports to contend with. In addition, there is uncertainty over the price of those fossil fuels which only increases the risk.
The Revisiting Power System Master Plan (PSMP) 2016 report, released in November 2018, seems to show that Bangladesh is set to hugely over-build its power sector, well in excess of what is required over the next two decades. The plan shows that Bangladesh’s reserve margin – the spare capacity in excess of demand – will reach an enormous 69% by 2026. This is despite the report’s authors stating that the reserve margin should only be 20-25%.
Under this plan, Bangladesh’s reserve margin won’t come back down to a reasonable level until the late 2030s. It makes no sense to over-build fossil fuel-based power capacity when the cost of renewable energy is coming down fast. Bangladesh will miss a chance to modernise its power sector and make electricity both cheaper and cleaner.
The latest data from the Global Coal Plant Tracker (GCPT) shows that recently India’s coal-fired pre-construction project pipeline has shrunk by a quarter. Coal Project cancellations are becoming common as financial viability remains uncertain and India increases its low-cost renewable installations. In recent years, Matt Gray, head of Power and Utilities at Carbon Tracker, said: “The narrative is quickly changing from how much do we invest in new coal capacity to how do we shut down existing capacity in a way that minimizes losses. In this context, how do you perceive the Bangladesh government’s intense persuasion of coal based power generation?
S.N: India’s pre-construction pipeline of coal-fired power project has actually shrunk by 81% since January 2015. The rate at which constructed coal plants have been brought online has also slowed dramatically.
India has about 40,000 MW of financially distressed coal-fired power projects which are placing a burden on its banking system. The reasons for this include the fact that India over-built coal power capacity in excess of electricity demand growth and the fact that plants were often built too far from their coal sources.
An ambitious renewable energy rollout is increasingly responsible for meeting much of India’s electricity demand growth. New coal plants can’t compete with the low tariffs from wind and solar power so a lack of power purchase agreements (PPAs) for coal-fired power plants is adding to stress in the sector. In addition, much of India’s coal plants that use imported coal are unviable based on current tariffs. The tariffs will have to be increased, placing an additional burden on consumers.
Bangladesh is taking a major risk with its planned build out of coal power plants. These plants may themselves become financially stressed or unviable if it turns out that electricity demand growth has been over-estimated (as it was in India and many other nations). Most Indian coal plants use cheaper domestic coal but Bangladesh’s planned coal fleet will have to use mostly imported coal. The extra expense of imported coal increases the financial risks.
As you already know that the installation of more than 4 million Solar Home Systems (SHS) in the last two decades has made Bangladesh one of the biggest markets for SHS. However, the average solar system in Bangladesh has a generation capacity of merely 20-50 watt. In addition to that, Bangladesh market is still stuck with mere 10-12% panel efficiency. Even after two decades of successful dissemination, the share of renewable energy in total electricity generation in Bangladesh is only 0.07%. Due to very high price of low-capacity solar systems, the concept of ‘renewable’ has also become unpopular among rural people. Engineer B.D. Rahmatullah, the former Director General of Power Cell said that “Instead of pushing each rural household to pay a very high price for solar home systems, the government could have built countrywide solar based minigrid and microgird systems which would drive down the price for the poor.” In your opinion, how appropriate and economic it would be to adopt and develop country-wide minigrid /micro grid system in Bangladesh? What could be the other economically viable ways to spread renewable energy among for lower income groups?
S. N: According to the World Bank’s latest Energy Progress Report, Bangladesh has been making good progress in terms of access to electricity. This is due to a combination of efforts to extend the power grid and the successful SHS program.
Going forward, where the grid is extended, poorer communities will benefit from grid-connected utility-scale solar plants as such technology gets ever cheaper in Bangladesh. Where it is not cost-effective to extend the grid to remote communities, solar micro- and minigrids will make sense. Off-grid solar power solutions are most effective with batteries for power storage and this technology is also getting cheaper all the time. These systems will be able to provide people with much more energy than small solar home systems.
In 2016, National Committee to protect Oil Gas Mineral Power and Port in Bangladesh proposed an alternative energy plan suggesting that as much as 50 percent of demanded electricity could be generated from renewable energy sources by the year 2041. The alternative plan was criticized widely for its alleged ‘impractical’ vision. Afterwards, a Stanford University research (2017) explored the potential of 100% renewable for 139 countries, which predicted a steep cost decline for Bangladesh by 2050. Recently University of Sydney has also undertaken a study, titled as “100% Renewable Energy Pathway for Bangladesh”. Considering the global advancement in renewable technology, does a vision for at least ‘50% by 2041’ in Bangladesh sound ‘impractical’ to you?
S.N: With the cost of renewables reducing so fast, Bangladesh ought to have a shorter term renewable energy target. A target of 25% renewable energy generation by 2030 could be appropriate and entirely achievable. By 2030, the efficiency and cost of wind and solar will have changed so much that a re-assessment of the nation’s energy future would be needed by then anyway and would lead to more ambitious targets for the 2040s.
With the right policies in place and commitment to a utility-scale renewable energy rollout, The Institute for Energy Economics and Financial Analysis (IEEFA) sees renewable energy cost declines of around 10% per year. This has been achieved in other countries. Much will depend to the government’s approach to land use and the recognition that there is likely to be more land available for solar power development than is generally accepted.
In 2018 came the welcome news that there is also significantly more wind power potential in Bangladesh than previously recognised. Modern, taller wind turbines are able to make better use of existing wind resources than older models. The Bangladesh Power Development Board has consequently invited bidders for wind power projects totally around 150 MW.
Recently, your organization IEEFA has published a research on Bangladesh suggesting that the policy makers of Bangladesh should focus on Utility Solar (Large scale solar plants). The research also mentioned that just 0.15% of Bangladesh land would be required, for even an ambitious goal of 10GW of utility solar by 2025. You have also mentioned the possibilities of more and more rooftop solar which could bring electricity immediately to the one-third of the population who have no access to the centralized grid; implying that the production process of electricity should be democratic, easily scalable, and distributed. In your opinion what would be the most appropriate way for Bangladesh to produce electricity? Utility scale or distributed (small scale)?
With the land use issues that a densely populated country that Bangladesh has, both utility-scale and rooftop solar will need to be utilized. October 2018 saw Bangladesh’s first truly utility-scale solar plant (28 MW) commence operations. The proponent has already signed a Memorandum of Understanding (MoU), for construction of another solar plant of 100 MW.
Since then, numerous other agreements for large-scale in Bangladesh have been signed with interest from Saudi Arabia and the U.A.E and finance confirmed from the World Bank and the Asian Development Bank.
Rooftop solar will also need to play a role. International companies that use Bangladesh-based manufacturing are often already under pressure to sort out pay and conditions issues within their supply chain. In the future, such concerns could extend to the use of power derived from coal in a nation that is highly vulnerable to the impacts of global heating. Such international companies may end up driving the take-up of rooftop solar on factories in Bangladesh.
Advanced technologies like floating panels and Solar sharing methods have already been used in Japan and other countries at a large scale. How appropriate are these advanced technologies for Bangladesh? Do they involve excessively high cost?
S.N: Floating solar is an interesting solution for Bangladesh given its land availability issues. However, it is more expensive at the moment. The Asian Development Bank is reportedly backing a 50MW floating solar system on Kaptai lake.
Bangladesh should focus on ground-mounted solar PV and wind (where the opportunity arises) for now in order to make use of available land and help quickly drive down the cost of these mainstream renewable technologies. More floating solar can be installed later once the cost has declined further.
Nuclear Energy has already been proven to be enormously expensive considering its high construction cost and expensive safety measures. Yet, Bangladesh appears to be swimming against the tide, with the government pursuing a number of high-profile coal and nuclear plants. The government so far has allocated as much as 13 billion US dollar for the construction of Rooppur nuclear power plant. It has also target to achieve around 7,000 MW/hr of electricity by 2030. What is your observation/opinion on the Bangladesh government’s persuasion of nuclear energy?
S. N: New nuclear power is facing the same issues all over the world – projects keeping running way over budget and way over schedule. This is even happening in places like the U.K. and France which have a long history of utilising nuclear power. The Flamanville project in France is 8 billion euros over budget and at least 7 years behind schedule. As a result, Bangladesh needs to be prepared for the fact that Rooppur is likely to cost a lot more than US$13 billion by the time it is finished.
The latest World Nuclear Energy Status Report 2018 noted that the number of nuclear power units under construction declined for the fifth year in a row and most of those units are behind schedule. The report finds that the slowdown in nuclear build is in part due to the rise of renewable energy which is both cheaper and quicker to build. As such, renewable are better placed to meet electricity demand growth in countries like Bangladesh.
Apart from the higher installation and generation cost, there appear to be a number of hidden costs associated with both coal and nuclear. In the context of Bangladesh, in order to facilitate the transportation of imported coal, a massive coal terminal, a deep sea port at Payra, and a 240 km railway deal has been signed lately (between Bangladesh Government and DP Rail) which would cost around USD 1.25 billion all together. IEEFA’s research (2016) has also identified an annual US$26m subsidy for dredging activities in Bangladesh to facilitate coal transportation to the Rampal Power Plant. In your opinion how intense are these hidden costs for both coal and nuclear (In the global context)? Or to what extent these costs remain hidden?
S.N: Globally, these additional costs are generally well known and they are a significant disadvantage to fossil fuel-based power generation compared to renewable energy which has no fuel or fuel transport cost. Such additional costs need to be taken into account when assessing the true cost of coal- or LNG-fired power.
In addition to all the direct costs involved with fossil fuel transportation, there are the additional operational risks that come with the logistics of fossil fuel transportation. India has seen a number of its coal-fired power plants suffering from a lack of coal due to transport logistics bottlenecks. Solar and wind energy do not suffer from these ongoing logistics issues. In addition, the environmental impacts of dredging and the construction of ports in sensitive areas can have unexpected knock-on financial impacts.
Both India and Bangladesh have faced severe unemployment crisis in the recent years. In one hand large scale industries are failing to create sufficient jobs. On the other hand, land acquisitions for mega projects, coal plants, LNG terminals are leading to large scale displacement and destruction of local livelihood. In this context, can renewable energy work as a catalyst for creating more jobs? Can renewable energy be used for small/mid-scale industrialisation? Can renewable energy stimulate income generation in the rural areas? How?
S.N: There can be many jobs created in renewable energy construction if a significant build program is supported and also some (although fewer) in the operation of such power plants.
However, the major, long-term impact of renewable energy on jobs is its impact on lowering power bills which helps support small, medium and large businesses. As renewable energy technology gets cheaper and cheaper, we are beginning to see wind and solar power pull down the cost of electricity in developed economies with proper commitment to renewables such as Germany. In time, this will happen in developing economies too. For many businesses, electricity bills are a significant part of overall costs so renewable energy can help lower the cost pressure. Such businesses are therefore more likely to thrive and support more jobs.
Relying on expensive imported coal and LNG is unlikely to lower electricity bills. If Bangladesh were to commit to a more ambitious but entirely achievable renewable energy policy, it will see the cost of renewables come down quickly which will be much better placed to allow businesses to thrive and support a growing economy.