What the energy sector budget should look like during a pandemic

What the energy sector budget should look like during a pandemic
The cover fiscal 2020-21 is reported to be the most challenging financial bills in Bangladesh's recent history.

The serious fiscal constraints faced with the government as a result of pandemic would make it difficult to implement the budget as per target.

It is expected that each of the budget implementing agency will reprioritise their respective budget allocation and can rationalise their expenditure given the government's limited fiscal space.

Because the power sector is probably the most priority sectors in the national budget, it includes a essential role to play in attaining the changing budget priorities.

Unlike the national budget for earlier years where allocative priorities are set for development of generation, transmission and distribution system of the power sector, this year's priority ought to be set for rationalisation of sectoral budget allocation and contribution towards earnings mobilisation.

The rationalisation of the energy sector budget allocation has been further reinforced because of the growing financial burden on the power division due to excess electricity generation capacity, which has increased further during the pandemic.

An analysis of the budget allocation for the energy sector in fiscal 2020-21 will understand what sorts of reprioritisation of budget allocation and rationalisation of expenditure will be needed during the year and beyond.

The growing financial burden is a significant concern for the energy division due to excess generation capacity (technically, it really is reserve capacity) developed through the years.

For example, on 16 June, the volume of overcapacity was 59 % (9,437 megawatts). Consequently, a sizable number of power plants were sitting idle.

On 17 June, as much as 45 power plants were unutilised. Such underutilisation of power plants makes the Bangladesh Power Development Board (BPDB) pay a minimum capacity payment to individual power producers.

The capability payment in fiscal 2017-18 was Tk 6,341 crore, which jumped to Tk 8,929 crore in fiscal 2018-19.

Within nine years, capacity payment has jumped as high as 398 per cent (it had been only Tk 1,790 crore in fiscal 2009-10).

With the rise in capacity payment, the entire subsidy taken from the federal government was needed to devote to meeting that payment.

For instance, during fiscal 2018-19, the quantity of capacity payment was Tk 9,500 crore, that was almost equivalent to the quantity of subsidy received by the energy division in fiscal 2018-19.

A big share of BPDB's expenditure is associated with the purchase of electricity from independent power producers and quick rental power plants.

Purchase of coal is another major head of expenditure.

The financial burden has been increasing due to the large amount of import of fossil fuel every year.

The import cost for petroleum has significantly increased in recent years, which was as high as $4.5 billion in fiscal 2017-18 and $4.1 billion in fiscal 2018-19.

However, through the pandemic, the costs of crude oil and petroleum products declined significantly, which would be a partial relief for the BPDB in lowering its import payments for primary energy.

Little effort was created to reduce dependence on fossil fuel-based power generation, which could drastically reduce import cost for primary energy.

The cover fiscal 2020-21 has allocated Tk 24,853 crore to the energy division, which is 4.9 % greater than the revised cover fiscal 2019-20.

More than 99 % of this budget is allocated for ADP projects to implement 88 projects.

Nearly all these projects will be 'continuing' projects (40.6 % of the full total allocated budget), accompanied by 'carry-over' projects (28.4 %) and 'concluding' projects (31 per cent).

Of the, only 18 projects will be completed/near to completion in fiscal 2020-21, where one-fifth of the total budget will be utilized.

The carry-over projects (27) would make smarter progress during fiscal 2020-21, though few of those projects would not become more than 60 per cent complete.

The best number of projects to be 'completed' (10) will be 'concluding projects'.

As many as 25 'concluding projects' will not be completed promptly, which makes up about 71.4 % of the full total projects.

Given the surplus generation capacity, less priority should be directed at fossil fuel-based power generation projects.

As high as 19 power generation projects will be implemented during fiscal 2020-21, where in fact the significant allocation of the budget has been earmarked (Table 1).

Such allocation will complete several fossil-fuel projects through the fiscal year, which should be deferred.

These projects are the construction of Bibiana-3 400 megawatt (MW) combined-cycle power plants (CCPP) and emergency assistance projects for Bangladesh Rural Electrification Board.

This 400 MW CCPP will be finished with an allocation of Tk 535 crore, which Tk 40 crore will be financed from domestic sources.

Besides, one coal-fired and one furnace oil-based power plant projects will receive a significant amount of allocation.

Both of these projects could possibly be deferred, and resources could possibly be saved for using alternate purposes.

A complete of Tk 147 crore has been allocated from the earnings budget to conduct a feasibility study for the establishment of a coal-fired power plant.

This project should be cancelled, and resources could possibly be used for alternate purposes.

Allocation of Tk 124 crore could be saved from the revenue budget if setting up a power generation plant could be deferred.

Similarly, Tk 578 crore of the earnings budget could be saved if the implementation of a coal-fired power plant could be deferred, which is jointly implemented with project support of Tk 3,092 crore in fiscal 2020-21.

The government should rethink its earlier decision of financing coal-fired power plants together with seeking funds from development partners for establishing coal-fired power plants.

An allocation of Tk 250 crore has been designed for land acquisition and land development for a coal-fired power plant, that could be cancelled.

Similarly, the investments made for land acquisition (Tk 160 crore) for a coal-fired power plant and for conducting for a feasibility study (Tk 5 crore) for another coal-fired power plant ought to be cancelled.

The decision to defer and cancel selected generation projects would release about Tk 914 crore from the revenue budget and Tk 2,507 crore from foreign aid in fiscal 2020-21.

Allocative priorities should be given to transmission and distribution related projects to upgrade the related infrastructure.

Among 26 transmission projects to be implemented this season, only five projects get enough allocation for completion in fiscal 2020-21.

However, another six are 'carry-over projects', and six are 'concluding projects', which will be completed in full if an additional allocation is perfect for these projects.

Similarly, out of 39 distribution-related projects, only nine projects received an allocation for completion this fiscal year.

Another nine 'carry-over projects' and 12 'concluding projects' could be completed at the initial if enough allocation has been made. 

A mechanism needs to be developed to reduce the excess installed capacity beyond the officially declared level of reserve capacity (25 %).

The estimated excess capacity is amounted to be 6,893 MW. Gradual retirement of quick rental power plants (1,920 MW) will be the first step to lessen the over-generation capacity.

Besides, power plants operate with a very low degree of efficiency could be retired and the responsibility of overcapacity could possibly be reduced accordingly.

In this connection, 6,159 MW worth of power generation plants currently at different degrees of implementation should be deferred or cancelled.

A fresh outlook is needed for renewable energy-based power sector development in Bangladesh.

At the moment, four solar and one hydropower projects generate 300 MW worth of electricity.

Similarly, a restricted number of renewable energy-based power plants are in the pipeline.

Under the public sector, only three projects are in the pipeline with a combined capacity of 162.5 MW.

Under the private sector, the renewable energy projects would add a generation capacity of 2,024 MW.

Another 927 MW worth of renewable energy projects has received the LOI/NOA/completed tender process.

The federal government should take the initiative to popularise the net metering system and increased utilization of rooftop solar power system. 

More investment is necessary for technological improvements for developing longer duration power storage battery.

In this connection, incentivising renewable energy-based projects at the private sector may help popularise its use even at a small scale (e.g. rooftop, school, etc).

The federal government should renegotiate with development partners or the private sector regarding redirecting project the help of implementing generation-related projects to clean-energy, efficiency-enhancing, and transmission and distribution-related projects.

Specific negotiation has to be launched with those development partners and foreign direct investment-led initiatives that are funding coal-fired or fossil fuel-based power plants to redirect their investment towards clean-energy based power plants. 
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