Power plants: No capacity payment for contract renewal

Rental and independent power plants (IPPs) from both private and public sectors will not be entitled to capacity charges for contract renewals from the next fiscal year.

The government plans to lift the related clause from the power purchase agreements (PPAs) in order to reduce the cost of supply and strengthen financial stability.

While presenting the national budget for the fiscal 2023-24 on Thursday, Finance Minister AHM Mustafa Kamal said, "The government will phase out the payment of minimum capacity charge by removing the clause of payment of minimum capacity charge at the time of contract renewal of existing rental power plants or rent-operated power plants."

Capacity charge is the payment made by the Bangladesh Power Development Board (BPDB) to the owners of power plants in return for the rights to utilise their power generation capacity.

Under the current agreements, the BPDB is bound to pay the charge to the plant owners whether or not it uses their electricity.

In the first PPA, independent power plants and rental power plants receive capacity payment of around $0.10 per kWh to $0.12 per kWh every month besides the electricity bills, said BPDB sources.

At present, there are 95 quick rentals, rentals and IPPs out of the country's total 153 power plants.

Most of these plants will have contracts expired in the next few years.

Over the last 12 years, the BPDB has made a payment of Tk86, 670 crore in capacity charge to the quick rental, rental and independent power plants.

This charge makes the electricity production costlier which has impacted the financial results of the BPDB, also pushing the government to hike the power price at the consumers' level.

As of June 2022, BPDB's total liability reached Tk1.35 lakh crore due to its chronic losses despite an electricity price hike of 160.46% since 2010.

To check the power purchase cost and reduce BPDB's financial loss, the government in 2019 decided to pay capacity charge only to those power plants which completed their contract period and want to extend their contract under "no electricity, no payment" model.

The model, however, made power producers entitled to a certain amount of capacity payment, though the amount is very nominal compared to the first PPA, said officials at BPDB.

But if the proposed measure of phasing out minimum capacity payment is implemented, then IPPs will not receive any money in the future contract renewal.

Plants in the existing contracts and fresh IPPs, however, will get the capacity charge when they sign the contract, added the officials.

When contacted, Faisal Karim Khan, president of BIPPA and director of Summit Power International, said "no electricity, no payment" mechanism without any minimum capacity payment has been in effect for the last few years.

Many power plants now operate under that model after expiry of initial PPAs, he added.

"No electricity, no payment is a natural progression for a power sector and should encourage efficient utilisation of primary energy for power generation."

Welcoming the proposal, Humayun Rashid, managing director of Energypac Power Generation Ltd, also said if any plant has its PPA expires, it should not be logical to pay its capacity charge again in the current financial situation.

BUDGET FY2024 / power plants / energy / Bangladesh National Budget 2023-24