Stop Paying for Idle Megawatts: Renegotiate Bangladesh's Capacity-Payment Contracts

Diagnosis

Bangladesh has built more generation capacity than the grid can absorb. The result is a structural fiscal leak: idle plants drawing capacity payments. Under the dominant contract design, a generator is paid a capacity (or availability) charge whether or not its electricity is dispatched. When demand falls short of installed capacity, or transmission cannot move the power, the country pays for megawatts that never reach a consumer. The note characterizes this directly: idle plants drawing capacity payments, with PPA renegotiation as the indicated remedy.

This matters now because the obligation is contractual and recurring. Every month the plants sit idle, the same payments fall due, crowding out the energy subsidy budget and weakening the balance sheet of the Bangladesh Power Development Board (BPDB), the single-buyer that signs these contracts. It is a tier-1, structural problem: it cannot be fixed by a one-time transfer, because the cause is the contract architecture itself. The lead responsible body is the Ministry of Power, Energy and Mineral Resources (MoPEMR).

Recommended actions

1. Fleet audit and idle-capacity register (MoPEMR + BPDB). Direct BPDB to publish a plant-by-plant register of contracted capacity, actual dispatch, and capacity charges paid, classifying each plant by utilization. Mechanism: a MoPEMR circular instructing BPDB to compile and submit the register, with the Bangladesh Energy Regulatory Commission (BERC) verifying the figures. Signal it is working: a complete, reconciled register exists and the highest-cost idle plants are identifiable.
2. Renegotiate the worst PPAs first (MoPEMR + BPDB). Open structured renegotiation of the power purchase agreements behind the most idle, highest-charge plants, converting fixed capacity payments toward dispatch-linked or availability-tested terms and, where economic, agreeing early termination or no-electricity-no-payment clauses. Mechanism: a BPDB-led renegotiation programme under MoPEMR authority, anchored to the audit register. Signal: signed amended PPAs that lower committed capacity-charge liabilities.
3. Strengthen the merit-order and availability test (BERC + BPDB). Require that capacity payments be contingent on a plant being genuinely available and dispatchable when called, enforced through BERC determinations and BPDB dispatch records, so a plant that cannot deliver power when needed does not collect the charge. Signal: capacity payments to non-performing plants decline.
4. Fix the transmission bottleneck (Power Grid Company of Bangladesh). Where plants are idle because power cannot be evacuated, prioritize the transmission and grid upgrades that unlock existing capacity through PGCB, so the country uses what it already pays for before contracting anything new. Signal: dispatch from previously stranded plants rises.
5. Reform capacity planning and pivot new procurement (MoPEMR + SREDA). Issue a moratorium on new fossil capacity contracts until the overbuild is worked off, and redirect future procurement toward least-cost and renewable options through the Sustainable and Renewable Energy Development Authority (SREDA). Mechanism: a MoPEMR planning directive tying any new PPA to a demonstrated demand-and-evacuation gap. Signal: no new fixed-capacity-payment PPAs signed during the moratorium.

Sequencing (first 12 months)

Begin with the audit register (Action 1): it is the precondition for everything else, because renegotiation without verified plant-level data is negotiation in the dark. Once the register names the worst contracts, open renegotiation (Action 2) and the availability test (Action 3) in parallel, since both draw on the same data and reinforce each other at the table. Run the transmission diagnosis (Action 4) alongside, because identifying evacuation-constrained plants changes whether a plant should be renegotiated or simply connected. The procurement moratorium (Action 5) should be declared early, as a signal of intent, so no new liabilities are added while the existing stock is being worked down.

Risks and constraints

The binding constraint is contractual and political. Capacity payments rest on signed agreements; renegotiation depends on the counterparties' willingness and on the government's credibility, and some sponsors are politically connected. Aggressive termination risks arbitration and investor-confidence damage that could raise the cost of future financing. Fiscally, the payments are a sunk near-term obligation: relief comes only after renegotiation closes, so the budget must absorb the leak in the interim. Capacity within BPDB and BERC to audit and renegotiate at scale is itself a limit.

Bottom line

Bangladesh is paying for power it does not use, and the cause is the capacity-payment contract structure that MoPEMR and BPDB control. The fix is to audit the idle fleet, renegotiate the worst PPAs toward dispatch-linked terms, unlock stranded plants through transmission, and stop signing new fixed-capacity contracts.