Excess electricity capacity threatens subsidies, consumer bills

Electricity excess capacity has now become a greater concern than the power shortage in the country.

While the maximum demand over the next five years is estimated to be near 24,000 megawatts (MW), the then Awami League (AL) government aimed to create a capacity of 40,000 MW by 2030.

The government also plans to increase production capacity to 35,000 MW. Experts warned that this will further increase capacity charges - the cost of keeping more power plants idle than necessary - which will ultimately pressure government subsidies and the electricity bills of ordinary citizens.

Anxiety grows as capacity rises faster than demand

Stakeholders claimed that it is not possible to immediately unload the burden of past planning errors, but the government can significantly reduce future losses by making correct decisions.

Although electricity consumption is increasing annually, the country’s peak demand is projected to be around 24,000 MW by 2030.

According to international standards, an additional 20 to 25 percent production capacity, known as spinning reserve, is maintained alongside actual demand to ensure emergency situations, maintenance, and uninterrupted supply.

Based on those calculations, the total requirement for the country in 2030 should not exceed 30,000 MW. However, production capacity is being increased to 35,000 MW per the government’s plan.

In reality, once current projects under construction are completed and the Rooppur Nuclear Power Plant comes into operation, capacity could reach nearly 37,000 MW. While some old and expired plants will be shut down, a significant excess capacity will remain.

Experts said this excess means more plants will sit idle while the government must pay regular capacity charges, increasing production costs and ensuring the Power Development Board (PDB) continues to suffer losses.

Ultimately, to manage this pressure, the government will have to increase subsidies or hike electricity prices.

Impact of decisions made during the AL era

The equation to recover from this is quite complex because the work on numerous power plants began during the AL’s tenure, following their target of 40,000 MW by 2030. Consequently, there is little opportunity for the government to exit this situation immediately.

It is reported that 31 power plants are under construction, scheduled for completion by 2030. Most of these are fossil-fuel-based with a total capacity of around 5,500 MW.

Tenders for 14 more power plants with a total capacity of 565 MW are in process. The 2,400 MW Rooppur Nuclear Power Plant is expected to start production in 2027. Meanwhile, the government has announced plans to generate 10,000 MW from renewable energy and review various power plant contracts.

How realistic are the demand forecasts?

Future demand is typically determined based on the country’s GDP growth. According to World Bank analysis, the growth rate of electricity demand in Bangladesh is around 1.03 times the GDP growth.

However, there are allegations that during the AL, both GDP growth and electricity demand were planned using figures higher than reality, leading to the construction of far more plants than needed.

In the 2010 Power System Master Plan, demand for 2015 was estimated at 10,280 MW, but in reality, it was around 7,000 MW. Similarly, forecasts for 2020 were 17,300 MW and for 2025 were 25,200 MW. Yet, the country’s peak demand has remained limited to around 18,000 MW.

While GDP growth was 3.49 percent in the 2024-25 fiscal year, historical evidence showed growth targets are rarely fully implemented. Analysts believed that even with a maximum growth of 7.5 percent, peak demand in 2030 might only reach 24,000 MW.

Statistics from the last decade show demand has grown by an average of 800 MW annually. Peak demand was 8,500 MW in 2016, 9,600 MW in 2017, 11,500 MW in 2018, 12,600 MW in 2019, nearly 12,000 MW in 2020, 12,700 MW in 2021, 14,200 MW in 2022, 14,550 MW in 2023, 16,477 MW in 2024, and around 16,280 MW in 2025.

This year, peak demand increased to nearly 18,000 MW. Experts suggested that if around 500 factories closed due to fuel crises and other reasons reopen, demand could grow by 1,000 to 1,200 MW per year, but demand in 2030 would still stay within 24,000 MW.

Extra burden of capacity charges

The two major components of production costs are fuel costs and capacity charges. Capacity charges include investment, interest, profit, employee salaries, and other operational expenses. Consequently, the government must pay this amount even if the plant does not produce electricity.

While production capacity is nearly 29,000 MW, peak demand is about 18,000 MW, and actual average production remains between 14,000 and 15,000 MW. In winter, demand often drops below 10,000 MW. This results in many idle plants that still require regular capacity charges.

Over the last 15 years, the state spent around Tk 2,15,000 crore in this sector alone. There are also long-standing allegations of irregularities and corruption regarding plants built without competition under the Indemnity Act during the AL era.

Government’s Position

The interim government formed a committee led by Justice Moyeenul Islam Chowdhury to review these contracts. The committee’s report identified capacity charges as a primary reason for the financial crisis in the power sector and highlighted corruption in plant construction.

Power, Energy and Mineral Resources Minister Iqbal Hassan Mahmood said, “A major financial pressure is being created on the government due to the payment of capacity charges.”

Bangladesh Energy Regulatory Commission (BERC) Chairman Jalal Ahmed added, “One of the main reasons for the increase in power generation costs is now the capacity charge.”

On 6 June, State Minister Aninda Islam Amit said, “The current situation in the power sector has been created due to the wrong policies of the previous government. Excess production capacity compared to demand has now become a major burden.

“Large sums of money are being spent on idle plants even without producing electricity. To get out of this situation, the government is implementing long-term reform plans in the power and energy sector.”

Consumers Association of Bangladesh (CAB) Energy Adviser Shamsul Alam noted, “A major crisis has been created in the power sector as a result of the previous government’s wrong planning, irregularities, and looting.

“Due to excess production capacity, both subsidies and pressure on consumers are increasing rapidly. In this situation, increasing production capacity may further complicate the problem.”

Institute for Energy Economics and Financial Analysis (IEEFA) Lead Energy Analyst for Bangladesh Shafiqul Alam added that if capacity reaches 35,000 MW by 2030, the reserve margin will be much higher than international standards, leading to higher costs and capacity payments.

He said, “It is not enough to just have extra power plants; there must also be a guarantee of the necessary fuel for them.”

Shafiqul suggested that while there is no immediate solution because large projects are already under construction, the situation can improve after 2030 by phasing out old, inefficient plants and focusing on renewable energy.

A report by the Centre for Policy Dialogue (CPD) on 23 June 2024 said considering actual demand, the electricity requirement would be around 19,377 MW. Even with a 25 percent reserve margin, the total requirement would be about 23,252 MW.