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Cross-border electricity trading ensuring energy security in Bangladesh economy

Electricity plays a significant role as input for the socio-economic development of a nation. It is widely acknowledged that, no underdeveloped nation has managed to attain development beyond a subsistence economy without ensuring a minimum amount of electricity that is accessible to a broad segment of its population.

Thus, the importance of electricity in an economy is undeniable which calls for proper and effective energy sector arrangements to which Bangladesh is no exception. Energy security for a country may be conceptualised as the country’s access to energy sources of various types consistent with its energy needs for numerous purposes.

Therefore, one of the ways of ensuring energy security is to achieve self-sufficiency in electricity generation or to engage in Cross-Border Electricity Trading (CBET) with regional neighbours.

Bangladesh, like other developing countries, is forced to choose the latter option due to the inability to generation electricity on its own following limited fuel options.

Although the country has demonstrated some progress to achieve macroeconomic stability and has maintained an annual growth rate of 6.34% on average since 2011, it still continues to face challenges in the form of underdeveloped power infrastructure and energy deficits.

In Bangladesh, electricity is the commonly used form of energy which is employed to facilitate most of its economic activities. Moreover, the government has envisioned ensuring 100% electrification rate by 2021, but at present only 74% of the population has been blessed with access to affordable and reliable electricity supply.

It is also a matter of serious concern since rural electrification rate is still around 40% and has to be increased dramatically to achieve the government’s stated goal.

Recent trend conforms that Bangladesh has historically been facing electricity deficits. In addition, almost 62.5 % of total electricity production in Bangladesh is fueled by natural gas. Such heavy reliance on natural gas is also an ominous sign for the nation since its natural gas reserve, at the current rate of exploration and consumption, is expected to be exhausted by 2031.

Moreover, imported oils have also been used to generate electricity mainly by the quick rental companies which also exert pressures on the fiscal burden. As a result of input inadequacy, Bangladesh was compelled to look at new avenues for boosting its generation capacities.

Fuel diversification is definitely an option for Bangladesh to match its domestic electricity demand but the associated costs of the ‘fuel mixing` mechanisms make it a less preferable choice and puts more weight to go for CBET.

Successful performance in CBET would definitely lead to a reduction in the cost of electricity since the unit cost of imported electricity is in between locally generated gas and oil-based electricity costs. It is argued that coal-based electricity is another substitute for the expensive oil based generation.

At present, producing electricity using coal costs around BDT 5/kWh which makes it economically feasible compared to the other mentioned energy sources. However, due to environmental and other problems associated with coal-based electricity generation CBET seems to be a safer option while coal-based electricity projects can be kept for the near future.

It is empirically revealed worldwide that the benefit-cost ratio of engaging in CBET is certainly promising and therefore it can leave no stones unturned in tackling the nation’s energy crisis through this channel.

At present, Bangladesh’s CBET is primarily involves India which calls for diversification in trade partners. In January 2010, Bangladesh and India signed a 25-year long memorandum of understanding MoU and had promised to exchange electricity through a cross-border interconnection leading to the development of a 400 kV, 30-km double-circuit HVDC   line from Bheramara (Bangladesh) to Baharampur (India) and a 500 MW 400/230 KV back-to-back HVDC substation at Bheramara.

Even though there had been a couple of similar agreements with India, considering the potentials of CBET, the benefits from such regional power sharing arrangements are yet to be realised.

As part of diversifying trade partners, it is recommended that Bangladesh gets into favourable trade terms with Bhutan who has more than 100 Giga Watt (GW) of hydro power in reserve. Ideally, Bangladesh should focus on building up a Bhutan-Bangladesh electricity cooperation arrangement as almost 45% of Bhutan’s total exports are generated from electricity trade across national boundaries, primarily with India.

Apart from the interconnection between the two nations, Bangladesh may also negotiate for the use of the intervening Indian corridor with Bhutan for importing cheap hydro power from Bhutan and in exchange can allow corridor for India, ensuring national security, to transfer its electricity power from its western to eastern parts (from Assam to Tripura).

Strengthening cross-border electricity cooperation within the South Asian region can be a revolutionary answer to ensuring adequate and reliable electricity availability within the regional nations since there are complementarities in demand for electricity and resource endowments as a result of diversity in primary energy sources and differences in seasonal patterns of electricity requirements and availabilities.

Currently, the arrangements for power transmission and trade are usually bilateral, mainly involving two governments with minimal involvement of the private sectors. Thus, there should be urgency in encouraging private investments further in the form of multilateral public-private partnerships. CBET not only resolves energy crisis but it also enhances the possibilities of future regional cooperation within the SAARC in other sectors also.

Dr Sakib Bin Amin is an Assistant Professor at the School of Business and Economics at North South University.

Muntasir Murshed is a BS Graduate in the field of Economics from North South University, Bangladesh.

 

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