Burden of capacity charges heavier than thought – The Daily Star

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The government-run Tongi 105-megawatt power station did not produce a single watt of electricity in 2017-18, 2019-20, 2020-21 and 2021-22. In the whole year of 2018-19, it generated only 2 percent of its yearly capacity. Yet, it received Tk 133 crore in “fixed costs” for operations and maintenance during these five years.
The 210MW Shiddhirganj power station, another state-owned plant, also produced nothing in three of these five years, and generated only 3-8 percent of its annual capacity in two years. The company received Tk 431 crore in fixed cost, commonly called capacity charge, from taxpayers’ money.
Including these two, at least 42 state-run power stations were paid Tk 13,446 crore in fixed costs between 2017 and 2022, when most of them performed poorly in terms of production, documents show.
The findings by The Daily Star reveal that the government spending on capacity charges for idle power plants is far more than the figure previously reported.
Energy experts and researchers usually question more about the capacity charges paid to private companies known as Independent Power Producers (IPPs). For example, an analysis by the Centre for Policy Dialogue in June showed Bangladesh Power Development Board paid Tk 57,970 crore in capacity charges to IPPs between FY 2017-18 and FY 2021-22.
But when the state-run power companies are taken into account, this figure stands at Tk 99,279 crore, according to year-wise production and fixed cost data obtained from the Power Development Board.
As of last year, there were at least 151 power plants in the country – 63 in public sector and 88 in private sector.
Of these 151 plants, The Daily Star has identified 68 plants – 42 in the public sector and 26 in private sector – that produced 10 percent or less of their Plant Load Factors (PLF) for at least one of the last five fiscal years. In those low-performing years, the total fixed costs for the state-owned plants were Tk 4,141 crore, while the private companies took Tk 7,739 crore.
PLF – a measure of a power plant’s capacity utilisation – is calculated by dividing the total electricity generation in a year by its annual net generation capacity, multiplied by 100.
Between FY 2017-18 and FY 2021-22, eight of the 68 plants produced less than 10 percent in each of the five years while six plants produced less than 10 percent in four consecutive years. Eleven of these 14 plants are state-run.
Together, these 68 plants were paid Tk 29,146 crore in capacity payments during these five fiscal years, which is 29 percent of total expenditure in capacity charges, according to PDB data.
The CPD estimates that as much as 25 percent of the total yearly subsidy allocations goes to the power sector, most of which is channeled to meet the capacity payments.
“In our calculation, the overcapacity will reach 50 percent by 2025. The power plants that have low efficiency should be phased out immediately. But the government keeps those plants as it wants to show that it has increased production capacity in its tenure,” said CPD Research Director Dr Khondaker Golam Moazzem.
DEMAND-SUPPLY GAP
The country’s total gas supply from domestic production and imports is far too short of the demand. Currently, the gas supply stands at 2,700 to 2,900 mmcfd against the demand for 3,600 to 3,800 mmcfd.
Due to this demand-supply gap, the government has to ration gas from one sector to another. This ultimately affects the power sector, which presently gets around 1,200mmcfd of gas against the demand for around 1,700 to 1,800 mmcfd.
“I don’t know how the government plans to build more gas-fired power plants without ensuring gas for those power plants and how it guarantees to supply gas,” said Prof M Tamim, an energy expert.
Prof Tamim, who teaches at Petroleum and Mineral Resources Engineering department of Buet, said at least three gas-fired power plants are ready to operate, but they cannot start production as the government is unable to supply gas as per the agreements.
Recent PDB data show Tongi 105MW power plant has zero gas supply against its demand for 26 mmcfd.
“We face a severe gas crisis in this area. We generate electricity when we get adequate gas,” plant Manager Mohammad Atiqur Rahman said.
Mohammad Jahangir Alam, additional chief engineer of Shiddirganj plant, said the plant has been under maintenance since 2019.
“The Russian contractor is unable to supply some equipment due to the Russia-Ukraine war,” he said.
Except for Tongi and Siddhirganj power plants, the six other plants that produced less than 10 percent PLF are Khulna Power Station, Bangla Trac Power Unit 1, DGD Dhaka, Bhola Power Plant, Kutubdia Power Plant and Sandwip Power Plant.
Several units of Ghorashal power plant, Chattogram Power Station,  Bibiyana Power Station, Shikalbaha 150MW, Shikalbaha 225MW Power Stations are the other state-owned gas-fired power plants that produced under 10 percent of their PLF for at least one year out of the last five years.
The 11 diesel-fired power plants in the public sector sat completely idle for at least two of the five years. During this period, they received operations and maintenance cost worth Tk 592 crore.
“Some power plants are not getting gas supply, which is a problem. But when the companies set up the plants, they took bank loans. They need to repay the loan no matter what. Besides, there is staff salary, operations cost and so on. That is why the provision for capacity payments has been put in place,” said Mohammad Hossain, director general of Power Cell under the Power Division.
‘WRONG MODEL’
Experts have long been criticising the model in Bangladesh’s power sector, especially the capacity payments rate that disproportionately benefits the big corporations.
In July this year, a government report itself acknowledged that the practice of paying capacity charges to power plants is a reflection of ill-motivated contracts.
“This system is not sustainable,” said the report by the Implementation, Monitoring and Evaluation Division (IMED) of the Planning Commission.
However, the report has since been taken down from the government website, and two officials involved in preparing the report were withdrawn and made Officers on Special Duty, which is considered a punishment in civil bureaucracy.
According to Prof Tamim, Bangladesh is “misusing” the capacity payment model.
For example, among the power plants earning huge capacity charges are some furnace oil and diesel-based plants known as “peaking” power plants. These plants are meant to supply only during emergency or during peak hour – hence the name.
“The power plants that are meant to supply electricity only during crisis period usually produce 5 to 15 percent of the Plant Load Factor. But we sign contracts with them to pay for the whole year. This is the problem,” said Prof Tamim.
In some countries, governments are the sole buyers and they pay capacity charges only to the base-load power plants, which run 24/7. Under the contracts, governments must buy at least 80 percent of the electricity generated per year.
“The question of capacity charges arises only when the government fails to buy the agreed upon electricity,” he noted.
As for the “peaking” power plants, Prof Tamim said that in many other countries, there is no question of paying capacity charges for such plants. Instead, tariffs for these plants are set at a rate higher than the base-load plants.
In countries with multiple-buyer system, including in India, governments or private sector suppliers enter into need-based contracts with the power plants and buy the required electricity at a negotiated price. This benefits both the plants and consumers, as there is a competitive environment.
“But we’ve signed contracts with them for at least 80 percent of the Plant Load Factor,” Prof Tamim said.
In addition, some of these plants have long been out of operations and the government had a plan to scrap them in 2008-2009. But these plants are shown operational on papers, and they get large money to pay staff salaries and other expenses.
“The government does this to show high generation capacity,” said Prof Tamim.
As of September 5, the country has 24,171MW power generation capacity a day, but produced highest 15,648MW on April 19. On September 3, the total power generation was 13,824MW against the demand for 14,399MW. When demand rises, PDB needs to shed the load which causes power outages.
Many plants are also in the pipeline and the government plans to increase the capacity to 40,000MW by 2030 and 60,000MW by 2040.
Power Cell Director General Mohammad Hossain said retirement of a power plant is a continuous process. “When a contract is over, the Power Development Board shuts the plant down.”
When pointed out that this is not the case for many low-efficient and old plants, he said, “We have found such a scenario in some plants. Officials employed at those plants worry about their job status in case those plants are shut down. But the ministry always puts pressure [on PDB] to phase them out in time.”
However, he stressed the need for keeping some plants idle in areas where there are no big plants for the emergency period.
“But if it is found that some plants are getting payment for years without producing electricity, it should be taken care of,” he added.
যখন ডেঙ্গু নিয়ে পত্রপত্রিকায় লেখা হচ্ছে, সেই সময় তারা অবকাশ যাপনের জন্য পরিবার নিয়ে বাইরে যাচ্ছেন এবং স্বাস্থ্যমন্ত্রীও একইভাবে বাইরে গেছেন।

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