Solar mini-grids seek tariff six times the global average

Around the world in just a decade, the average cost of per unit solar power dropped to Tk5.76 from a hefty Tk32, thanks to a series of technological breakthroughs.

But for Bangladesh's 27 solar mini-grid owners who can produce almost 5MW power, the tariff is still Tk32 per unit. They proposed this price when the government took the initiative to connect mini-grids to the national grid as part of a move to promote green energy.

The proposed tariff is five times higher than that of fossil fuel-based power plants and six times higher than the global average. Thus it hardly makes any business sense.

The Sustainable and Renewable Energy Development Authority (Sreda), a wing of the Power Division spearheading the promotion of renewable energy in the country, is now working to put in place a justifiable rate for the mini-grids. 

"The mini-grid association and Infrastructure Development Company Limited (IDCOL) have proposed Tk32 per unit," said Sreda Chairman Mohammad Alauddin. "We are currently negotiating the generation rate with other stakeholders."

Talking about the reasons for including the mini-grids in the national grid, he said, "The projects were implemented with IDCOL finance, which is a government-owned non-banking organisation. In addition, if the mini-grids are not included in the national grid, the infrastructure will remain idle."  

The solar PV-based mini-grid systems were rolled out in 2010 in the country's remote areas that were at a great distance away from the national grid. The sponsor companies spent Tk141 crore on the projects. 

But over the years, the government's drive to bring the whole country under a 100% electrification coverage took the national grid to most of the remote areas, making the mini-grids almost unnecessary.

Till now, the Rural Electrification Board's (REB) distribution line has reached 13 mini-grid areas. The rest of the areas will be franchised by the REB and other distribution companies at the end of this year. 

On the other hand, people have also started rejecting mini-grid electricity as grid electricity is comparatively cheap. Therefore, owners of the solar mini-grids have started incurring losses due to low demand and no demand in some areas.  

Besides, they have also faced pressure to pay 6-8% interest on loans taken for the projects. Thus, the investors have applied to the Power Division under the Ministry of Power, Energy and Mineral Resources for connecting the mini-grids to the national grid to keep their business afloat. 

Government initiative 

In August last year, the Power Division formed a committee to find out how solar mini-grids could be connected to the national grid and determine their electricity cost. 

Mini-grid owners and IDCOL proposed setting the generation cost of per unit electricity at Tk32, which is five times higher than the price at which the government purchases electricity from independent power producers (IPPs). 

A source at Sreda said two power distribution companies, including West Zone Power Distribution Company, agreed to purchase electricity at IDCOL's proposed rate. 

REB, however, denied purchasing at this rate, claiming the rate being higher than that it has been buying at from other plants.

Major General Moin Uddin (retd), chairman of REB, said there was no logical ground to purchase electricity at Tk32 per unit. 

"Some of the projects have been selling electricity for 10 years. By this time, they have recouped their investment. So, why will we pay them such high prices?" 

Why is mini-grid electricity expensive in Bangladesh?

When asked why mini-grid owners wanted five to six times higher rate though the average cost of utility-scale solar PV price had declined dramatically in the last decade, Solar Mini-Grid Association President Engr DM Majibor Rahman told The Business Standard that this was due to the design of the infrastructure. 

He said there was no doubt that panel costs were decreasing. 

"But in mini-grids, panels bear only 20% of the total cost while distribution and storage infrastructure account for around 80% of investment. Moreover, batteries, inverters and controllers have become expensive," he explained. 

Chowdhury Md Shahriar Ahmed, assistant professor and director at the Centre for Energy Research at United International University, agreed with Majibor. 

He said, "The solar mini-grids that are connected to the national grid do not need storage capacity and distribution infrastructure. Therefore, the existing solar mini-grid electricity cost is higher than other solar projects." 

IDCOL's faulty design 

Majibor Rahman also held IDCOL responsible for the faulty financial model and technological design that he said were playing a big role in making mini-grids expensive.       

He said, "In the financial model, project grant accounts for 50%, which is 80% in India. Therefore, mini-grid owners in India can provide per unit electricity at 10 rupees or Tk11.61."   

"Also, in the technical design, IDCOL did not consider field level data on solar radiation. The panels were not set up properly and system loss was absent," he said. 

Referring to Met Office data, he said around 193 days in a year remained foggy, rainy or cloudy in Bangladesh, which is 60% of the time in a year. 

Mahmood Malik, executive director and CEO of IDCOL, declined to comment on the matter.