The Asian Infrastructure Investment Bank (AIIB) is fast-tracking a bid to back a gas-fired power plant in Bangladesh, after concluding the project is in line with the Paris Agreement.
The Beijing-headquartered development bank is considering support for a 584MW gas plant in Narayangonj on the outskirts of Dhaka. A report from the Bangladesh Power Development Board shows the plant will be fuelled by LNG.
Dwindling domestic gas resources, efforts to shift away from coal and phase out polluting diesel plants and the lack of renewable capacity has led Bangladesh to increasingly rely on LNG to meet its energy needs.
But soaring prices caused by Russia’s invasion of Ukraine have left the South Asian nation priced out of the market and facing regular power outages.
“There’s no gas to supply this new power plant. It’s not justified and ridiculous,” Hasan Mehedi, secretary of the Bangladesh Working Group on External Debt, an alliance of 43 local organisations, told Climate Home News.
Standard Chartered Bank is lead lender on the $613 million project, which is under construction. AIIB’s proposed contribution is a $110m loan.
To build the plant, project developer Unique Meghnaghat acquired 21 acres of agricultural land from local villages, affecting 343 landowners and fishers, according to project documents.
The fast-tracking process allows the bank’s president to greenlight support without going through the board. He could make the decision this month.
AIIB found the project to be in line with the goals of the Paris Agreement. Petra Kjell Wright, a development finance campaigner at Recourse told Climate Home this was the first time the bank had mentioned a Paris alignment assessment. But it has not published its methodology.
The bank has pledged to fully align its operations with the Paris goals by July 2023. According to E3G analysts, it has work to do to get there.
The International Energy Agency has warned that “a huge decline in the use of fossil fuels” is needed to limit warming to 1.5C – the more ambitious end of the Paris Agreement’s goals.
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The project documents show that renewable alternatives were barely considered. They state that renewable energy “remains a niche area that does not have the capacity to provide the power delivery at the scale and reliability in view of the existing power deficit scenario”.
Land scarcity, high initial cost and the lack of infrastructure for large-scale generation are listed as barriers.
Kjell Wright described the assessment as “very weak” and with “loopholes so big that a gas-power plant can jump through them”.
“This is public finance and taxpayers money and it should play a role in the trajectory towards renewable. Public finance should help countries leapfrog to renewables and not pull them back to the fossil fuel economy,” she said.
A spokesperson for AIIB said the project will help the government avoid using more polluting and less efficient plants and complement the development of renewable energy.
Multilateral development banks, including AIIB, have been working on a joint framework to assess projects against the goals of the Paris Agreement.
A draft from November 2021 rules that mining or burning coal isn’t aligned with the Paris deal but it doesn’t explicitly exclude support for oil and gas. Instead, banks are asked to answer a series of broad questions to determine whether the project is Paris-compatible.
“With a bit of clever framing and number crunching, there are ways of showing that nearly every project apart from coal and peat is Paris-aligned,” said Sonia Dunlop of think tank E3G.
The approval of the Narayangonj gas project could set a precedent for how other MDBs assess similar project, she added. “This is hugely concerning”.
Last month, AIIB approved an updated energy strategy restricting financing for coal and oil projects and gas drilling. But it allows funding for gas infrastructure and power generation in certain circumstances, including if it displaces more polluting fuels and doesn’t displace clean ones.
Delaying the energy transition
More than half of Bangladesh’s electricity generation comes from gas, while grid-connected solar accounts for just over 1% of the mix.
To keep up with growing electricity demand, Bangladesh’s LNG imports have surged. A recent analysis by Ember found that, based on current plans, Bangladesh could spend $11 billion on spot market LNG between 2022 and 2024. Investments in solar power could have reduced this by a quarter and saved up to $2.7bn.
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Shafiqul Alam is the lead energy finance analysts for Bangladesh for the Institute for Energy Economics and Financial Analysis (Ieefa).
He told Climate Home: “Given high LNG prices on the international market and the fact Bangladesh is already facing a gas shortage… this is an opportunity for Bangladesh to transition and design a clear pathway for renewable energy.” Growing the fossil fuel pipeline will only delay that transition, he said. “The government should keep space for renewables and not invest in new LNG-based plants apart from the ones are under construction.”
As of August 2021, AIIB had invested $605m in the energy sector in Bangladesh. According to analysis by the Bangladesh Working Group on External Debt, none of this went to solar or wind projects.
Mehedi, of the working group, said Bangladesh had installed nine grid-connected solar plants. “Solar is bankable and profitable so why are we going for LNG?”