New Energy Master Plan Must Aim to Favor Bangladesh Over Japan: IEEFA

JICA must deliver a low or zero emissions plan as promised, not fund Matarbari 2 coal plant

Clear understandings from the Bangladesh government’s recently released 8th Five-Year Plan must be incorporated into the new energy and power master plan currently under development by the Japan International Cooperation Agency (JICA) to drive zero carbon transformation and financial sustainability in the energy system, finds a new report from the Institute for Energy Economics and Financial Analysis (IEEFA).

Author and energy finance analyst Simon Nicholas says the new Integrated Energy and Power Master Plan, if aligned to the government’s five-year plan, will abandon coal and increase LNG commitment in favour of cheaper low emission renewables.

“The 8th Five-Year Plan clearly acknowledges Bangladesh’s power overcapacity problem as well as solutions to address it,” says Nicholas.

“The financial sustainability of the power system is currently seriously jeopardised by heavy subsidization and ballooning capacity payments to fossil dependent power producers, stretching the power system’s already weakened financial position.

“Increased reliance on expensive imported coal and LNG is a burden the government simply can’t afford to wear going forward.

“Any increased reliance on coal and LNG risks seeing electricity costs for energy consumers rise even further at a time when ever-cheaper solar and wind power is available.

“The Japanese developers of Bangladesh’s new Integrated Energy and Power Master Plan have the platinum opportunity to align their thinking with the insightfulness of the government’s 8th Five-Year Plan.”

Nicholas draws from the 8th Five-Year Plan targeting a least-cost power generation system to provide a blueprint for developers of the new plan, suggesting JICA should:

1. Prioritize grid investments to make better use of existing power capacity
2. Prevent the continued over-build of new power capacity by relying on more realistic power demand growth forecasts
3. Significantly scale up of renewable energy ambition to benefit from the rapid decline of lower cost solar and wind tariffs and to meet demand growth and energy efficiency goals
4. Plan for the roll out of power storage technologies like batteries that can store renewable energy
5. Abandon the expensive pipeline of coal-fired power plants yet to begin construction and limit further additions of large power plants, meaning JICA should not provide funding for the Matarbari 2 coal power proposal – this project should be amongst those cancelled
6. Not replace coal power proposals with price-volatile LNG-fired power given LNG’s expense and that its full life cycle emissions are comparable to that of coal.

“Bangladesh’s five-year economic plan correctly identifies the various issues and opportunities faced by the power system. The new energy and power master plan being developed by Japan must now reflect this new energy reality,” says Nicholas.

“The previous power master plan also prepared by Japan is not fit for purpose and risks the financial sustainability of the power system. The new 8th Five-Year Plan recognises this.

“Japan must not prepare another power plan in its own interests rather than in the best interests of Bangladesh.”

Nicholas says JICA would be aware that Japanese trading houses and financial institutions have been accelerating their exit from fossil fuel financing.

Mitsubishi UFJ Financial Group, Sumitomo Mitsui Financial Group and Mizuho Financial Group announced coal exits during April and May 2021, as did the Asian Development Bank.

The Japan Bank for International Cooperation (JBIC) has also announced a coal power exclusion policy.

“We are regularly seeing new energy policies from Japanese corporates and financial institutions following Japan’s Prime Minister Yoshihide Suga’s pledge in 2020 to reach net zero emissions by 2050,” says Nicholas.

“Coal and LNG are carbon-intensive fuel sources, and the most technologically and economically challenged by the current global energy transition to renewable clean energy.

“If JICA funds coal power and creates a plan for more high-cost LNG-fired capacity in Bangladesh it will be worsening overcapacity and increasing the likelihood of power tariff increases for consumers.”

This issue of distribution firms being ‘wedded’ to fossil fuel power producers in the form of high fixed charges is not new to Bangladesh, afflicting most of South Asia in fact, especially Pakistan and India. Its a legacy of a system that had high dependence on thermal power, and an outdated PPA system that locks in for 25 years. While fresh PPA’s with such thermal producers have become increasingly rare in India, with less than three signed since 2015, the issue remains a major problem in Pakistan, where circular debt in the power sector has assumed unmanageable proportions. Even out of the box options like doing bitcoin mining with the excess power have been floated to get around the capacity issue, but to no avail so far.