India-Bangladesh power project a risk for investors and consumers, says think tank

An IEEFA report calls for cancellation of the Rampal power plant project

GN Bureau | June 18, 2016


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The proposed coal-fired Rampal power plant in southwest Bangladesh is no longer economically viable as it would “drive up electricity rates, cost far more than its promoters say, and put investors and consumers at a myriad of risks”. This was stated in a report published by the Institute for Energy Economics and Financial Analysis (IEEFA), a US-based think tank.

The proposed 1,320-megawatt power station is to be built in Khulna, Bangladesh, near the Sunderbans. It is a joint venture between India and its neighbor with a memorandum of understanding being signed in 2010.

The report titled ‘Risky and Over-Subsidized: A Financial Analysis of the Rampal Power Plant’, is of the view that the project should be cancelled and that Bangladesh would do better by investing in solar energy.

As per the report, there are several flaws in the proposal. It says that revenue requirements of the Rampal plant would require tariff levels that are 32 percent higher than the current average cost of electricity production in Bangladesh and will therefore increase electricity rates in Bangladesh. And that without subsidies, the plant’s generation costs are 62 percent higher than the current average cost of electricity production in Bangladesh.

The report says that the true cost of the plant is being hidden by three subsidies worth more than $3 billion and that further delays would only raise the capital cost of the plant and place additional upward pressure on tariffs.

It adds that apart from opposition from local residents, there is no guarantee that the plant would achieve 80-85 percent plant load factor (PLF), as assumed. Citing various examples, the report says that the PLF for coal-fired power plants in China dropped below 50 percent in 2015, and has been below 60 percent since 2013. In the US too, it says, the average coal power plant operates at 55 percent PLF, and in India, the average coal-fired power plant operated at an estimated 58 percent in 2015-16.

The report also warns of the plant’s reliance on imported coal which could expose consumers to global coal market risk. It adds that the plant is located in the ‘wind risk zone’ representing a significant financial risk since it would be vulnerable to storm surges and, therefore, to outages and damage.

Other concerns mentioned in the report talk about the seeming lack of contingency management plans that would pose a risk to plant operations, loan risk to India’s EXIM Bank, and the possible further worsening of the Bangladesh electricity system that is already losing $1 billion every year.
 

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