Budget should focus on renewable energy as a better alternative: IEEFA analyst

Average electricity production costs Tk 10 per unit and solar power will cost much less, says Shafiqul Alam

Solar power could be a better alternative for the government to offer people a respite from skyrocketing energy prices due to the surging dollar, says Shafiqul Alam, an energy expert from the US-based Institute for Energy Economics and Financial Analysis (IEEFA).

The government must focus on solar power in the upcoming budget as part of its cheap and sustainable energy plan, he said.

Shafiqul shared his recommendations to overcome the energy crisis in an interview with bdnews24.com as the government is set to table the 2023-24 budget in parliament on Jun 1.

IS SOLAR POWER THE ONLY ALTERNATIVE?

The upcoming budget is an opportunity to put the power and energy sector on a reasonably priced and sustainable path, said Shafiqul. As power and fuel prices surged in Bangladesh due to price hikes in the global market, cheap and long-term solar power projects could be a better alternative, he said.

His logic was that the average electricity production cost is over Tk 10 per unit, while solar power would cost much less.

“If solar power can be provided commercially at Tk 8 per unit, it will push down the average national power production cost.”

The dollar crisis is one of the factors behind the energy crisis, said Shafiqul. He shared long-term plans that could help the government overcome both crises.

“Around 10-15 years ago, the challenge was to ensure electricity for all. Now we’re well-equipped to address it, but face problems due to the Ukraine war and other issues. We can’t buy gas and coal due to the existing dollar crunch.”

He drafted some recommendations which mostly include the use of renewable energy.

“Firstly, [the government] should allocate a budget to implement the plans for locally available gas. Secondly, they should allocate enough to the projects designed to quickly find renewable power and energy. Besides, they should delay floating tenders for new fossil fuel-based power plants. The existing plants are enough to meet the current demand."

"The authorities should convert the power plants which are 30-40 years old and have a high production cost, into ones using renewable energy."

SOLAR PLANTS CAN ‘INCREASE PRODUCTION, REDUCE EXPENSE’

"The budget must provide guidelines to increase the production of renewable energy, maximise utilisation of self-generated energy, reduce dependence on imported energy, and modernise old, inefficient power plants by switching to renewable energy,” said Shafiqul.

"Initiatives to set up solar plants in 10-15-year-old power plants in the private sector will increase power generation capacity and reduce expenses."

Currently, there is an import duty of 15-38 percent on rooftop solar equipment. Although it is not possible to withdraw the tax completely from the budget in such a short space of time, it should still be brought down to the minimum level, said Shafiqul.

"Once such a plant is set up, the benefits will be felt for 25 years, which, in the long run, will reduce the cost of power generation."

Apart from this, a lot of money can be saved by concentrating on the implementation of the solar irrigation plan and abandoning diesel-powered irrigation, Shafiqul said.

The analyst said that there could be a provision in the budget for government incentives for solar panel manufacturing companies in Bangladesh, similar to steps taken in India.

“A competitive market should be created in setting up solar plants. In the case of projects of 200 MW or larger, the cost will further come down from the current Tk 7 per unit if the 'open rate' system is adopted. Rooftop solar now costs Tk 5-6 per unit. If the import duty is withdrawn, the cost of each unit will come down to Tk 4.5.”

"And in the case of the commercial model, the cost will be Tk 7.5-8. Even after adding the investor's profit share, it will still be much lower compared to the prevailing power plants.

PLAN FOR 'SOLAR POWER STORAGE' IN THE BUDGET

Shafiqul said that since solar power runs out when the daylight is gone, the government can opt for a pilot storage project for 2-3 hours.

“Though storage is very expensive now, the government can plan some solar power projects along with two-hour storage facilities on an experimental basis in this budget. The government can set up funds for this.”

“It can lead to gaining some experience in the sector. The purpose will be to provide support from the solar system even during the peak hours in the evening. In addition, the government will get an opportunity to create a guideline after gaining some experience in operating the storage system.”

"EVALUATION IS NEEDED TO ENSURE AFFORDABLE PRICES"

Asked how power could be produced at a cheap rate, Shafiqul said that the government has to do an analysis of the existing power plants, those that are being developed, and how to get electricity at the cheapest price if renewable energy is added to it.

"Regularly increasing prices or increasing import dependence is not a solution. To accomplish this, we will need several things, including an action plan.”

“Besides the budget, electricity needs to have its own annual plan. There needs to be an annual plan for affordable power in the power sector's master plan. There also needs to be analysis of why certain things could not be achieved."

'OPPORTUNITY' TO REDUCE INDUSTRIAL ENERGY USE

Asked how to reduce the pressure of energy imports, the analyst said there is an opportunity to reduce the consumption of energy by 20-25 percent in the industrial sector through the use of proper energy management and efficient equipment.

In the fiscal year 2021-22, it was observed that a total of 367 billion cubic feet of gas was consumed through the connection of gas-intensive industries and captive power plants.

“This is 36 percent of our national gas consumption. We import 240 billion cubic feet of gas annually. Due to the inefficiency of private and industrial connections, gas consumption is high," he said.

“The industrial sector alone can reduce gas consumption by 20 percent or 73 billion cubic feet by increasing efficiency. If this is done then the supply system can be maintained at the present rate even after reducing the import of gas by 30 percent. There is a need to implement the master plan in the budget to reduce the use of electricity in industries. Setting a target to reduce the consumption of gas by major consumers can be considered because they have sufficient opportunities to improve their energy efficiency.”

Although there is a need for private investment in the energy sector, Shafiqul believes that the investment should be competitive.

“If there is no competition, there will be no cheap electricity. Essentially, without competition, no government project can establish price fairness.”