Should the government suspend renewable energy projects or renegotiate their rates to accelerate green goals?

Instead of scrapping the letters of intent for 31 renewable energy projects with a total capacity of 2,678 MW, the government can renegotiate the energy tariffs of these projects and secure the most cost-effective deals in the shortest possible time.

Industry insiders said the rate offered by these solar projects ranges between 9.7 cents and 10.6 cents per kilowatt hour. These offers were made over a year ago – and within this period the price of solar panels has fallen significantly by 20%. Solar panels account for 35% of the project costs.

This created room for the government to renegotiate the price by a minimum of 1 cent and a maximum of 1.5 cents. That would bring the price of solar energy to a record low for Bangladesh.

The government decided last month to scrap the letters of intent for these renewable projects because they were based on unsolicited negotiations. The energy advisor told TBS that the cabinet would opt for a new and open tender. This is done to ensure fairness and competition.

While this reason for cancellation is valid, the truth is that conducting competitive and fair bidding in Bangladesh’s infrastructure sector is extremely difficult and time-consuming, especially when a project requires land acquisition.

Moreover, when the government issued Letters of Intent (LOIs), the energy companies started investing in the projects by purchasing land.

The purchase of land and its development contribute more than 12% to the project costs. “But it could be significantly higher,” says a solar project manager.

“As soon as the authorities announce where they want to build an energy project, the local thugs and politicians will immediately take action to make land purchase difficult by increasing land prices many times over,” he stressed.

This makes the purchase of project land many times more expensive and very challenging.

If the main objective is to ensure a fair and cheaper energy tariff, an open tender for such projects may not succeed given the prevailing social behavior, an investor said.

Bangladesh is already far behind on its green targets. The country spends about $5 billion on importing primary fuel to operate its gas, coal and oil power plants. With the dollar crisis still gripping the economy, the government has huge payment arrears in the energy sector.

But once we build a solar or wind energy project, the country can generate electricity without having to rely on any fuel imports. According to solar energy producers, the 31 energy projects in question could replace $820 million in fossil fuel imports while providing direct jobs to 10,000 people.

In addition, most of these projects will be built on arid or single-crop lands, usually located on riverbanks that require significant development. Such activities would have an immediate positive impact on local economies.

Another good aspect is that some of these energy projects have partial power storage capacity. Solar projects typically operate during daylight hours. The new technology allows large-scale batteries to store power during the day that is supplied at night.

Unlike the past, the new solar power stations stimulate the cultivation of a crop in a year. Therefore, land use is more productive than before.

Like the rest of the world, Bangladesh has set a target to generate 15% of its energy from renewable sources by 2030 and 40% by 2040.

But so far performance is hovering around 3% – which is also why the government should look at the ongoing projects in a different light.

In the long term, as part of the climate target, all countries of the world should switch to renewable energy and give up fossil fuels.

Why is solar energy so expensive in Bangladesh?

While Indian solar energy costs just 3 cents, existing solar energy in Bangladesh costs 11 to 15 cents. Bangladeshi solar energy costs much more than energy based on gas, coal or sulfur oil.

For India and China, solar energy generation is much cheaper because they have their own technology and a cheap financing system. The average time to complete a 50 MW solar project in India and China is nine to twelve months.

However, in Bangladesh, similar projects typically take three to four years. These delays are mainly caused by problems in acquiring land. The process involves finding suitable land, obtaining the necessary permissions from the Deputy Commissioner’s office (which may sometimes involve bribes) and then transferring the land ownership to the power company, all of which takes a lot of time.

Until the land is secured, the power company cannot sign the power purchase agreement (PPA) as per their LOI. And without all this, the company cannot manage its finances.

Such barriers are absent in India and China, which have extensive infertile lands and different types of land use leasing arrangements.

Here too, the Bangladeshi project lands are located on low-lying riverbanks – which have to be developed using imported raw materials. While India and China have sufficient bricks and other civil construction materials that are produced locally.

In Bangladesh, energy developers use tall poles to lift solar panels to prevent damage from floods. This also entails additional costs.

This year the government also introduced a 5% tax on solar energy equipment. In addition, there is a 6% withholding tax on solar energy projects, which is deducted at source by the energy buyer (the energy development company) when paying for purchased electricity.

While such initiatives should ideally be supported without taxation, these measures ultimately increase the overall cost of energy production.