The Power Division has finalized an agreement to procure electricity from the nation’s largest 300MW solar power facility, slated for construction in Rampal, Bagerhat. The purchase price has been set to Tk11.067, per kilowatt-hour. Over 20 years, the government’s total expenditure for procuring electricity from this plant at the specified rate is estimated to reach Tk 10,762 crore.
This tariff proposal for the solar power project received approval from the Cabinet Committee on Government Purchase during a session chaired by Finance Minister AHM Mustafa Kamal, as disclosed by sources within the finance ministry.
Largest solar plant breaks ground
It’s important to note that the approved tariff rate is significantly higher compared to solar power production costs in other regions like the Middle East, Africa, and several Asian countries, including India, where the cost per unit typically ranges between Tk 3.20 – 4.40. Various factors have been attributed to the elevated solar power prices in Bangladesh, including the expenses associated with land leasing and development, reduced solar intensity, and higher borrowing costs within the country.
ACWA Power, a prominent Saudi Arabian entity, is set to spearhead the investment for this substantial solar power project in Bangladesh, with a total investment amounting to $430 million. The plant’s construction will be situated adjacent to the existing Rampal coal-fired power plant, with the Bangladesh Power Development Board having designated 900 acres of land for the project.
Regarding ownership distribution for the solar power plant, ACWA Power will hold a 45% stake, while the state-owned Bangladesh Power Development Board will possess a 25% share. Private sector entities, specifically Comfit Composite Knit Ltd Bangladesh and Viyellatex Spinning Ltd, will each have a 15% stake in the power plant.
Power Division officials have indicated that the Power Development Board has readied 900 acres of land for the potential establishment of another coal-based power plant near the existing Rampal facility. By converting the funds expended on land development into equity, the Power Development Board secures a 25% ownership stake in the proposed solar power plant, along with the associated land rent.
ACWA Power will be responsible for 60% of the required investment for the power plant, while the remaining 40% will be equally divided between Comfit Composite and Viyellatex Spinning.
Plans for 1,000MW solar power plants take shape
David Hasanat, the chairman of Viyellatex Group, has conveyed that the forthcoming solar power plant has the potential to effectively supply electricity to approximately 500,000 families or 60-70 large composite mills. This contribution could potentially add $6-7 billion to the nation’s economy. In addition, he noted that this initiative is expected to offset an annual 450,000 tonnes of CO2 emissions, even though Bangladesh’s per capita CO2 emissions remain relatively low.
ACWA Power had previously signed a memorandum of understanding with the Power Development Board in November of the preceding year, outlining their intentions to establish 1,000MW solar power plants in Bangladesh. As part of this plan, the Saudi Arabian conglomerate is taking the lead in constructing the 300MW solar plant in Rampal. Furthermore, discussions are underway between ACWA Power and the government concerning the establishment of an additional 700MW solar power plant in Bangladesh.
Officials from the Power Division informed TBS that ACWA Power has been evaluating potential locations across the country, including Payra in Patuakhali and Mirsarai in Chattogram, for the potential establishment of solar power plants. Should suitable locations be identified, Comfit Composite and Viyellatex Spinning would also participate as partners in these projects.
ACWA Power is primarily owned by the Saudi government, holding a 75% stake, while the remaining 25% share is held by private entities. It stands as the second-largest company in Saudi Arabia, trailing only Aramco, and is recognized as the world’s largest power producer, boasting an operational or under-construction capacity of approximately 56,000MW.
David Hasanat expressed optimism about the Rampal 300MW solar power plant securing a power purchase agreement with the government by the upcoming February. He envisions that the power generated by this facility will be integrated into the national grid by the end of 2025.
When questioned about their decision to venture into solar power despite being a textile company, David Hasanat emphasized the viability of this move as a sustainable business model. He also highlighted the potential for profitability through investments in the power sector. Furthermore, he acknowledged Bangladesh’s imperative for renewable energy to support sustainable development, underscoring the company’s motivation for making such investments.
Why Bangladesh pays more for solar energy
Despite the global trend of decreasing solar power generation costs over the past decade, Bangladesh stands out as an exception to this phenomenon. David Hasanat, representing the Viyellatex Group, a key player in the consortium of investors behind the solar power plant in Bangladesh, has shed light on the reasons behind the relatively high costs of solar power units in the country.
David has identified four critical factors contributing to this disparity:
Land Leasing and Development Expenses: Land acquisition and development expenses account for a significant portion, nearly 30%, of the total project cost. This is a substantial burden that impacts the overall cost of solar power generation.
Solar Intensity: Bangladesh experiences reduced solar intensity compared to regions with abundant sunlight, such as the Middle East. The lower solar intensity affects the efficiency of solar panels, resulting in reduced power generation.
High Borrowing Costs: Borrowing expenses within Bangladesh are notably higher at 10.10% compared to many other countries. These elevated interest rates add to the country’s financial challenges faced by solar power projects.
Partial Tax Exemptions: Bangladesh offers only partial tax exemptions for solar power investments, which is in contrast to the comprehensive tax exemptions provided in numerous other countries. This tax burden adds to the overall cost of solar power generation in Bangladesh.
David elaborated on these factors, emphasizing the substantial impact they collectively have on the country’s cost structure of solar power projects. He stated, “Our project’s lifecycle is burdened by land acquisition and development expenses accounting for nearly 30% of the total cost. Moreover, the intensity of sunlight we receive is approximately 40% lower compared to the Middle East.” Furthermore, he highlighted the significantly higher borrowing costs and the limited tax relief for solar power ventures in Bangladesh, which, when combined, result in a tariff surcharge of 75% to 80%.
David also pointed out that if Bangladesh could align these influencing factors with those of other nations, the current cost of Tk 11.067 per unit could potentially decrease significantly to Tk 2.71. This insight comes from the chairman of Viyellatex Group, a prominent garment exporter in the country, underlining the potential benefits of addressing these challenges in the solar power sector.
