The government has announced that it has initiated a review of contracts with Independent Power Producers (IPPs) to eliminate “capacity payment” clauses—provisions that obligate the government to pay for power generation capacity even when no electricity is actually supplied to the grid.

The move was disclosed on Friday through the verified Facebook page of the Chief Adviser to the interim government.“The government is reviewing agreements with IPPs to eliminate capacity payments, which have long required the Bangladesh Power Development Board (BPDB) to make payments regardless of actual electricity generation,” the statement read.

According to an estimate by the “White Paper Committee”, capacity payments range from US$10–12 per kilowatt per month for gas and liquid fuel-based power plants, and US$20–25 per kilowatt per month for coal-fired plants.

Quoting the data of capacity payments released in the National Parliament in 2023, the then State Minister for Power Energy and Mineral Resources said 82 independent power plants and 32 rental power plants have received more than Tk 1 lakh crore in capacity charges over the previous 14 years. Of the amount, the top 10 plants had received one-third of the payments.

"The current capacity payment structures incentivise inefficiency and impose unnecessary costs on the government" , it said adding that over the years, maximum power generation has consistently fallen short of installed capacity.

The surplus capacity reached 11,680 megawatts (MW) in fiscal 2023-24. Nearly 43.5 percent of the power plants' capacity remained underutilised last fiscal year compared to the installed capacity of 26,844 MW. As a result of capacity payments, irregularities and various inefficiencies, the Bangladesh Power Development Board's operating losses surged to Tk 44,291 crore last fiscal year. In fiscal 2017-18, PDB's losses stood at Tk 6,208 crore. This fiscal year, capacity charges would take up about 80 percent of the Tk 40,000 crore subsidy allocation for the power sector.

Meanwhile, international Monetary Fund (IMF) raised question with the unusual costs ultimately increase the government subsidies, it said that 1,000 MW of excess capacity in gas or liquid fuel plants could result in an additional annual cost of US$120–144 million for BPDB. In the case of coal-fired plants, the annual cost could rises to US$240–300 million—costs that ultimately require government subsidies. However, after taking the charge, the interim government formed two committees to review capacity payments made to IPPs and joint venture power plants. Power and Energy Adviser Dr. Muhammad Fouzul Kabir Khan kicked off the reform drive on February 23, 2025.

These committees are currently examining existing Power Purchase Agreements (PPAs) to identify ways to reduce BPDB’s financial burden from such charges. Nine cost-saving initiatives have already been implemented. Notably, a revision to the coal pricing formula in the Adani Power deal is projected to save Tk 11, 450 in private power purchases. In addition, three joint-venture coal-fired power plants—Bangladesh-India Friendship Power Company, Bangladesh-China Power Company, and RPCL-Norinco Power Plant—have been directed to review and correct inconsistencies in their PPAs to improve transparency and accountability.

Moreover, 23 government-owned power plants under entities such as NWPGCL, APSCL, EGCB, RPCL, and BRPL have been instructed to reassess their agreements. This step alone is expected to save the government Tk 2600 crore annually. According to the Power Division, the total estimated savings from these reforms will amount to Tk 14, 000 crore in the fiscal year 2025–26. BPDB Chairman Engr Rezaul Karim underscored the importance of cooperation from IPPs and joint ventures in revisiting PPAs as part of the government’s cost-cutting efforts.

Power and Energy Adviser Dr. Muhammad Fouzul Kabir Khan stated, “Reviewing PPAs to reduce generation costs is essential for keeping electricity tariffs stable for consumers.”

Currently, the country’s total power generation capacity stands at 28,000 MW, against a demand of approximately 18,000 MW. However, Bangladesh Independent Power Producers Association (BIPPA) President David Hasnat told media that, “It’s not feasible to eliminate capacity payments from existing PPAs, as these clauses were legally included in the original contracts.”

Despite having an installed capacity of around 5,000 MW, IPPs are currently supplying only about 2,500 MW to BPDB, he said. He also emphasized the need for a reserve margin of over 30 percent, as a global standard, especially given that Bangladesh depends on imports for 60 percent of the fuel used in power generation.

News Link: Bangladesh to scrap costly 'capacity payments' in power deals