FEATURE-Bangladesh's 'merchant' renewable growth hinges on grid charges

As Pakistani consumers switch from the grid to renewable power, the government tries to make up the lost revenue by adding old system costs to bills, he said. GROWING POWER DEMAND India, by contrast, has developed remote power purchase arrangements through both long-term open-access deals, as well as short-term ⁠power ​trading. Indian businesses buying power through open-access arrangements also have to pay an extra charge beyond the grid charge itself, to subsidise many households and farmers.

* Bangladesh allows business-to-business power deals * It allows businesses to boost their renewable share

* Network charges will be key to viability By Md. Tahmid Zami

DHAKA, May 8 (Thomson Reuters Foundation) - Bangladesh's factories have turned ​to rooftop solar to cut emissions and power costs, but limited roof space can only meet a fraction ​of their needs, so they are looking further afield, including buying renewable power from off-site ‌plants. Bangladesh ​last year began allowing private companies to sell power directly to large consumers, with electricity from the "merchant power plants" carried over the grid and users paying charges to grid and distribution companies.

India has long allowed open-access power purchases, while Pakistan is working toward a competitive bilateral market, but has faced disputes over use-of-system charges. Meanwhile, Bangladesh's energy regulatory commission is working on the key details of how its ‌own open-access system will work, including the charges that consumers would have to pay to use the grid.

Energy analysts said the viability of open-access power purchase deals partly depends on open-access grid charges and additional surcharges, which will be key to balancing the interests of businesses, households and farmers. Once the grid charges and rules are finalised, corporate buyers like ready-made garment manufacturers with greenhouse gas emission reduction targets purchase renewable electricity from remote solar or wind power plants directly.

A mid-sized factory can offset between 10% and 15% of its electricity demand through rooftop solar ‌alone, while off-site generation could take that to 50%, 70% or more, said Mohiuddin Rubel, a managing director of garment supplier Denim Expert Ltd. Companies can also buy renewable energy certificates, or RECs, from renewable energy producers. But Bangladesh so far lacks a well-developed ‌REC market with a sufficient supply of those certificates, garment suppliers said.

"Merchant power plants will allow us to purchase electricity directly, reducing the need for purchasing renewable energy certificates from the market," said Mashook Mujib, sustainability manager at fashion manufacturer DBL Group. CHARGES KEY

Bangladesh's recent annual investment in renewable energy is less than $250 million a year, far less than what is needed, said Shafiqul Alam, energy analyst at the Institute for Energy Economics and Financial Analysis, a U.S.-based non-profit. Merchant power generators could offer a promising way forward in boosting renewable investment, he said.

But recent news reports have suggested the open access charges could be about 2 U.S. cents per kilowatt-hour, ⁠on top of renewable ​tariffs of around 9 U.S. cents per kilowatt-hour. Such charges could raise ⁠costs for industrial consumers and the response from industry could be lukewarm, said Alam. Government officials said the charges should balance the interests of all parties.

"Each party has its own needs: consumers need affordable and reliable electricity; project developers need bankable projects and predictable revenue; and utilities and grid operators need to maintain the system and ⁠recover the cost of their services," said Rashedul Alam, assistant director of Bangladesh's Sustainable and Renewable Energy Development Authority, or SREDA. Experts from neighbouring India and Pakistan said the countries offered mixed lessons for Bangladesh.

In Pakistan, the charges for using the transmission and distribution network are stalling the transition to off-site renewables for ​industry, said Khalid Waleed, research fellow at Pakistan's Sustainable Development Policy Institute. "Pakistan's experience offers a cautionary lesson for countries such as Bangladesh," he said.

Pakistan has moved toward a flat charge of 12.55 Pakistani rupees ($0.045) per kilowatt-hour, while the industry believes the ⁠charge should be closer to 5.85 rupees ($0.045) per kilowatt-hour, Waleed said. As Pakistani consumers switch from the grid to renewable power, the government tries to make up the lost revenue by adding old system costs to bills, he said.

GROWING POWER DEMAND India, by contrast, has developed remote power purchase arrangements through both long-term open-access deals, as well as short-term ⁠power ​trading.

Indian businesses buying power through open-access arrangements also have to pay an extra charge beyond the grid charge itself, to subsidise many households and farmers. "If these charges aren't recovered from open-access consumers, who typically are corporate buyers who can bear these charges, it will be a very heavy burden on poorer consumers," said Deepak Krishnan, deputy programme director for energy at WRI India.

Bangladesh's energy regulator has to balance the competing interests by fixing the charges in a transparent way so that utility companies do not lose out, and the ⁠market is not destroyed either, said Krishnan. Prabhakar Sharma, a consultant at Indian consulting outfit JMK Research, said open-access charges should be consistent and stable over a defined period so that investors can plan their business models.

"If the government wants to promote open-access market ⁠for solar and wind for industrial consumers, there can be waivers of charges ⁠to a certain extent," added Sharma. In Bangladesh, open-access power purchase deals could help meet the growing industrial electricity demand, said IEEFA's Shafiqul Alam. Utilities and policymakers could avoid imposing a high charge right away and revisit the issue after about three years to assess whether utilities are actually losing revenue, he added.

Rashedul Alam from SREDA said Bangladesh would eventually need market platforms, such as energy exchanges ‌or similar arrangements, that allow renewable generators to ‌sell power to alternative buyers if one corporate customer exits. ($1 = 279 Pakistani rupees)