The country’s excessive dependence on fossil fuel imports has severely affected both the power and energy sectors, leading to soaring revenue shortfalls. Renewable energy even without battery storage can provide a partial relief, said Shafiqul Alam, Lead Energy Analyst for Bangladesh at the Institute for Energy Economics & Financial Analysis (IEEFA), in an exclusive interview with Bangladesh Post.
He said energy is no longer cheap in the country adding pressure on different consumer groups. Industrial competitiveness is also being affected.
Replying to a set of queries made by Bangladesh Post, Shafiqul Alam covered wider aspects of renewable energy, its problems, prospects and future in Bangladesh.
Below are the excerpts of the interview.
Bangladesh Post: We know that Bangladeshis keen to spur renewable energy (RE) expansion, particularly solar. So, as an analyst how could you define the necessities to explore new horizons of RE to scale up countries' energy security?
Shafiqul Alam: Certainly, stakeholders’ interest in renewable energy increased in the last two years mostly driven by the high price volatility of fossil fuels in the international market and energy security concerns.
Bangladesh needs to supply sufficient energy at affordable prices to ensure energy security. In the last two years, the country suffered on both fronts: (i) the country found difficulty in supplying sufficient energy to meet demands and as such, load shedding and gas rationing were rampant. (ii) Tariffs for electricity and different fuels have increased frequently. Energy is no longer cheap in the country adding pressure on different consumer groups. Industrial competitiveness is also being affected.
There are two other dimensions of energy security: internal and external. Many countries, which do not have enough internal resources, rely on external sources (imports) to meet their energy demands. By exploiting local resources, a country can enhance its energy security. Here renewable energy has two-fold advantages for Bangladesh: (i) Even utilizing solar energy during the day peak, the country can reduce the substantial amount of energy purchased from oil-fired plants and thus limit imports of furnace oil and diesel; (ii) oil-fired plants produce very expensive electricity - if solar power replaces oil-fired power during the day peak, Bangladesh can reduce costs significantly. For instance, the current tariff of solar power is much lower than the average cost of oil-fired power which was over Tk 22/kWh during 2022-23.
If industries and commercial buildings utilize rooftop solar and the country gradually increases the number of solar irrigation systems, we may significantly improve on the energy security front.
The country’s excessive dependence on fossil fuel imports has severely affected both the power and energy sectors, leading to soaring revenue shortfalls. Renewable energy even without battery storage can provide a partial relief.
Bangladesh Post: In your view, how Bangladesh can scale up electricity production to ensure a greener environment with energy security for our future generation.
Shafiqul Alam: The country’s power sector has a high reserve margin. More base load power plants will be operational soon against a slow trend in power demand growth.
Notably, industries significantly depend on gas-fired captive generation. Unless industrial power demand increases, the reserve margin will remain high, which will posit the need for increasing power tariffs and allocating more subsidies to the power sector. Ensuring reliable electricity supply is pivotal to encourage industries to use grid electricity.
It is also imperative to be cautious while installing future fossil fuel-based power plants, which are mostly implemented as IPPs with capacity payment terms.
However, the high reserve margin is an opportunity to expand renewable energy. Investment targeted for future fossil fuels-based plants can be redirected to promote renewable energy for affordable and secure energy. The country should have a proper renewable energy action plan and a mechanism to track the progress. It should also prepare for the financing needs of the renewable energy transition.
Additionally, exploration of local gas will limit the need for LNG imports and investment in costly infrastructure, helping the country to enhance energy security.
The overall transition must be systematic to avoid further shakeup for which planning ahead is essential.
Bangladesh Post: Bangladesh has the largest off-grid renewable energy network in the world, still this sector lagging behind in drawing due heed of policy makers, why?
Shafiqul Alam:
Solar home systems (SHS) program was a great success. It helped provide electricity to the off-grid rural people during the night, contributing significantly to the rural economy. In fact, enhanced rural activities, supported by SHS, helped shape the GDP of Bangladesh.
However, the SHS program reached saturation following the declaration of 100% electricity access in 2022. In the aftermath, SHS users no longer had the appetite to properly maintain their systems. Without any demand for the replacement of SHS accessories, the solar energy service providers left rural areas.
Regrettably, rural people started feeling the pinch of growing load-shedding amid the Ukraine-Russia crisis led turbulence in the international fossil fuel market. With increasing load-shedding, rural people realized the need for SHS again but in the absence of service providers they could not secure maintenance and replacement services. Many SHS have reportedly become stranded.
Of course, in some SHS, there were quality concerns but if we could have expanded the grid in rural (off-grid) areas slowly and systematically, many of the SHS would perhaps have been operational today.
Bangladesh Post: What could be the ultimate prospect of Rooftop Solar System in a densely populated country like Bangladesh?
Shafiqul Alam: In Bangladesh, where land is scarce and land ownership is fragmented, rooftop solar is an excellent choice to expedite renewable energy. Rooftop solar can reduce the electricity cost of industries and commercial buildings.
IEEFA’s study released in December 2023 concluded that the addition of rooftop solar capacity of 2,000MW could help Bangladesh avoid between US$476 million and US$1 billion) a year by reducing expensive fossil fuel purchases. While there is no assessment of the potential, rooftops of existing industries can offer significant opportunities. Upcoming industries should consider rooftop solar from the outset.
Although rooftop solar can deliver cheap electricity, it is yet to get the much-needed acceleration. Some of the key areas that should urgently be taken care of are:
i. Raising awareness and developing the capacity of stakeholders (ii) ensuring the quality of solar accessories (iii) reducing or removing high import duties applicable for solar accessories(iv) addressing financing challenges (vi) creating a revenue stream for utilities.
Nevertheless, if rooftop solar is to play its part in Bangladesh’s renewable energy portfolio,an inspiring vision from the government is necessary.
Bangladesh Post: What prospect you can see in terms of solar based Irrigation Program?
Shafiqul Alam: Some 1.3 million diesel-run irrigation pumps are operational. By replacing these pumps, Bangladesh can increase solar energy capacity between 3,000 and 4,000 MW. Solar irrigation will help the country avoid approximately USD 500million per annum on diesel imports.
Bangladesh needs to design a structured program with suitable business models to gradually replace diesel-run irrigation systems with solar-powered systems. The availability of low-cost financing will be essential for the sector. IDCOL already has experience and financing facilities, but more financial institutions should support the sector due to the scale of transformation required.
Bangladesh Post: Affordability is a concern in terms of RE, what are your evaluations?
Shafiqul Alam: Expensive land is one of the reasons behind the high tariffs of renewable energy in Bangladesh. Moreover, sub-stations are often located too far from the identified lands and as such, the project costs increase.
If the government can allocate land for some renewable energy projects, bear the cost of transmission lines and introduce reverse auctions (competitive bidding process), solar energy tariffs will come down.
While arranging land for utility-scale renewable energy projectsis difficult, it is not impossible.
Bangladesh Post: What about the budgetary allocations for RE development? How could this address the vulnerable power and energy sectors towards economic sustainability?
Shafiqul Alam: In the latest budget, Tk 100 crore has been allocated for renewable energy. While additional details on the utilization of the renewable energy fund are not provided, it is understandable that the fund is too tiny. The fund size could be increased in the next year and might be used for land development and building transmission lines. The fund could be used as a viability gap funding for renewable energy projects with battery storage. Thus, Bangladesh may reduce renewable energy tariffs and the average power generation cost in the future.
With increasing renewable energy capacity, the country will be able to rein in its imported fossil fuel dependence significantly and stabilize its foreign currency reserves.
