Bangladesh’s half-hearted move away from coal slowed by poor planning and lobbying: Experts

The decision to permit any coal projects to go ahead is set to fuel social and environmental ills in the country, while a shift to gas instead of clean energy will bring financial risks amid ongoing gas market volatility.

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A coal-fired power station. Image: Jaroslav Moravcik via Shutterstock

Bangladesh scrapped 10 coal power plants on Sunday, but it could proceed with up to eight other coal ventures and convert several cancelled projects to natural gas. This tentative transition away from fossil fuels suggests poor energy planning and unhealthy corporate influence in the country, according to experts.

The two rationales provided by the government for the cancellations are growing environmental concerns and the projects’ lack of progress towards completion.

Nasrul Hamid, state minister for power and energy was quoted saying that the nation’s signing of the Paris Agreement and its Prime Minister’s role as the chair of the Climate Vulnerable Forum, an intergovernmental organisation of countries most affected by climate change, made it “essential for us to generate electricity through more environmentally friendly means”.

Yet allowing the remaining projects to be built puts the lives of the country’s exceptionally climate-vulnerable population at risk, said Julien Vincent, executive director at Australian non-profit Market Forces. It will also saddle the energy system with a growing financial burden while worsening air pollution.

“It is concerning to see several coal power stations allowed to continue when these projects have demonstrated how environmentally and socially disastrous coal power is,” he said.

Simon Nicholas, energy finance analyst at the Institute for Energy Economics and Financial Analysis (IEEFA), an energy think tank, said Bangladesh appeared to have recognised the increasing difficulty in securing finance for coal-fired power as more banks ditch the fossil fuel.

The decision also comes as diplomatic moves to cut emissions gain momentum around the world in the run-up to this November’s United Nations climate change conference in Glasgow (COP26), piling more pressure on policymakers to turn their backs on the dirty fuel, he told Eco-Business.

“On top of this, Bangladesh already has too much power capacity, with a lot of it sitting idle much of the time whilst receiving expensive capacity payments so it makes sense for the country to pare back its capacity addition plans,” he said.

Gas not the answer

But switching from coal to gas will increase Bangladesh’s reliance on imported liquefied natural gas (LNG), posing financial risks in the wake of persistent gas price fluctuations that could render gas-fired electricity unaffordable when prices spike, Nicholas said.

It will also do little to address Bangladesh’s overcapacity problems. Earlier last year, an IEEFA study found that the country’s initial plan for coal and the proposed transformation to LNG power would lead to “substantial overcapacity”. Between 2018 and 2019, Bangladesh only used 43 per cent of its existing power plant capacity.

In January, LNG prices hit levels 18 times higher than six months before. Another IEEFA report warned that such erratic price movements put gas projects worth US$50 billion in Bangladesh, Pakistan and Vietnam at risk, and predicted that market volatility was set to continue.

“LNG prices have been rising again recently and Bangladesh is now paying double what it was two months ago,” Nicholas said. “Bangladesh’s latest five-year economic plan recognised that reliance on fossil fuel imports would increase the cost of power generation. An inevitable result of that would be higher power tariffs for consumers. This needs to be avoided.”

Given Bangladesh’s surplus power capacity, the government should switch focus to transmission and distribution infrastructure investment to meet future power demand growth by making better use of existing capacity, he said. In addition, it should start working in earnest towards its new target of reaching 40 per cent renewable energy by 2041.

“For a long time, many in Bangladesh felt that the nation’s population density meant that there wasn’t the space for a major roll-out of renewable energy installations. But the government now seems to be more in agreement with plans proposed by the country’s Sustainable and Renewable Energy Development Authority (SREDA),” said Nicholas.

SREDA, a Bangladeshi government agency under the energy ministry responsible for ramping up renewable energy production, released a national solar roadmap last December that recommended an ambitious solar target of 30,000 megawatts by 2041.

Coal’s uncertain fate

The idea to retreat from coal power was first floated last year, when the country had 29 coal plants in the pipeline, with work underway on at least 18 of the projects, as coal companies struggled to access finance.

The government said it intended to “review” all but three of these 29 plants, with the energy ministry recommending that just five of the 18 projects that had made progress should be completed as coal-fired plants.

Some of the 18 coal ventures are already under construction and are set to continue, said Nicholas. Yet it remains unclear what projects will remain in the pipeline after the latest cancellations.

“Some of the remaining proposed coal power projects seem highly speculative and will almost certainly not go ahead,” he said. “I expect that when the last of the coal power plants under construction is completed, that will be the end of coal-fired power additions in Bangladesh.”

According to news reports, the list of cancelled projects includes the Patuakhali plan, North Bengal plant, Mawa plant, Dhaka plant, Chattogram plant, Khulna plant, two Mahaeshkhali plants, the CPGCBL-Sumitomo plant, and the Matarbari plant, which was to be built by Singapore energy firm Sembcorp.

The ventures had originally been included in a power development blueprint released a decade ago. The document predicted that coal and gas would each make up 35 per cent of the electricity mix by 2041, with renewables and imported fuels only contributing 15 per cent. But experts have since pushed the government to revise these plans.

Vincent said that the decision to go ahead with projects like the 1,400-megawatts Matarbari power station—which has drawn criticism for community displacements and the violation of workers’ rights—could only be the result of “intense lobbying by Japan to keep most of its proposed coal projects on the table.” The East Asian nation is the second-biggest financier of coal globally after China.

The controversial venture is uniquely financed by the Japan International Cooperation Agency (JICA), which allocates government-sponsored funds to developing countries, and being built by a consortium of Japanese firms that includes Sumitomo Corporation, Toshiba and IHI Corporation.

Japanese state-owned insurer Nippon Export and Investment Insurance is providing export credit insurance coverage for the venture, while Japanese lender Sumitomo Mitsui Banking Corporation is functioning as financial advisor.

Tellingly, it was also JICA that prepared Bangladesh’s coal-heavy power system master plan in 2010. Experts have said that the country’s energy plans have been shaped by vested interests.

But Japan’s interest in funding coal is waning. In March, news emerged that the country, which recently cancelled its last remaining coal project at home, was mulling ending its support for the exportation of coal power.

“If the Japanese government and industries were to pull back from these projects, Bangladesh could choose to cancel more projects and not lock itself into coal pollution for decades,” said Vincent.

Bangladesh is one of the most vulnerable countries to climate change due to its low elevation, inadequate infrastructure, high population density, and heavy reliance on farming. It is estimated that one in every seven people in the South Asian nation will be displaced by worsening floods and cyclones by 2050.

The number of countries making net-zero emissions pledges continues to grow, yet these announcements fall well short of what is required to give the world a chance of capping global temperature rise at 1.5 degrees Celsius, according to a recent report by the International Energy Agency (IEA).

The analysis found that a transition to a net-zero energy system by 2050 would require “huge declines” in the use of coal, oil and gas, and renewables to account for almost 90 per cent of electricity generation by 2050.

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