Over the past decade and a half, Bangladesh's energy and power sector has seen a sharp rise in import dependence. By 2019, the country had an electricity generation capacity that far exceeded demand. Despite repeated warnings from experts, little has been done to reduce excess capacity or curb reliance on imports. While the economic impact of this dependence was not evident until 2019, the financial report of the Power Development Board for the fiscal year 2019-20 highlighted increasing subsidies in the power sector.

The vulnerabilities of the energy sector became apparent when global fossil fuel prices surged following the Ukraine-Russia war in 2022. Even after prices stabilized, the problems in Bangladesh's energy and power sector persisted. Therefore, addressing these issues requires sustainable planning and implementation.

Due to inadequate demand, significant subsidies are paid annually for underutilized power plants. With minimal reliance on weather-dependent solar and wind energy in our grid, the current reserve margin is far above required levels. Future electricity demand forecasts should be more cautious to keep reserve margins manageable and reduce costs. Additionally, careful consideration is needed for the future development of liquefied natural gas (LNG) infrastructure. The master plan for energy and power projects that LNG demand in 2050 could be 4.35 to 9.85 times higher than the amount imported in 2023.

While billions of dollars in subsidies are spent annually on underutilized power plants, industries heavily rely on gas-powered captive generators. This reliance needs to be reviewed, especially since the combined cycle power plants in the grid are far more fuel-efficient than captive generators. Several baseload power plants are also expected to be operational soon. Unless industrial demand for grid electricity increases, subsidies in this sector may rise further.

Discussions on integrating weather-dependent renewable energy into the grid have been ongoing for years. A 2023 IEEFA study revealed that 2,000-3,000 MW of renewable energy could easily be added to the grid, reducing reliance on expensive oil-based power plants. With additional capacity coming online by 2025, more renewable energy could be integrated without battery storage.

However, rooftop solar projects have progressed slowly. Import duties on components for such projects remain high, which policymakers appear reluctant to reconsider. The concern seems to be that duty waivers could lead to revenue losses. Yet, the reality is different—a 100 MW rooftop solar project would generate revenue less than 0.05% of the total revenue collected in the fiscal year 2022-23. On the other hand, the same project would save more foreign currency within a year by reducing oil-based power consumption. Over its 25-year lifespan, the project could save more than 25 times the one-time revenue collected from import duties. These projects also require no land, making duty waivers or reductions for rooftop solar components reasonable.

In the fiscal year 2022-23, approximately 56% of grid electricity was consumed in residential households. With the increasing purchase of electrical appliances, efficient electricity use and waste reduction are essential. Public awareness campaigns can help address this. Various studies have shown significant opportunities for energy conservation in industrial sectors, especially in gas usage. Industrial sectors have also faced energy shortages in recent years. Prioritizing energy audits and management in industries is crucial, and the Sustainable and Renewable Energy Development Authority (SREDA) can play a vital role in this regard.

To make industrial operations more dependent on grid electricity, uninterrupted and reliable supply must be ensured. This requires investment in modernizing the national power grid. Such investment would also facilitate the integration of additional renewable energy capacity into the grid in the future, making grid modernization a justified priority.

To address the challenges in the energy and power sectors, sustainable planning and implementation are essential. However, this transformation must follow a long-term process to avoid escalating costs and inconsistencies caused by hasty changes.

The writer is a Lead Analyst, Institute for Energy Economics and Financial Analysis (IEEFA) on Bangladesh's Energy Sector