The Capacity Trap

Bangladesh has repealed the Quick Enhancement of Electricity and Energy Supply (Special Provisions) Act, but the financial obligations created under it remain. Adopted in 2010 during a severe electricity shortage, the law allowed major power and energy projects to proceed outside ordinary public procurement procedures and restricted judicial scrutiny of decisions taken under it. In November 2024, the High Court declared Sections 6(2) and 9 illegals. Parliament later enacted the Quick Enhancement of Electricity and Energy Supply (Special Provisions) (Repeal) Act, 2026. The repeal took effect from 28 November 2024 but preserved agreements and measures concluded earlier and permitted ongoing activities to continue. It also retained the government’s authority to review them in the public interest. The legal position is, therefore, straightforward: the exceptional procurement route has ended, but contracts signed under it have not automatically disappeared. Bangladesh has removed the law from the statute book yet remains bound by many of the payment obligations it created during its operation.

The largest burden is visible in payments made to producers for keeping generation facilities available, even when the Bangladesh Power Development Board (BPDB) does not purchase electricity from them, subject to the terms of each agreement. Such arrangements are common in power systems that need a reserve for maintenance, breakdowns and sudden changes in demand. The problem begins when the volume and cost of contracted supply exceed what the system can use efficiently. A June 2026 report citing an assessment by the Bangladesh Energy Regulatory Commission (BERC) projected capacity payments and rental charges of Tk52,608 crore for FY2026-27, against Tk48,260 crore in FY2025-26. BPDB’s payments under this category had already risen from Tk36,764 crore in FY2023-24 to Tk45,451 crore in FY2024-25. The electricity subsidy allocated in the FY2026-27 budget was around Tk37,000 crore, while the same assessment estimated an operational gap of roughly Tk15,000 crore. These amounts belong to different accounting categories and should not be treated as identical expenditures. Their combined message is nevertheless difficult to miss: BPDB continues to depend on substantial public support while carrying long-term obligations for generation that may not always be needed or used.

Installed capacity alone cannot show whether an electricity system is secure. It records the rated output of power plants under specified conditions, not what they can deliver at a particular hour. A plant may lack gas, coal or imported fuel. It may be under maintenance, unavailable for technical reasons or too expensive to operate. According to Power Grid Bangladesh, the country reached a record generation level of 17,200 megawatts on 20 May 2026, even as demand continued to exceed supply. A BERC assessment, cited in June, placed overall generation capacity at around 29,000 megawatts and average demand at roughly 15,000 megawatts. These figures refer to different operational measures and cannot be used as a simple calculation of idle supply. They do, however, expose the gap between rated capacity and dependable output. Institute for Energy Economics and Financial Analysis (IEEFA) estimated Bangladesh’s reserve margin at 61.3 per cent in FY2024-25, or 58.6 per cent after adjusting for derated capacity. This was an analytical estimate, not an audited BPDB figure, but it points to the central weakness: adding plants does not guarantee reliable electricity unless demand, fuel availability, plant condition, transmission readiness and operating cost are considered together.

Bangladesh’s fuel mix makes that mismatch more expensive. IEEFA estimated that oil-fired plants supplied 10.7 per cent of electricity in FY2024-25 and that private oil-fired plants received average capacity payments of about Tk9.5 per kilowatt-hour, compared with Tk5.9 for private coal plants. Oil-based generation can help meet short periods of high demand, but sustained dependence on it exposes the system to costly fuel imports. The same assessment found that imported sources accounted for 62.5 per cent of primary energy in FY2024-25, up from 47.7 per cent four years earlier, while renewables provided only 2.3 per cent of grid-based generation. International fuel prices, supply disruptions and depreciation of the taka can, therefore, raise electricity costs quickly. The special law did not create domestic gas shortages, global price volatility or weaknesses in transmission. Its effect was narrower but serious: it allowed major commitments to proceed without the price comparison and documented scrutiny normally provided by open bidding. Without competing offers, the government had a weaker basis for demonstrating that tariffs, fuel assumptions, currency exposure, guaranteed returns and payment formulas represented the least-cost option for the country.

The next step must be a contract-by-contract review based on published legal, financial and technical criteria. Agreements involving credible evidence of fraud, misrepresentation or illegality should be challenged through the available judicial or arbitral mechanisms. Legally valid contracts that impose excessive costs should be renegotiated, with close attention to payment formulas, fuel-cost adjustments, currency indexation, extensions, plant efficiency and actual availability. Future projects should return to open competition as the default, while unsolicited proposals should face independent evaluation and public justification. No new generation agreement should be approved without a realistic demand forecast, confirmed fuel supply, transmission readiness and comparison with alternatives such as retiring inefficient plants, reducing system losses, expanding renewable generation or purchasing electricity regionally. Progress should be measured by visible results: whether avoidable payments decline, persistently underused plants are retired, major contract terms become open to regulatory scrutiny and new projects are awarded competitively. The law has been repealed. The real test is whether the cost of the system now begins to fall.
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The writer is an Assistant Professor in the Department of Philosophy at IUBAT and is currently on study leave, residing in Oslo, Norway