New era | Calls for the abolition of rental power plants are getting louder

The recent Awami League government extended the life of expensive rental power plants to three times the recommended efficient operating life and paid them around Taka 33,000 crore between 2009 and 2023.

Rented power plants, owned by private companies, were originally introduced as an emergency measure to deal with a crippling energy crisis. Plans were developed to replace the plants with less expensive state-owned plants, usually within three to five years.

But the rental power plants remained in place even when installed power generation capacity far exceeded demand and the government found itself with 50 percent overcapacity after building numerous new power plants.

At least 13 leased power plants with a total capacity of 982.5 MW are still in operation in the country, some of which have been in existence for 15 years.

After the incumbent caretaker government took power following the overthrow of Sheikh Hasina, energy experts advised that all leases and short-term rental agreements for power plants be reviewed and terminated.

“Ideally, terminating extended contracts should have no consequences,” says Shafiqul Alam, senior analyst at the Institute for Energy Economics and Financial Analysis.

Since the previous Awami League government had kept all lease and quick-lease agreements for the power plants secret with the help of a compensation law, experts say it is difficult to speculate what legal and financial consequences the termination of the contracts could entail.

The financial consequences include paying a capacity fee for the extended terms, they said, stressing that a careful review of the renewed power purchase agreement could reveal numerous opportunities to terminate these shady deals.

The termination of the treaties will likely have many positive consequences, the Center for Policy Dialogue said in a press conference on August 18.

The think tank recommended that the transitional government reduce overcapacity in the electricity sector by immediately closing leased power plants and providing consumers with some relief from rising energy prices.

Its research director, Khondaker Golam Moazzem, told New Age that the rental power plants would have two important effects: they would lead to rising electricity bills and more subsidies would be provided.

“Rental and quick-rental power plants have lost their economic viability because their operating life has been extended, the capacity fee has been maintained and their prices have not been adjusted,” he said.

Two factors make the rental of power plants more expensive: the use of expensive diesel and heating oil and the claim to capacity fees.

In 2023, the average power generation cost of oil-fired power plants was about 23 taka per unit, while the average power system cost was 11.5 taka per unit. Some oil-fired power plants even spent 40 taka to generate one unit of electricity.

According to the Bangladesh Working Group on Ecology and Development, a platform of green activists, heavy fuel oil was more than four times more expensive than gas and over 37 percent more expensive than coal to generate a unit of electricity in 2023.

In 2023, a unit of electricity generated with diesel will cost eight times more than with gas and three times more than with coal, the working group said.

Regarding gas-based rental power, a report by Petrobangla said that small rental and fast rental power plants required on average 57.4 percent more gas than combined cycle gas and steam power plants.

Capacity fees, on the other hand, are the amount of money that the government pays to electricity investors based on the capacity of their plants, rather than on the amount of electricity generated.

The capacity fees included in the power purchase agreements guaranteed significant profits for electricity investors.

Several extensions of these contracts, always with the claim to capacity fees, caused a lot of attention.

Of the power plants currently in operation, five were commissioned in 2011, four in 2012, three in 2009 and one in 2010.

“The energy sector has become a tool for transferring public money into private pockets,” said Hasan Mehedi, member secretary of the working group.

Only in May this year, the Awami League government renewed the purchase agreement for the 40 MW Noapara oil-fired power plant, which was built in 2011 and is jointly owned by the Summit and United groups.

Contracts with seven of these power plants were extended in 2021 to 2026, one year before Bangladesh was hit by the dollar crisis and scheduled power outages were officially introduced due to fuel shortages.

Other companies owning the operating rental power plants include Sikder Group, Orion Group, Sinha Group, Baraka Group, Hosaf Group, Banglatrac, Youth Group and Anlima Group.

In September last year, the then government announced that 114 power plants, including 32 leased power plants, had received over Taka 1 trillion in capacity fees over the past 14 years.

According to the government, Aggreko International, Khulna Power Company Limited, Summit Power Limited, Dutch Bangla Power and Associates Limited, Acorn Infrastructure Services Limited, Desh Energy and Max Power are among the top 10 power plants with the highest capacity and highest rental rates.

Renewal of old and obsolete leased power plants costs Bangladesh Taka 2,726 crore per year, including Taka 594 crore as capacity charge, said a report released by the working group in March last year.

As of June this year, Bangladesh’s outstanding bills for rental power plants, quick rental power plants and independent power plants stood at Taka 10,000 crore.

Rental and short-term lease power plants are also blamed for the mounting losses of the Bangladesh Power Development Board, which stood at Taka 43,539 million last year.

In 2022-23, the government paid Taka 39,535 million as subsidies to the power sector.

Neither the energy minister nor the member of the energy development committee responsible for independent power plants answered telephone calls.