Jobayer Ahmed’s textile business on the outskirts of Dhaka is going through a rough patch with the energy crisis in Bangladesh.
Production costs at Shah Fatehullah Textile Mills Limited - which employs about 2,200 workers - have risen by 40 per cent in the last two years, Ahmed said, mainly due to the gas price for the company’s in-house power plant having nearly doubled in recent months.
Despite this, “we are still not getting an uninterrupted gas supply, hampering our production,” said the third-generation industrialist who runs one of the nation’s oldest textile mills.
As Bangladesh’s fast-growing economy has shifted to rely more on imported fuels such as liquefied natural gas (LNG) to meet its growing energy needs, volatility in the international market stemming from Russia’s invasion of Ukraine has caused a gas supply crunch and power outages.
And as the appreciation of the dollar against the Bangladesh taka strained the country’s foreign currency reserves, the government has significantly hiked gas and electricity prices over the last year to rein in energy subsidies, a measure that has hit entrepreneurs like Ahmed.
Against this challenging backdrop, Bangladesh has drafted a new Integrated Energy and Power Master Plan (IEPMP) for the 2024-2050 period, with the goal of ensuring an affordable, sustainable and secure energy supply.
Energy experts said the draft plan, soon to be finalised, shows positive shifts - such as reducing an earlier emphasis on coal - but voiced concerns about a growing reliance on LNG and unclear ambitions when it comes to renewable sources of energy.
Several analysts said Bangladesh should invest more in clean energy such as solar if it is to meet a target of generating 40 per cent of its power from renewables, and that doing so would ultimately prove far more economical than spending heavily on fuel imports.
Diversifying the energy mix
The draft plan seeks to address Bangladesh’s longstanding reliance on domestic natural gas, which amounts to more than half of the country’s primary energy supply, by considering options to diversify energy sources.
In 2021-22, 55 per cent of the country’s power was generated from natural gas as it achieved a goal of providing universal electricity access.
Under the draft plan, gas consumption by the energy sector will grow between 160 per cent and 360 per cent to generate 30 per cent of power by 2050. The proposal seeks to accelerate energy imports, as domestic gas production is not expected to rise rapidly.
Imports of LNG are projected to grow to 49 million tonnes in 2050 from 4.6 million tonnes in 2022 to meet rising energy demand.
Mohammad Tamim, professor of petroleum and mineral resources engineering at Bangladesh University of Engineering and Technology (BUET), said domestic fuel sources are insufficient to meet Bangladesh’s needs for power, transport and residential use, making more LNG imports necessary.
The country began importing the super-chilled fuel in 2018 with long-term contracts with Qatar and Oman, as well as from the international spot market.
However, Shafiqul Alam, an energy finance analyst at the Institute for Energy Economics and Financial Analysis (IEEFA), said the plan had overestimated power demands, resulting in an excessive forecast for LNG imports which may not be required.
Costs of LNG
One of the main problems with relying on LNG imports is its price volatility, according to several energy experts.
Bangladesh had to suspend purchases of LNG from the spot market in July 2022 when prices skyrocketed in the wake of Russia’s war against Ukraine.
Warda Ajaz, a project manager at Global Energy Monitor, said last year’s LNG price hike led to very frequent power outages - known as load shedding, and a decrease in industrial output.
“This is the cost of dependency on imported fuel - and the recent energy crisis has provided many examples worldwide to reemphasise this,” she said.
The government recently resumed buying LNG after an eight-month pause, but simultaneously moved to raise energy and power prices and cut growing subsidies that stood at 273 billion taka (US$2.55 billion) in the 2022 financial year.
Such price adjustments have put pressure on businessmen such as textile entrepreneur Ahmed.
“The situation is even more dire for smaller local businesses that supply accessories to larger businesses, and have less financial clout to cope with the energy price hike,” he said.
Helen Mashiyat Preoty, a researcher for the Centre for Policy Dialogue (CPD), a Dhaka-based think-tank, said growing reliance on imported fuel will require substantial investment.
For example, the government has to compensate the two privately-owned offshore systems for storing and re-gasifying imported liquefied gas when they are forced to run below capacity due to shortages of LNG imports, she said.
The government is now eyeing the installation of two more privately-owned offshore units and an onshore LNG terminal, and the draft plan estimates that about half of the required investment for power generation will have to go to the gas sector.
Instead of leaning towards LNG imports, Bangladesh should ramp up natural gas exploration at home, some experts said.
Badrul Imam, a professor of geology at the University of Dhaka, said the country has not placed sufficient emphasis on exploring for gas in the last two decades despite the “high potential” of discovering more gas fields on land and at sea.
As a result, domestic gas output has reduced since 2016 - leading to increasing dependence on costly LNG imports, he said.
Clean energy transition
The energy plan’s reliance on imported fossil fuels is also at odds with Bangladesh’s policy priority to grow the share of clean energy in its power mix.
While natural gas is less polluting than coal or oil, gas is still a major driver of climate change. It is almost entirely methane - a greenhouse gas that is much more potent than carbon dioxide in the short term if it is released into the atmosphere.
In 2021, the Bangladesh government set a target to generate 40 per cent of its power from renewables, up from a previous aim of 30 per cent.
The nation’s renewable energy capacity stands at 967 megawatts (MW), which is just over 3.7 per cent of total installed power generation capacity.
To attain the 40 per cent target, the draft plan includes options such as boosting use of nuclear power, carbon capture and storage technology and ammonia and hydrogen technologies.
But Shahriar Ahmed Chowdhury, director of the Centre for Energy Research at United International University, said many of those technologies are at the early stages of development.
Instead of exploring untested technologies, the plan should work out clearer strategies for proven clean energy sources such as solar power, experts said.
Alam from the IEEFA said Bangladesh could immediately implement about 12,500 MW of renewable power by deploying solar power on rooftops and other available areas without taking up any agricultural land in the space-starved country.
Such renewable investment could also save a substantial amount of spending on fuel imports, according to analysts.
A recent study by three energy think-tanks said solar generation in seven Asian nations – China, India, Japan, South Korea, Vietnam, the Philippines and Thailand – had helped them save potential fossil fuel expenditure worth US$34 billion in the first half of 2022, equal to 9 per cent of their fossil fuel costs.
Alam said Bangladesh could save about US$1.1 billion on fuel import costs annually by installing 2,000 MW of solar power and replacing diesel-run irrigation with solar-powered systems.
In a 2021 climate plan, the government said transitioning from fossil-fuel dependency to a low-carbon model focused on renewables and energy efficiency could create up to 55,000 new jobs between 2016 and 2030.
But growth of solar energy in Bangladesh, despite its potential, has been constrained by barriers like high tax rates.
Textile entrepreneur Ahmed said that installing solar power often still proved costly for businesses, with a tax of 37 per cent-58 per cent levied on rooftop solar technology components like inverters.
Alam of the IEEFA said that Bangladesh’s draft energy and power master plan is still a work in progress.
“The government could still incorporate changes to chart out better strategies for renewable energy,” he added.
This story was published with permission from Thomson Reuters Foundation, the charitable arm of Thomson Reuters, that covers humanitarian news, climate change, resilience, women’s rights, trafficking and property rights. Visit https://www.context.news/.
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