Key View: We expect Bangladesh's energy and utilities infrastructure sector to expand rapidly over the next decade, supported by public and foreign investment in power assets and the country's growing energy demand.
Rising power and energy needs from both residential and non-residential sources will be the primary driver of growth in Bangladesh's energy and utilities infrastructure sector over the next decade. Bangladesh’s current power infrastructure is insufficient for projected demand growth and vulnerable to natural disasters. At the same time, urbanisation trends continue to strain the country's existing water infrastructure, with significant investment needed in water supply and treatment facilities, as well as flood-prevention systems.
According to our Power team, power consumption in Bangladesh will increase robustly, supported by rising individual consumption, and rapidly expanding construction and garment industries. The booming garment industry in Bangladesh provides opportunities for businesses and work, driving up the market’s already-high population density as people relocate from rural to urban areas. Notably, our Operational Risk team forecasts that Bangladesh’s urban population will increase from 40% of the total population in 2022 to 46% in 2031. This represents an increase of about 17mn people within 10 years. As electricity is more readily available in urban centres than in rural areas, we expect an increase in individual consumption of electricity. In addition, as urbanisation rates increase, demand for urban infrastructure will rise too. Thus, power consumption in the construction industry will be boosted. As such, rising individual power consumption and industry consumption will drive market demand for electricity over the coming decade.
This creates large opportunities in the the power plants and utilities sub-sector, as the government embarks on significantly expanding its power generation capacities to cope with demand. According to our Power team, Bangladesh's power market will continue to be one of the fastest growing globally over the coming years, as a combination of strong government support for power sector expansion, significant underlying demand for electricity and ongoing support from international financial institutions drives investor interest. Our team expects electricity consumption growth to average 5.9% per annum between 2022 and 2031, providing significant opportunities in the Bangladeshi utilities infrastructure sector.
Coal Projects Downgrade, But Strong Gas Outlook
Last quarter, our Power team has revised down their forecasts for a rise in coal power generation. In line with the government's plan to focus more on renewables and LNG power plants, the government cancelled 10 coal-fired power plants in 2021, which totalled about 8.5GW in generation capacity. Previously, they had expected large amounts of new coal power generation projects throughout our forecast period. The projects already under development will be completed (such as the 1.2GW Maitree Super Thermal Power Project and the 1.2GW Matarbari Coal-Fired Power Project), resulting in an increase in coal power generation over the coming years as a percentage of total power generation: from 2.5% in 2022 to a forecast 7.0% by 2026. However, later-date projects were cancelled, with the key cancelled projects including the 1.3GW Maheshkhali plant, the 1.2GW North Bengal plant, the 565MW Khulna power plant and the 522MW Mawa super thermal power plant.
On the other hand, this creates opportunities for investors interested in gas power generation projects. With the cancellation of many coal fired power generation projects over the second half of our forecast period, the project pipeline is now dominated by gas projects, which will likely materialise to satisfy growing energy demand. Gas-fired power generation will remain the dominant conventional thermal source throughout the coming decade, accounting for 73% of Bangladesh’s total generation mix in 2031. Gas power generation will grow at an annual average rate of 4.9% y-o-y throughout the forecast period.
Some of the largest gas projects currently under planning include the 3.6GW Patuakhali LNG Combined Cycle Power Plant, set to cost some USD2.8bn. The Northwest Power Generation Company (NWPGCL) signed a joint development agreement with Siemens to build the power plant, which is targeted for completion by 2024. Another large project is the 800MW Rupsha Combined Cycle Power Plant, with a price tag of USD1.1bn. Several smaller gas power generation projects are already under development and are set to come online in the coming quarters, such as the 400MW Bibiyana III Combined Cycle Power Plant, the 583MW Summit Meghnaghat II Combined Cycle Power Plant and the 400MW Bibiyana South Combined Cycle Power Plant, among others. The projects all cost several hundred million US dollars each and contribute significantly to the increasing power plant and utilities project pipeline.