The Case for Coal in Bangladesh

LightCastle Analytics Wing
August 1, 2016
The Case for Coal in Bangladesh

Debashish is a 16 year old from Chittagong, who is extremely passionate about the Bangladesh National Cricket Team – he never misses a Tigers’ game on TV. But today, he had to miss the first 15 overs because of an hour-long ‘load-shedding’ power cut, which meant he missed watching his hero and role-model, Tamim Iqbal, play. Nothing compares to the sorrow he felt that day.

The above, was a very common scenario in Bangladesh just 5 years ago; general people, businesses and manufacturing units would often be marred with frequent power-cuts multiple times a day – an unwelcome disruption at best and a business killer at worst.

However, today, these cuts have come down to more manageable levels albeit at the cost of relatively more expensive electricity. The government has done a commendable job managing the power crisis in the short-run by adding almost 7,000 MW of electricity to the national grid since 2009.

Driven by increasing industrialization, booming middle-income household consumption and an overall healthy growth in real GDP, Bangladesh is poised to consume significantly higher amounts of power than ever before in the nation’s history. This consumption is expected to be more than twice the amount it is today by 2025, if GDP continues to grow at 6% on average.

Aggregate Power Demand in Bangladesh

The country has been relying on natural gas to meet its power demands thus far. However, as the country’s reserves continue to dwindle at a rapid pace without discovery of a sufficient number of new, economically viable sources, the over-reliance on natural gas threatens to cause massive shortages of electricity throughout the nation in the near future – making fuel diversification an imperative measure.

Existing Source of Power

The government has taken concurrent initiatives to meet demand – the primary one being the Power System Master Plan (PSMP), jointly drafted in 2010 by the Ministry of Power, Energy and Mineral Resources, the Japan International Cooperation Agency (JICA), The Tokyo Electric Power Co., Inc. (TEPCO) and the Bangladesh Power Development Board (PWDB). The study laid out a clear long-term roadmap to ensure stable power supply and increase generation capacity to 34,000 Megawatts by 2030.

This ambitious thrust in power generation is largely to be fueled by coal-fired power plants, which, coupled with the over-reliance on dwindling domestic natural gas reserves, is set to increase demand for coal in the country. Although this is recognized as a ‘dirty source’ by the government, it is perhaps true that there is little to no alternative to meet the rapidly increasing excess demand that looms over the country.

The PSMP 2010 stated that over 50% of the electricity in Bangladesh are to be produced using coal as the primary raw material compared to the current ~3% of the fuel mix.

Fuel Mix for 2030

This plan was later reviewed in 2016, with an updated power-generation roadmap to facilitate Bangladesh’s ambition to become a developed, advanced nation by 2041 under the Vision 2041 program of the government. Although the preference towards coal hasn’t been changed from the scenario outlined in 2010, the source of this coal has pivoted to an import-oriented approach to meet demand.

The PSMP 2016 expects an estimated 60 million tons of coal to be imported by 2041 to ensure a steady supply for the planned powerstations. This mandates an increased focus on handling costs and storage infrastructure. Such arrangements need to be made in a manner that optimally reduces both economic (logistics) and social costs (‘clean’ usage of coal), possibly through a separate port for coal imports.

Projection of Coal Supply in Bangladesh

However, it is the domestic production of coal and coal-fired power-plants that have been the cause for debate over the last five years, with regular criticism from environmentalists and the general public due to the eviction of communities, disruption of natural systems, and harmful environmental effects of extracting and burning coal.

The 1320 MW joint-venture with India in Rampal is the most well-known of the controversial plants. The project made headlines in regular intervals due to its close proximity to the Sundarbans (the largest mangrove forest in the world), threatening to wipe out a considerable amount of flora and fauna in the renowned UNESCO World Heritage Site. The forest also act as a buffer against natural disaster, especially cyclones originating from the Bay of Bengal, saving hundreds of thousands of lives with each passing storm. In a recent article published on the Huffington Post, the cost of the electricity produced in the plant is stated to be 30% more than the current average cost in Bangladesh across all fuel types.

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The current government plans to rely on 8,400 MW of electricity to be produced from imported coal. However, it may be wise to move to a more self-reliant approach as current import tendencies are deemed to be cost-ineffective. In contrast, Coal India Ltd. is set to produce a billion tons of coal a year by the end of this decade primarily through open-pit coal mines, saving $16 billion in import expenditure for the country.

Furthermore, serious consideration should be given to moving coal based production away from ecologically sensitive areas such as the Sundarbans. The North-Western regions, namely Phulbari, Barapukuria, Jamalgonj, Dighipara and Khalaspeer are estimated to hold combined reserves of 2.5 billion tons of coal with more potential reserves waiting to be discovered. According to two separate research papers from Jahangirnagar University and the University of Chittagong, the calorific value of coal sourced from Barapukuria and Khalaspeer was higher than regional alternatives. Electricity from these reserves can be produced on site and distributed across Bangladesh.

There is no doubt that coal in Bangladesh is set to replace natural gas as a major domestic and imported source of energy in Bangladesh. Conversely, environmental concerns and international pressure against the usage of contaminating sources of energy has put coal in a contentious position.

It is imperative that the government objectively conduct a cost-benefit analysis and take measures in the best interest of the country. Renewable energy companies must make use of this opportunity to enter the markets at scale backed by local and foreign innovation to improve efficiency, feasibility and financing models of new connections. Moreover, training competent human resources and sourcing cutting edge technology/machinery are challenges that must be overcome if Bangladesh is to maintain satisfactory levels of energy security in the future.

WRITTEN BY: LightCastle Analytics Wing

At LightCastle, we take a data-driven approach to create opportunities for growth and impact. We consult and collaborate with development partners, the public sector, and private organizations to promote inclusive economic growth that positively changes the lives of people at scale. Being a data-driven and transparent organization, we believe in democratizing knowledge and information among the stakeholders of the economy to drive inclusive growth.

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