Your February electricity bill will see 8.5% average rise

Following a hike of gas prices two days ago, the government on Thursday increased average electricity tariffs by 8.5%.

At the wholesale level, the current average price increases to Tk7.04 per unit from Tk6.70, while at the retail level, the price jumps to Tk8.95 from Tk8.25.

The increase is in effect from today instead of next month announced earlier, said State Minister for Power, Energy and Mineral Resources Nasrul Hamid on Wednesday (29 February). He said February bills for prepaid meter customers will be adjusted in their next payment. 

A review of the electricity price hike data shows that the electricity price will increase by 28 paisa per unit for the lowest users or "Life Line" customers (users of zero to 50 units). This will add a maximum of Tk14 to the monthly bill.

A residential customer using 0 to 75 units will see an increase of 41 paisa per unit, which will increase the monthly bill to a maximum of Tk31.

For residential customers using up to 200 units, the cost will increase by 57 paisa per unit. This will increase their monthly bill by a maximum of Tk114. Similarly, the maximum monthly consumption of customers using 300 units will increase by a maximum Tk192, the monthly bill of customers using up to 400 units will increase by a maximum of Tk272, the monthly bill of customers using 600 units of electricity will increase by a maximum of Tk696.

A 43 paisa increase per unit for irrigation customers will result in a maximum of Tk430 increase for up to 1,000 units use.

Analysts and experts said the move implies that individuals and businesses must allocate a larger portion of their budget to cover electricity expenses. This will reduce their disposable income, while also impacting businesses' profit margins and competitiveness.

They warned that this hike could contribute to an increase in inflation as electricity serves as a fundamental input in the production process across various sectors. As businesses grapple with higher electricity costs, they are likely to pass on these expenses to consumers by raising prices. 

This ripple effect could lead to widespread price hikes throughout the economy – from everyday household items to agriculture irrigation for food production, worsening inflationary pressures.

The decision to raise energy prices comes at a time when wholesale electricity prices have fallen in many parts of the world. According to the International Energy Agency (IEA), 2023 witnessed a decline in electricity prices after reaching record highs in 2022, particularly in Europe and Asia.

Energy expert Shamsul Alam, senior vice president of the Consumers Association of Bangladesh (CAB), pointed out the adverse effects of increasing electricity prices amidst rising inflation. 

He said the flawed policies in the power sector have created opportunities for certain companies to exploit the situation. 

"The government's policy confusion in the power sector and enabling looting by some companies has now increased the prices, thereby affecting the low-income people the most," he added.

Faruque Hassan, president of BGMEA told TBS, "It's not wise to raise prices now. It's pressuring traders, increasing production costs, and forcing higher prices on our products." 

This could drive consumers towards imports and discourage foreign buyers from ordering Bangladeshi products, he added.

Production scenario in Bangladesh 

According to the Bangladesh Power Development Board (BPDB), FY23 saw the production of 87,024 million kilowatt hours of electricity at a total cost of TK98,646 crore.   

Its per unit production cost was Tk11.33, while it was selling electricity at Tk6.7 per unit — incurring a loss of about Tk4.63 per unit. This imbalance has led to a staggering loss of Tk47,788 crore for the fiscal year.

With this huge loss, the government has been facing great trouble as it has to purchase electricity worth Tk82,778 crore from private sector power producers, while it generates electricity worth Tk13,307 crore from its own generation plants.

The BPDB's average per unit production cost from its own plants is Tk7.63, while it is Tk14.62 at the independent power producers or IPPs (private sector), at rental plants Tk12.53, at public plants Tk 6.85, and imported power from India at Tk8.77.

The government purchases electricity from the private sector and India in US dollars.

130% increase in 14 year

Over the past 14 years, retail electricity prices have surged by around 130% through 13 price hikes, according to BPDB data. 

In 2009, with a power generation capacity of 4,942MW, electricity was priced at Tk3.73 per unit. Now, with a capacity of 29,174MW, the price has surged to Tk8.95 per unit.

The latest price adjustment occurred in March 2023, increasing electricity rates by 5% to a weighted average price of Tk8.24 per unit.

Fuel prices remain high despite global drop

In August 2022, fuel prices surged by up to 42.5%, but only dropped by 4.38% after facing criticism. Currently, diesel and kerosene are sold at Tk109 per litre, petrol at Tk125, and octane at Tk130. 

While last year saw global fuel prices drop below $70, they now hover around $80 for crude oil and nearly $98 for diesel. Besides, LNG prices have hit record lows, with the price per MMBTU at $9, compared to $18 last year and $32 in 2022. 

Despite assurances that domestic prices would follow global trends, prices remained high, benefiting government entities like the Bangladesh Petroleum Corporation (BPC) while burdening consumers, said experts.

Energy expert Ijaz Hossain said the government is increasing electricity prices per IMF recommendations but failing to reduce prices for other fuels, disproportionately impacting low-income individuals. 

Burden of capacity charge

Ijaz Hossain further said the unsustainable practice of capacity charge contracts have led to excessive government subsidies and inefficiencies in the power sector. 

He suggested cancelling capacity charge contracts and establishing a competitive integrated power market for a sustainable solution, said the former professor of Bangladesh University of Engineering and Technology.

After a power plant is commissioned, whether it produces electricity or not, the government has to pay a charge to that plant—that is the capacity charge.

In FY23, the government paid Tk43,893 crore in subsidies to the power sector, with a large portion going towards capacity charges, totaling about Tk17,156 crore, according to finance ministry and BPDB data. 

Ahsan H Mansur, executive director of the Policy Research Institute, told TBS that many benefits have been given to power producers. Power purchase agreements lack transparency and competition. 

Besides, more attention has been given to import rather than domestic gas extraction. As a result, the problem is long term. To get out of its negative impact in the short term, emphasis should be placed on keeping the exchange rate stable. Alos, initiative should be taken to renegotiate the power purchase agreement," he added.

Load shedding to persist

As winter winds down, reports of power cuts, especially in rural areas, are resurfacing across the country, including the capital. 

According to the Power Grid Company of Bangladesh, electricity distribution companies have been implementing load shedding every two days since 21 January, with daily occurrences in February. 

Recent load shedding has ranged from 50-650 MW. The BGPDB anticipates a demand for electricity to rise to about 17,500MW in the upcoming summer. 

Mohammad Hossain, director general of Power Cell, a regulatory authority under the Ministry of Power, Energy and Mineral Resources, told TBS, "The way the power division is planning, it has a target of producing more than 16,000MW power  this year.

Mohammad Hossain, director-general of Power Cell, stated that despite plans to generate over 16,000 MW this year, increased demand may not prevent load shedding, especially if there are disruptions in energy imports or global energy price crises which could lead to shedding ranging from 500 to 1,500 MW