C APTIVE P OWER G ENERATION , G RID C ONNECTIVITY , AND H OUSEHOLD W ELFARE IN B ANGLADESH Sakib Amin Tooraj Jamasb Manuel Llorca Laura Marsiliani Thomas Renström Prepared for 5 th Summer Conference on Economic Research Economic Research Group (ERG) 20 July 2019 Dhaka, Bangladesh 1
I NTRODUCTION Electricity crisis was one of the major problems in Bangladesh during the early 1990 ’s mainly because of: Poor performance of the state owned energy utilities Lack of appropriate organisational structure, efficiency in decision making process Low electrification rate Low generation capacity To overcome this crisis and to provide uninterrupted electricity supply to the growing industrial sector, Bangladesh initiated widespread reforms in the energy sector. Sakib Amin Tooraj Jamasb Manuel Llorca Laura Marsiliani Thomas Renström 2 5 th ERG Summer Conference on Economic Research 20 July 2019 Dhaka, Bangladesh
M AJOR R EFORM I NITIATIVES IN B ANGLADESH The main reform programmes in Bangladesh tended to include the following elements: Restructuring of the Core Utilities (Creation of Dhaka Electric Supply Authority i. ( 1991 ), Dhaka Electric Supply Company Limited ( 1996 ), Power Grid Company of Bangladesh ( 1996 )) Privatisation (Private Sector Power Generation Policy ( 1996 ), Policy Guideline for ii. Small Power Plant (SPP) in Private Sector ( 1998 )) Establishment of Independent Regulatory Authority (Bangladesh Energy Regulatory iii. Commission was established ( 2003 )) Power and Energy Sector Road Map ( 2011 ) iv. Sustainable & Renewable Energy Development Authority (SREDA) was set up v. ( 2014 ) Sakib Amin Tooraj Jamasb Manuel Llorca Laura Marsiliani Thomas Renström 3 5 th ERG Summer Conference on Economic Research 20 July 2019 Dhaka, Bangladesh
T HE C APTIVE P OWER P LANTS (CPP S ) IN B ANGLADESH The private power generation policy in 1996 allowed the industrial users in Bangladesh to build up Captive Power Plants (CPPs). The industries immediately responded building up their own power plants mainly because: The national grid supply was poor High transmission and distribution losses Abundance of natural gas The electricity provided by the national grid was overpriced for the industrial sector Sakib Amin Tooraj Jamasb Manuel Llorca Laura Marsiliani Thomas Renström 4 5 th ERG Summer Conference on Economic Research 20 July 2019 Dhaka, Bangladesh
S TYLISED FACTS OF B ANGLADESH E LECTRICITY S ECTOR B ETWEEN 2009 AND 2019 2009 2019 Number of power plants 27 138 Installed generation capacity 4,942 MW 17,764 MW Captive generation capacity 741.3 MW 2,880 MW Maximum peak generation 3,268 MW 11,396 MW Per capita electricity generation 220 kWh 464 kWh Access to electricity 47% 93% Share of private sector in generation 41.77% 49% T &D losses 16.85% 11.87% Source: Power Division, Government of the People's Republic of Bangladesh (2019), Bangladesh Power Development Board Annual Report 2017-2018 Sakib Amin Tooraj Jamasb Manuel Llorca Laura Marsiliani Thomas Renström 5 5 th ERG Summer Conference on Economic Research 20 July 2019 Dhaka, Bangladesh
T HIRD -P ARTY A CCESS AND CPP S IN B ANGLADESH Jamasb and Sen (2012) argue that the implementation of the third-party access to the grid in India is a successful reform. If excess electricity is generated by the CPPs and transmission capacity i. to national grid is available, the CPPs can sell the excess electricity to distribution companies subject to agreement between them. While India is strengthening the public-private network and encouraging the CPPs ii. to sell surplus electricity through third-party access, Bangladesh is yet to fully capitalise the national policy for CPPs. The share of CPPs in supplying excess electricity to the national grid in Bangladesh is very limited. Sakib Amin Tooraj Jamasb Manuel Llorca Laura Marsiliani Thomas Renström 6 5 th ERG Summer Conference on Economic Research 20 July 2019 Dhaka, Bangladesh
U NDERLYING P ROBLEMS BEHIND THE S LUGGISHNESS OF G RID C ONNECTED CPP S Under the current policies, CPPs do not have incentive to sell their excess electricity to the national grid: CPPs need to bear all the distribution and transmission related charges i. The government-regulated selling prices are not high enough to ensure a ii. profit for the CPPs The captive power generators are subjected to pay customs duty, VAT, iii. supplementary duty as clearance stage and not receiving tax holidays or exemptions for importing the electricity generation equipment. Sakib Amin Tooraj Jamasb Manuel Llorca Laura Marsiliani Thomas Renström 7 5 th ERG Summer Conference on Economic Research 20 July 2019 Dhaka, Bangladesh
M AIN R ESEARCH Q UESTIONS In addition to addressing the prevailing difficulties of selling CPP generated surplus electricity to the national grid, a thorough economic analysis is needed before opening up the grid. So, we develop a Dynamic Stochastic General Equilibrium (DSGE) model for Bangladesh economy to address the following question: How would the Bangladesh economy perform in the long run when the CPPs are grid connected? To do so, we run a captive-related policy experiment: A model economy where the CPPs sell excess electricity to the national grid i. Sakib Amin Tooraj Jamasb Manuel Llorca Laura Marsiliani Thomas Renström 8 5 th ERG Summer Conference on Economic Research 20 July 2019 Dhaka, Bangladesh
T HE DSGE M ODEL Our model economy has the following four sectors: The production sector (Two industrial and one service production sector i. who produce final output using labour, capital and electricity) The energy sector (the public power producers, the independent power ii. producers, the captive power producers and the rental power producers who produce electricity using natural gas and imported oil) The household sector (receives utility from consumption goods and leisure iii. and pays taxes to the government) The public sector (earns revenue from taxes and provides subsidies to the iv. energy consumers and producers) Note: More analytical details on the DSGE model is provided in the technical appendix (Slides 11-12) Sakib Amin Tooraj Jamasb Manuel Llorca Laura Marsiliani Thomas Renström 9 5 th ERG Summer Conference on Economic Research 20 July 2019 Dhaka, Bangladesh
T HE C ONCEPTUAL M ODEL GDP Service Industrial Household Sector Sector National Grid Public CPPs IPPs Rentals Generators Sakib Amin Tooraj Jamasb Manuel Llorca Laura Marsiliani Thomas Renström 10 5 th ERG Summer Conference on Economic Research 20 July 2019 Dhaka, Bangladesh
T ECHNICAL N OTE : DSGE M ODEL 𝑰𝒑𝒗𝒕𝒇𝒊𝒑𝒎𝒆 𝑽𝒖𝒋𝒎𝒋𝒖𝒛 𝑮𝒗𝒐𝒅𝒖𝒋𝒑𝒐: 𝜍 1−𝛿 𝜍 + 1 − 𝜄 𝑓 𝑢 𝛿 𝜄𝑑 𝑢 𝜍 𝜒 log 𝑌 𝑢 + 1 − 𝜒 log(1 − 𝑚 𝑢 ) 𝑰𝒑𝒗𝒕𝒇𝒊𝒑𝒎𝒆 𝑺𝒇𝒕𝒑𝒗𝒔𝒅𝒇 𝑫𝒑𝒐𝒕𝒖𝒔𝒃𝒋𝒐𝒖: 𝑓 . 𝑓 𝑢 = 1 − 𝜐 𝑚 𝑥. 𝑚 𝑢 + ъ + 1 − 𝜐 𝑙 𝑠. 𝑙 𝑢 +(1 − 𝜀)𝑙 𝑢 + 𝜌 𝑙 𝑢+1 + 𝑑 𝑢 + 𝑜. 𝑌 𝑢 + 𝑟 𝑢 𝑯𝒑𝒘𝒇𝒔𝒐𝒏𝒇𝒐𝒖 𝑺𝒇𝒕𝒑𝒗𝒔𝒅𝒇 𝑫𝒑𝒐𝒕𝒖𝒔𝒃𝒋𝒐𝒖: 𝜐 𝑚 . 𝑥. 𝑚 𝑢 + +𝜐 𝑙 . 𝑠. 𝑙 𝑢 +(𝑤 𝑛 −𝜀 𝐷 ) 𝑛 𝐽,𝑢 + 𝑛 𝐻,𝑢 + 𝑛 𝐷,𝑢 + 𝑄 𝐻 . 𝐻 𝑢 − 𝑠. 𝑙 𝐻,𝑢 − 𝑥. 𝑚 𝐻,𝑢 −𝑤 𝑛 . 𝑛 𝐻,𝑢 − ъ = 𝑐 𝑸𝒔𝒑𝒆𝒗𝒅𝒖𝒋𝒑𝒐 𝑮𝒗𝒐𝒅𝒖𝒋𝒑𝒐𝒕: −𝜉 ,1 + 𝛺 𝑍1 1,𝑢 −𝜉 ,1 ] − 1−𝛽𝑍1 𝛽 ,1 [ 1 − 𝛺 𝑍1 𝑙 𝑍1,𝑢 𝑍 𝑚 𝑍1,𝑢 𝑍 1,𝑢 = 𝐵 1,𝑢 ύ,1 −𝜉 ,2 + 𝛺 𝑍2 2,𝑢 −𝜉 ,2 ] − 1−𝛽𝑍2 𝛽 ,2 [ 1 − 𝛺 𝑍2 𝑙 𝑍2,𝑢 𝑍 𝑚 𝑍2,𝑢 𝑍 2,𝑢 = 𝐵 2,𝑢 ύ,2 −𝜉 ,2 + 𝛺 𝑍2 ( 2 − ) 𝜉 ,2 ] − 1−𝛽𝑍2 𝑍 𝑚 𝑍2,𝑢 𝛽 ,2 [ 1 − 𝛺 𝑍2 𝑙 𝑍2,𝑢 ύ,2 [when grid connected] 𝑍 2,𝑢 = 𝐵 2,𝑢 −𝜉 𝑡 + 𝛺 𝑌 𝑡 𝑢 −𝜉 𝑡 ] − 1−𝛽 𝑌 𝛽 𝑌 [ 1 − 𝛺 𝑌 𝑙 𝑌,𝑢 𝑌 𝑚 𝑌,𝑢 𝑌 𝑢 = 𝐵 𝑢 ύ 𝑡𝑡 𝜘𝐻 −𝜉 𝑛,𝐻 + 𝛺 𝐻 𝑛 𝐻,𝑢 −𝜉 𝑛,𝐻 − 𝛽 𝐻 𝜉𝑛,𝐻𝐻 𝐻 𝑚 𝐻,𝑢 𝐻 𝑢 = 𝐵 𝑢 1 − 𝛺 𝐻 𝑙 𝐻,𝑢 −𝜉 𝑛,𝐽 − 𝜘𝐽 −𝜉 𝑛,𝐽 + 𝛺 𝐽 𝑛 𝐽,𝑢 𝛽 𝐽 𝜉𝑛,𝐽𝐽 𝐽 𝑚 𝐽,𝑢 𝐽 𝑢 = 𝐵 𝑢 1 − 𝛺 𝐽 𝑙 𝐽,𝑢 𝜘𝐷 −𝜉 𝑛,𝐷 + 𝛺 𝐷 𝑛 𝐷,𝑢 𝛽 𝐷 [ 1 − 𝛺 𝐷 𝑙 𝐷,𝑢 −𝜉 𝑛,𝐷 ] − 𝐷 𝑚 𝐷,𝑢 2,𝑢 = 𝐵 𝑢 𝜉𝑛,𝐷𝐷 𝜘𝑆 −𝜉 𝑆 + 𝛺 𝑆 ℎ 𝑢 𝛽 𝑆 [ 1 − 𝛺 𝑆 𝑙 𝑆,𝑢 −𝜉 𝑆 ] − 𝑆 𝑚 𝑆,𝑢 𝑆 𝑢 = 𝐵 𝑢 𝜉 𝐼,𝑆𝑆 Sakib Amin Tooraj Jamasb Manuel Llorca Laura Marsiliani Thomas Renström 11 5 th ERG Summer Conference on Economic Research 20 July 2019 Dhaka, Bangladesh
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