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Bangladesh to double fossil fuel imports in coming decade as renewables lag behind

As manufacturing industries gain ground in its primarily agriculture-based economy, Bangladesh is expected to double its imports of fossil fuels in the coming decade and will miss its 2020 clean energy target.

Bangladesh is projected to double its fossil fuel imports in the coming decade amid a supply crunch of domestic coal and natural gas as well as growing electricity consumption in the country, according to energy consultancy Wood Mackenzie.

Meanwhile, the country is set to miss its 2020 target of generating 10 per cent of its power from renewable sources, with clean energy to make up only 2 per cent of total power generation this year.

Wood Mackenzie said total energy demand in the country is projected to increase 27 per cent to 55 million tonnes of oil equivalent (Mtoe) in the next 10 years, causing imports of thermal coal and natural gas to rise to 32 Mtoe by 2030. Its key suppliers are expected to be Indonesia and Australia.

While Bangladesh’s burgeoning population, rising income levels and ongoing rapid urbanisation are driving some of the growth in demand for electricity, it is the nation’s export-driven textile, jute and fertiliser industries which are gaining ground in the country’s primarily agriculture-based economy, that will account for most of the increase.

Electricity demand in Bangladesh has risen by 6 per cent annually in the last decade, and this trend is expected to continue in the coming years. This is due to the country’s relatively low power consumption per capita, with 12 per cent of the population of 160 million still lacking electricity access.

“At the moment, about 60 per cent of power generation in Bangladesh comes from domestic gas supply, which is depleting. To meet this gap, additional capacity will be required as early as 2022,” observed Prakash Sharma, Wood Mackenzie’s Asia Pacific head of markets and transitions, adding that LNG and coal would account for most of the increase in fossil fuel imports between 2020 and 2030.

Although Bangladesh is one the most vulnerable nations to the impacts of climate change, its coal demand is set to grow over fourfold to 12 Mtoe in the coming decade as the government adds import-based thermal coal capacity to bring down electricity generation cost and increase reliability, said Wood Mackenzie. In the global ranking of coal power capacity in active development, the country has jumped from 12th to sixh place in the last three years.

Bangladesh has at least 29 coal power projects with a total capacity of more than 33 gigawatts in the pipeline, with some already under construction. If all the proposed power plants get built, the nation’s coal power capacity would increase by 63 times, according to Australian non-governmental organisation Market Forces.

Burning more coal—the world’s dirtiest fossil fuel—would take a heavy toll on Bangladesh. Not only would the cost of importing the fuel likely result in a negative trade balance, its people, already suffering the world’s worst pollution by weighted population average, would be exposed to dirtier air and more devastating climate change impacts.

Commenting on Wood Mackenzie’s statement that Bangladesh needs coal and liquefied natural gas imports to support “a reliable baseload capacity for its electrification needs”, Simon Nicholas, energy finance analyst at the Institute for Energy Economics and Financial Analysis (IEEFA), said: “Bangladesh does not need more baseload capacity; it needs appropriate power additions that won’t financially imperil the Bangladesh Power Development Board and increase power bills for consumers.”

According to him, Bangladesh’s Power Development Board makes consistent heavy losses that require increasing government subsidies. Last fiscal year, the subsidy reached almost US$1 billion. “Although coal and LNG will initially replace expensive oil and diesel, in the medium term they will replace cheap domestic gas in the power system so the average cost of generation is likely to go up again. That will likely see a need for even higher government subsidies or higher power tariffs for consumers; probably both,” said Nicholas, who is based in Australia and head of Pakistan and Bangladesh at IEEFA, a research organisation that focuses on financial and economic issues related to energy and the environment.

Bangladesh has lagged in efforts to tap its abundant clean energy resources. With government failing to implement financial incentives beyond the feed-in tariffs it pays for green electricity, the country’s nascent renewable energy sector has grappled with a lack of access to finance as well as technical expertise.

Nicholas said: “Bangladesh is not on course to meet its renewable energy target. It needs to step up its ambition in the ever-cheaper renewables space in order to keep the cost of power down as domestic gas becomes less available.”

However, there are positive signs. Last year, Bangladesh signed a S$185 million financing agreement with the World Bank to add about 310 megawatts in clean power capacity. Earlier this year, the Bank of Bangladesh launched a green transmission fund to accelerate the switch to renewables. “This should provide upside to investments in the renewables sector,” said Sharma.

Wood Mackenzie expects renewables to make up 6 per cent of Bangladesh’s power mix by 2030, and 16 per cent by 2040.

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