The Bangladesh Power Development Board (BPDB) purchases electricity from domestic public and private power plants, as well as from foreign sources, and sells it to distribution companies. The cost of generating and supplying electricity at the bulk or wholesale level, excluding subsidies, stands at BDT 13.09 per kilowatt-hour (unit). Of this amount, BPDB pays BDT 5.12 per unit as capacity charges. This means the organisation provide nearly 40 percent of the cost of selling electricity at the wholesale level, which consists of capacity charge payments. The information was obtained from BPDB’s tariff proposal submitted to the Bangladesh Energy Regulatory Commission (BERC) and data provided by BERC’s technical committee.
Under capacity charge agreements, the government is obligated to pay power companies a fixed amount regardless of whether their plants generate electricity. The charge is primarily intended to cover the costs of constructing and operating power plants.
BPDB has projected the purchase of a total of 103,476 million kilowatt-hours of electricity during the current fiscal year from various public and private power plants, as well as imported sources. To procure this volume of electricity, the agency will have to pay BDT 482.61 billion in capacity charges. In FY 2026–27, the amount is expected to increase to BDT 526.08 billion.
In response to the country’s electricity shortages, the ousted Awami League government approved a series of Independent Power Producers (IPPs), rental, and quick-rental power plants beginning in 2011. Despite the expansion of electricity generation capacity over time, electricity consumption did not increase at the same pace. BPDB has consequently had to continue paying capacity charges for power plants that remain largely idle year after year.
BPDB’s average capacity charge stood at BDT 2.35 per unit in FY 2011–12, according to BERC sources. By fiscal year 2024–25, the figure had more than doubled to BDT 5.24 per unit. Over the past 14 years, the per-unit capacity charge for electricity has nearly doubled. Although BERC’s technical committee has projected a slight decline in the per-unit capacity charge during the current fiscal year compared with last year, the charge is expected to rise again in the next fiscal year.
Energy experts say that during the tenure of the ousted Awami League government, a series of power plants were constructed under special legislation governing the power sector. BPDB has to pay substantial amounts for these idle facilities without securing adequate fuel supplies. To cover these costs, electricity tariffs have been increased repeatedly at both the wholesale and retail levels. But raising tariffs alone cannot eliminate the sector’s financial losses, according to experts. Instead, structural reforms are needed. They also stress the importance of excluding idle and inefficient power plants from the country’s generation capacity calculations to determine the actual available capacity.
Energy expert and Vice-Chancellor of Independent University, Bangladesh, Professor M Tamim, told Bonik Barta, “Capacity charges continue to rise because excess power generation capacity remains underutilised. This has been a longstanding problem. Huge sums of money are being paid to these plants year after year despite the absence of actual electricity production. In fiscal year 2023–24, nearly 60 percent of the country’s power generation capacity remained unused. Maintaining this idle capacity incurs enormous costs. The situation has primarily resulted from fuel shortages. The inability to fully utilise gas- and coal-fired power plants has created these conditions. To address the problem, older power plants must be retired. Coal-fired plants should be operated at maximum capacity with assured fuel supplies. This is essentially an operational decision. Unless the right decisions are taken, capacity charges will continue to increase. So a comprehensive plan is required.”
Electricity tariffs were now increased at both the wholesale and retail levels to reduce the financial deficit in the power sector. BPDB’s weighted average wholesale electricity tariff has consequently been raised from BDT 7.00 to BDT 8.38 per unit, an increase of BDT 1.39 per unit.
Excluding subsidies, BPDB’s actual cost of generating and supplying electricity stands at BDT 13.09 per unit.
Following the tariff hike, BPDB is expected to earn approximately BDT 142 billion in additional revenue. Even after this increase, the organisation will still require nearly BDT 410 billion in government subsidies during fiscal year 2026–27.
A total of around BDT 1.33 billion was paid in capacity charges to private power plants during the one-and-a-half decades from fiscal year 2009–10 to fiscal year 2023–24, according to the BPDB data. Including the capacity charge payments for fiscal year 2024–25, the cumulative amount rises to nearly BDT 1.78 billion.
Sector insiders say that capacity charge payments have increased alongside the expansion of private-sector power generation capacity. But during this period, most power plants operated at less than half of their installed capacity. Some plants generated only 2–3 percent of their annual capacity. Capacity charge agreements, however, were originally structured on the assumption that approximately 80 percent of each plant’s generation capacity would be utilised.
There have long been allegations that domestically owned public power plants have remained underutilised while electricity has been purchased from private and imported power sources. But stakeholders note that inadequate fuel supplies for government-owned power plants have also been a significant constraint.
The BERC data indicate that capacity charge payments for electricity purchased from the country’s private and rental power plants during the current fiscal year will amount to BDT 197.63 billion. Substantial capacity charge obligations are also associated with electricity imported from Indian government-owned power plants and those operated by Adani Power.
The steady rise in capacity charges in Bangladesh’s power sector has compelled the government to provide large subsidies. In FY 2024–25, the government provided at least BDT 620 billion in subsidies to the electricity sector. Although the subsidy allocation for the current fiscal year has been reduced to BDT 370 billion, the ongoing Middle East crisis could push the figure above BDT 450 billion once again.
Participants in the public hearings on electricity tariff increases criticised the issue of capacity charges. Despite these concerns, the commission approved an increase of more than 19 percent in BPDB’s wholesale electricity tariff. In response to the situation, BPDB is working to reduce capacity charges to a more reasonable level.
Asked about the matter, BPDB Chairman Engineer Md Rezaul Karim told Bonik Barta, “Capacity charges for government-owned power plants have already been reduced following a review process. BPDB is also continuing negotiations with a number of private power plants. The Power Division has also sent letters to the relevant companies and embassies regarding the return on equity of joint-venture power plants. BPDB is working continuously with all stakeholders to bring capacity charges down to a reasonable level.”