Private firms can now sell renewable power directly to customers

• Private firms allowed to sell power independently
• Government removes purchase guarantee for distributors
• Policy hailed as landmark for clean energy
• Analysts urge competitive market, stronger grid

Private investors can now set up renewable energy-based power plants, choose their customers, negotiate prices and use the national grid to deliver electricity -- removing the state-run Power Development Board (PDB) as the sole buyer and seller from the process, according to a new policy.

State-owned power distribution companies will also be allowed to buy electricity from these plants if they wish. But unlike previously, the government will not now guarantee that these agencies will purchase 20 percent of the electricity produced.

Approved recently, the policy, titled "Enhancement of Private Participation in the Renewable Energy-based Power Generation", is the first of its kind to allow private firms to produce and sell power independently.

Sustainable energy advocates call it a "landmark" move to increase competition, transparency and investor confidence. Meanwhile, large businesses say it would draw local and foreign investment into clean energy as the government targets 20 percent of its electricity generation from renewable sources by 2030.

To tap the full benefits of the policy, analysts said the entire market operation should be ensured on competitive terms, and grid stability should also be maintained.

At present, solar and wind plants connected to the national grid account for only about 3 percent of total capacity.

According to the policy, local or foreign investors may form special purpose vehicles (SPVs) -- separate firms created by parent companies to isolate financial risk -- to develop and operate one or more Merchant Power Plants (MPPs) while complying with national laws and grid standards.

An MPP is a privately owned power generation facility that sells electricity in the open market rather than under a fixed Power Purchase Agreement (PPA).

Previously, all plants had to sign PPAs with the PDB, which acted as the sole authority to buy all electricity generated and sell it to consumers through six state-owned distributors.

Those agreements guaranteed that the government would buy a minimum portion of electricity from each plant.

The new merchant model aims to promote competition across power generation, transmission and distribution, improve efficiency, and reduce dependence on fossil fuels.

"As the requirement for reducing the carbon footprint of consumer products, especially in the garments and textiles sector, is increasing, international buyers and local export-oriented industries have to comply with such requirements to remain in the business by using green energy from reliable sources at a competitive tariff, the policy is initiated," added the policy.

The policy follows the Renewable Energy Policy introduced in June this year. It sets the goal of generating 20 percent of electricity from renewable sources by 2030.

Currently, grid-connected solar and wind plants produce around 829 megawatts (MW), which is roughly 3 percent of the country's total capacity of 27,742 MW.

According to the new policy, merchant plants and their customers will negotiate power prices, while tariffs for state distributors will be determined by the Bangladesh Energy Regulatory Commission (BERC).

"The BERC would determine the technical standards of grid connectivity and the transmission-distribution charges on a non-discriminatory basis," the policy said.

It also allows merchant plants to supply multiple customers and permits large consumers, such as industries and factories, to source electricity from more than one producer.

State-run distributors will be allowed to purchase up to 20 percent of an MPP's declared monthly output.

However, the policy says that this will not constitute a government guarantee. The terms will instead be set through "Service Level Agreements" among the MPPs, PDB, Power Grid Bangladesh and relevant distributors.

At the Bangladesh Investment Summit in April, Swedish fashion retailer H&M, Pran-RFL Group and the International Finance Corporation (IFC) signed a memorandum of understanding to build a solar power plant under the MPP model.

Kamruzzaman Kamal, director (Marketing) of the Pran-RFL Group, said they have already selected land in Moulvibazar for the project and are now waiting for a land reclassification approval from local authorities.

"Once that is done, we will start work on the ground. We have already advanced quite a bit," he told The Daily Star yesterday, adding that the site will be used for multiple purposes, including fish farming during the monsoon and crop cultivation when dry.

Kamal said H&M would buy the electricity to supply its factories.

"Suppose we will generate around 100 MW of electricity and supply it to the national grid. The factories located in different areas of the country will get 100 MW from the national grid, and we will get payment from H&M," he added.

Kamal said the deals to use the national grid are yet to begin as they were waiting for the policy to be approved. "Many investors will be interested in entering the electricity business through the new system. It will also help address the government's power shortage and ensure better use of plants."

Mostafa Al Mahmud, president of the Bangladesh Sustainable and Renewable Energy Association (BSREA), an association of business houses and NGOs working for promoting clean energy, described the MPP policy as "a landmark and visionary initiative" that would open new opportunities for private and foreign investment in the power sector.

"It will help enhance competition, transparency and investor confidence in the market," he said, adding that the policy will ensure a green, reliable and affordable electricity supply for industrial zones, export-oriented factories and economic zones.

Mahmud recommended swift formulation of implementation guidelines, stronger coordination among agencies, incentives for local production and technology transfer, and better access to green finance to make the policy effective.

Khondaker Golam Moazzem, research director at local think tank Centre for Policy Dialogue (CPD), welcomed the policy.

He, however, said that its effective implementation will need additional rules, regulations, and clearer guidance.

Moazzem said industrial companies seeking renewable electricity quickly, without navigating lengthy bureaucratic procedures, will now be able to achieve their goals with private sector support.

"The government is not providing any sovereign guarantee in this case to maintain competitiveness, but the effectiveness of market competition depends on a fair, speedy, and transparent dispute management system," said the CPD research director.

"The question is, can we ensure that in Bangladesh? If not, investors will lose interest," he commented.

According to Moazzem, the country's electricity generation is still heavily regulated.

"Now, alongside this regulated segment, we are creating an open market. It will only become effective, attractive to investors, and beneficial to consumers if the entire market operates on competitive terms," he said.

This means the government's power purchase tariffs must also fluctuate with market prices, he explained, adding that if the government revises its purchase tariff, merchant power plants will likely seek to renegotiate.

"So, there remains some ambiguity in tariff determination," he commented, referring to the new policy.

The policy does not specify any lead authority, mentioning that, Moazzem said, "If it is not defined, the cooperation wouldn't happen."

He also stressed gradually upgrading the grid infrastructure. "This policy may attract many investors, but if the grid is not prepared, it will come under excessive pressure. Therefore, grid capacity enhancement should start in phases," he said.