Bangladesh plans to scrap nine new coal projects as the cost of imported coal rises and overseas investors slash finance for polluting fossil fuels.
The country’s power secretary Habibur Rahma decided to axe the planned coal-fired power plants with a combined power capacity of 7,461 MW at a monthly review meeting of the power sector, Bangladeshi newspaper the Daily Sun reported this week.
Analysts told Climate Home News that a number of factors have contributed to this decision, ranging from the high cost of imported coal to the drop in financial support from overseas investors.
They said that exact details of Bangladesh’s transition away from coal are expected this summer, when the government outlines its power sector master plan.
Bangladesh’s energy minister Nasrul Hamid told the Daily Sun that procuring coal had become a major problem after China struck a three-year supply deal in November to buy nearly $1.5bn worth of thermal coal from Indonesia — Bangladesh’s main coal supplier.
And Bangladesh currently generates far more electricity than it needs.
According to the Institute for Energy Economics and Financial Analysis (Ieefa), Bangladesh used just 40% of its power plants’ capacity in the year 2019-2020, down from 43% the previous year. Even if it does not use the energy, Bangladesh’s Power Development Board has to pay costly subsidies to the power plant operators.
“Increased reliance on LNG and coal imports will drive up the cost of power generation. That will lead to higher power tariffs for consumers or more unsustainable fossil fuel subsidies,” Simon Nicholas, an energy finance analyst at Ieefa, told Climate Home News.
Bangladesh’s coal prospects have also been damaged by major financiers distancing themselves from dirty fossil fuel projects. The Asian Development Bank and Asian Infrastructure Investment Bank have both signaled they will move away from backing coal.
The region’s biggest coal financiers, Japan and South Korea, have started to curtail their support for overseas coal projects under mounting international pressure.
Several of South Korea’s biggest financial institutions have announced they will no longer provide support for overseas coal projects. Japan has said that in principle it will not fund any new coal plants, but campaigners say a host of exemptions suggest few actual changes to existing coal policies.
“Foreign private companies and financial institutions are not interested in financing more coal power projects in Bangladesh due to their reputational risk,” Yuki Tanabe, programme director at the non-profit Japan Center for a Sustainable Environment and Society, told Climate Home.
“Bangladesh’s move will accelerate the end of coal-fired power projects in developing nations, built and financed by Japan and South Korea,” said Nicholas, of Ieefa.
One of the coal projects that could be scrapped is a proposed 1,200 MW plant developed by Japanese energy company Sumitomo in Matarbari, south-eastern Bangladesh, according to the Daily Star report. The government has not yet disclosed the list of projects to be axed.
Bangladesh’s role as chair of the Climate Vulnerable Forum, a coalition of 48 developing countries on the frontlines of climate change, will have contributed to its decision to move away from coal, said Khondakker Golam Moazzem, research director of the Bangladeshi think tank Centre for Policy Dialogue.
As chair of the forum, Bangladesh has called on vulnerable nations to set an example for big emitters by submitting ambitious climate goals.
“As president of the Climate Vulnerable Forum, Bangladesh has committed to promoting renewable energy both at domestic and international levels,” Moazzem told Climate Home. “[It] would be unacceptable if it continues promoting coal-fired power plants at home.”
Just 1.5% of Bangladesh’s total energy mix is currently generated from domestic renewable sources, according to Moazzem. “Investment in renewable energy based grid power generation is slow… most of the ongoing projects are being delayed,” he said, adding that the government needs to introduce more financial incentives for renewables.
Bangladesh has already began building LNG import infrastructure and it could be about to double down on the fuel, Nicholas said. “Bangladesh has only just come through a period of very high LNG prices during which it was unable to secure cargoes or unwilling to pay high prices,” he added.
LNG is an unsustainable long-term solution for Bangladesh’s energy sector, analysts warn. Methane gas is commonly touted as a cleaner fuel than coal, because it emits around half the carbon dioxide when burned for energy. But methane, which can leak into the atmosphere during gas extraction or transport, contributes significantly to global warming.
“It is environmentally polluting which is being ignored with the argument that it is less polluting compared to coal,” said Moazzem.