Stakeholders oppose cross-subsidy surcharge on merchant power

Energy experts, industry representatives and renewable-energy advocates have opposed a proposed "cross-subsidy surcharge" on customers buying electricity directly from private merchant power plants, arguing that they should not have to bear the financial losses of state-run utilities.

The issue came up at a public hearing of the Bangladesh Energy Regulatory Commission (BERC) yesterday (23 August) at the International Mother Language Institute in Dhaka on proposed charges for merchant power plants.

Under the open-access framework, large industrial consumers will be able to buy electricity directly from privately owned merchant power plants, including renewable-energy projects, while using state-owned transmission and distribution networks.

Distribution companies have proposed the cross-subsidy surcharge to compensate for potential revenue losses as large customers shift to merchant power.

Stakeholders said they were willing to pay reasonable transmission and distribution charges based on actual network use but opposed additional fees intended to compensate utilities for lost revenue.

They warned that such charges could make merchant power commercially unviable and discourage private investment, particularly in renewable energy.

Professor M Shamsul Alam, energy adviser to the Consumers Association of Bangladesh, questioned the assumption that distribution companies would face a major revenue crisis if consumers bought electricity directly from private generators.

He said the distribution companies were profitable and collectively earned at least Tk1,500 crore between 2021 and 2025.

Abdul Hasib Chowdhury, a professor at Bangladesh University of Engineering and Technology, also questioned the basis of the surcharge.

"The cross-subsidy is arising from government policy. It seems that there is an attempt to recover that from merchant power. I find that problematic," he said.

Technical committee proposed lower charges

Stakeholders also raised concerns over differences between the charges proposed at the hearing and those recommended by a technical committee formed by the Bangladesh Power Development Board.

The committee submitted its report in February. An evaluation committee later reviewed the proposals before the BERC hearing.

The evaluation committee recommended an overall open-access tariff of Tk0.70-1.43 per kilowatt-hour, depending on the distribution utility and voltage level. The proposed transmission charge was Tk0.37-0.38 per unit.

Where a merchant power plant and its customer fall under different distribution utilities, an additional injection charge of Tk0.70-1.14 per unit was recommended.

Prof Shamsul criticised a proposed transmission charge of Tk0.47-0.48 per unit for merchant power users, compared with about Tk0.38 for government and private power plants.

He also questioned a proposed Tk0.50 energy management and settlement charge, calling for it to be based on actual service costs.

Mohammad Nure Alam, vice-president of the Merchant Power Plant Developers Association, urged the government to provide a favourable regulatory environment for renewable-energy-based merchant power.

He proposed waiving the cross-subsidy surcharge and other key charges for 10-15 years to help the emerging market develop.

Mostafa Al Mahmud, chairman of the Bangladesh Solar and Renewable Energy Association, said the government should allow the sector to grow without sovereign guarantees or subsidies.

Power Division representative Md Solaiman said the government wanted merchant power to remain commercially viable without creating an unsustainable financial burden.

BERC Chairman Jalal Ahmed, who presided over the hearing, said stakeholders could submit further observations and proposals in writing by August 27.