In what may virtually infuriate coal supporters in these hard times for the fuel, a new so-called financial analysis of a proposed 1,320-MW coal-fired power project in Bangladesh shows how the fuel has gone out of favor and how a big proposal based on the flawed economics of coal could spell trouble for its financiers as well as end users.
While the Institute for Energy Economics and Financial Analysis does look biased by apparently favoring renewables over fossil fuels in its analysis, the institute’s financial reasoning in the report does raise some very valid questions for backers of the project: the Indian and Bangladeshi governments. Before discussing the analysis, the following disclaimer is more than enough for someone interested in digging deep into IEEFA and its research.
The IEEFA says on its website that it conducts research and analyses on financial and economic issues related to energy and the environment. The Institute’s mission is to accelerate the transition to a diverse, sustainable and profitable energy economy and to reduce dependence on coal and other non-renewable energy resources.
The Rampal power plant is a proposed 1,320-MW imported coal-fired power plant promoted by the Bangladesh-India Friendship Power Co. Ltd., a joint venture of the Bangladesh Power Development Board and India’s largest power producer, NTPC Ltd. The IEEFA noted that the project is being designed around outdated supercritical technology and is being heavily subsidised by the Indian and Bangladeshi governments.
Here begins the story and apparently the reason why the IEEFA came up with the report.
The institute claims the report highlights a number of risks to taxpayers and electricity customers as well as to project backers in India, noting that it suspects that the project is being promoted as a means to sell Indian coal to Bangladesh and as a way to skirt Indian policy against building a coal plant so near the Sundarbans, a protected forest and World Heritage site.
The IEEFA finds 10 serious flaws in the proposed project. One, the revenue requirements of the Rampal plant would require tariff levels that are 32% higher than the current average cost of electricity production in Bangladesh and will therefore increase electricity rates in Bangladesh. Secondly, the true cost of the plant is being hidden behind three subsidies totaling US$3 billion. According to the report, the subsidies include a proposed 15-year income tax exemption worth US$936 million and a below-market-rate loan by Indian EXIM Bank that represents a US$988 million subsidy effectively paid by Indian taxpayers to Bangladeshi consumers.
On top of all these, the IEEFA sees inevitable delays and a staunch opposition from local community to the plant. Further, it does not expect the plant to achieve the assumed average plant load factor of 80% to 85% and sees the plant facing global coal market risks since it will depend on imported coal from India.
One of the most interesting findings of the IEEFA is that the project poses specific risks to the Indian EXIM Bank. The project would constitute a large chunk of EXIM Bank’s loan book, it would put the bank’s international fund-raising capacity at risk. The Bangladesh government in the event of the further budget deficits may no longer fully support electricity-system losses.
The Rampal power plant should be canceled and Bangladesh should instead look toward renewables instead of this costly and risky coal-fired power plant, which “is fraught with unacceptable risk, out of step with the times, and would set Bangladesh back.”
“Adding imported coal-fired power capacity would expose the Bangladeshi electricity system to international coal price and currency fluctuations while renewable energy — especially solar — makes strategic sense by de-risking power generation from fuel price risk and building on the success of Bangladesh’s world-leading off-grid rooftop solar program,” according to the report. “Bangladesh can leverage on India’s experience to quickly bring down cost of grid connected utility scale solar power to be a lower cost solution than imported coal. The Rampal plant should be cancelled.”