[🇧🇩] Energy Security of Bangladesh

[Saif]

Can the new government break Bangladesh's energy paradox?

The new minister of power, energy and mineral resources is facing his first test to ensure energy security as the whole world reels from the shock of the Strait of Hormuz closure.

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Can the new government break Bangladesh's energy paradox?
Dr Khondaker Golam Moazzem

The new minister of power, energy and mineral resources is facing his first test to ensure energy security as the whole world reels from the shock of the Strait of Hormuz closure. Several initiatives have already been announced to address any short-term supply shock. The minister must also prepare for medium-term challenges if the Hormuz closure continues beyond March. On the other hand, the global energy crisis and price volatility of major fossil fuels, including crude oil and liquefied natural gas (LNG), could bring opportunities to explore alternative energies, particularly renewable energy-based power generation and electrification.

In Bangladesh, renewable energy is often framed as a distant aspiration. Something futuristic, desirable, yet perpetually just out of reach. This narrative, while common, is misleading. Renewable technology exists, it works under local conditions, and it is commercially viable. Solar home systems, rooftop solar under net metering, and small-scale renewable projects have already proven this. The real barriers lie not in technology, but in structural, institutional, and political-economic factors. At the heart of the problem is the dominance of fossil fuels in the country’s energy market. As long as fossil fuel-based projects remain more profitable, less risky, and heavily supported institutionally, renewables will struggle to compete. Banks, investors, and industry actors follow incentives and guaranteed returns. Fossil fuel projects often benefit from mechanisms such as capacity payments, long-term guarantees, and public subsidies—security that renewable energy projects rarely enjoy. In this context, expanding renewables is directly linked to phasing out fossil fuels: the faster fossil fuels retreat, the greater space renewables can occupy.

Bangladesh’s energy transition debate has also been overly focused on macro-level policy targets. National plans, aspirational targets, and international declarations are necessary but insufficient. What is missing is engagement at the meso and micro levels, within institutions, infrastructure planning, financing mechanisms, and operational decision-making. Without reform and participation at these levels, policy remains rhetorical rather than transformative.

The institutional architecture itself is a barrier. Major energy institutions from planning bodies to utilities were designed around fossil fuel systems. Their norms, procurement practices, technical standards, and performance metrics reflect this legacy. Expecting these institutions to deliver a clean energy transition without restructuring is unrealistic. Institutional reform is not peripheral—it is central to scaling up renewable energy.

This structural bias becomes visible in the gap between policy rhetoric and reality. Documents such as the Integrated Energy and Power Master Plan (IEPMP) and the Energy and Power Sector Master Plan (EPSMP) emphasise clean energy and decarbonisation. Yet, the internal projections and investment pathways remain overwhelmingly fossil fuel-centric. This inconsistency sends confusing signals to investors and undermines confidence in renewable energy projects.

Technical and human capacity constraints further exacerbate the problem. Most graduates entering the energy sector are trained in fossil fuel-based systems. Many lack orientation towards renewables, and some even carry an implicit bias against it. Within institutions such as the Bangladesh Power Development Board (BPDB), this translates into hesitation or outright resistance to renewable energy initiatives. Capacity-building is therefore not just about skill development, but also about reshaping institutional culture.

Fiscal and structural incentives also discriminate against renewables. Fossil fuel plants can be sited almost anywhere and connected to the grid with minimal cost, often subsidised via public funds. Renewable projects, by contrast, are frequently located in remote areas where grid connectivity is expensive and left to private investors. Tax benefits, subsidies, and other policy privileges further tilt the playing field towards fossil fuels, making renewables appear less attractive despite their long-term economic and environmental benefits.

The banking sector reflects a similar risk-averse mindset. Banks prioritise guaranteed returns and avoid perceived risks. Many renewable energy projects lack assured payments if electricity dispatch is uncertain, so banks remain reluctant to finance them.

All of these dynamics are reinforced by a powerful fossil fuel nexus—a close relationship between segments of the private fossil fuel industry and certain state institutions. In some cases, high-level energy decisions are influenced by this nexus. This distorted political economy actively resists energy transition, regardless of policy declarations.

Foreign influence complicates the situation further. Some external actors exert disproportionate influence over Bangladesh’s energy strategies, steering priorities towards fossil fuel finance, hydrogen, or carbon capture technologies. While international engagement is important, national energy policy must remain sovereign and aligned with domestic needs.

Even foreign direct investment (FDI) in renewables faces hurdles. International investors typically prefer incremental entry with low-risk projects. Bangladesh has not yet created such entry points, expecting instead large-scale investments upfront, a mismatch that discourages participation.

The renewable energy discourse also needs recalibration. Too much focus remains on utility-scale projects, while distributed renewables like rooftop solar and mini-grids receive less attention. Yet, evidence shows these decentralised systems are growing rapidly. Net metering has more than doubled in recent years, and the overall renewable capacity is expanding quietly but steadily. Bangladesh’s energy transition is happening but in forms that are often overlooked.

The private sector’s role is crucial. Industries like RMG, textile, leather, and even fossil fuel businesses can drive renewable energy expansion if they actively participate. The RMG sector can invest in rooftop solar, deploy electricity generation projects for factories, and integrate renewables into industrial processes. Employee training and awareness programmes can further scale up green initiatives. The leather industry, meanwhile, can generate biogas or bioenergy from waste, use solar or bioenergy for electricity and heat, and invest in rooftop solar to enhance energy efficiency. Fossil fuel businesses can diversify into renewables, promote biofuel or solar-electric hybrid policies, and incorporate renewables into trading and distribution networks.

Through such investments and technology adoption, the private sector can play an entrepreneurial, market-driven role in scaling renewable energy in Bangladesh. Businesses are uniquely positioned to bridge gaps left by institutions and public policy.

The renewable energy narrative in Bangladesh must shift. Policies must become more transparent and nationally owned, media engagement must be sustained, and a new generation of renewable energy experts and journalists must emerge. Energy transition is not a one-off story; it is a long-term, ongoing process that demands sustained attention.

Bangladesh no longer needs generic energy planners. It needs bold renewable energy leaders, within the government, industry, and civil society, who can drive innovation, secure investment, and ensure that clean energy becomes the foundation of a sustainable future. The challenge is to remove structural, institutional and political barriers, and to empower businesses and communities to lead the charge.

Against this backdrop, CSOs are looking forward to bold and concrete steps from the new minister and state minister of power, energy and mineral resources to ensure sustainable energy transition in the next five years. To build a resilient and future-ready energy sector, the new government should prioritise the following measures: i) adopt a structured and time-bound plan to gradually phase out inefficient, high-emission conventional power plants, creating space for scaling up renewables while ensuring energy security and system stability; ii) invest substantially in grid modernisation, including transmission and distribution upgrades and the development of smart grid systems to effectively integrate variable renewable energy sources; iii) review and withdraw discriminatory fiscal and policy measures that disadvantage renewable energy, ensuring a level playing field for investors; iv) introduce diversified and innovative financial instruments to support distributed renewable energy across households, industries, agriculture and commercial sectors; and v) undertake comprehensive institutional reforms to strengthen governance, coordination, and regulatory capacity, ensuring a coherent and just energy transition.

Dr Khondaker Golam Moazzem is research director at the Centre for Policy Dialogue (CPD).​

 

[Saif]

What the government must prioritise to tackle power and energy challenges

Unless Bangladesh makes efforts to control power generation costs, price hikes alone will not significantly minimise the subsidy burden.

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What the government must prioritise to tackle power and energy challenges
Shafiqul Alam

FILE ILLUSTRATION: BIPLOB CHAKROBORTY

Having taken office at a critical juncture for Bangladesh, the newly elected BNP government faces some pressing challenges. Among the immediate tasks it needs to deal with is addressing the growing power and energy demands, tackling which will require careful planning and fiscal prudence. Several interrelated issues underscore the situation: rising summer power demand during Ramadan and peak irrigation; the country’s heavy import dependency that exposes it to energy supply disruptions and price volatility; the need to address the International Monetary Fund’s (IMF) concerns over power and energy subsidies under its $5.5 billion loan programme; and the imperative to avoid sharp tariff hikes that could undermine the competitiveness of the country’s export-oriented apparel industry.

It is in this context that the new government must translate its election manifesto pledge—raising renewable energy capacity from its current five percent to 20 percent by 2030—into concrete action, particularly by working towards attracting investors.

Bangladesh generally experiences a surge in peak power demand every summer due to rising temperatures. Last year, however, was an outlier, when the country saw a dip in peak power demand, resulting from lower temperatures in April 2025 compared to April 2024, and 62.9 percent more precipitation than usual in May 2025. In addition, many industries had suspended operations because of financial challenges.

With early signs of an uptick in power demand in January-February this year, Bangladesh will likely require higher generation levels this summer. Research by the Institute for Energy Economics and Financial Analysis (IEEFA) shows that between January 19 and February 18 this year, peak power demand soared up to 6.5 percent compared to the same period last year. With the ongoing irrigation season coinciding with Ramadan, and as temperatures rise further in March, this trend may intensify.

Therefore, the new government should consider formulating a power supply rationing plan without affecting industries and businesses to safeguard economic activities. With the Bangladesh Power Development Board’s (BPDB) payment backlog to private power producers exceeding Tk 25,000 crore, the government also needs to clear dues to avoid massive power supply disruptions.

With growing geopolitical tensions that may result in surging fuel prices in the international market, the government must also work towards developing an ecosystem that encourages judicious energy use across the country. This could include motivating households, industries and businesses to adopt efficient appliances and working on bringing in behavioural changes among people. To that end, the Sustainable and Renewable Energy Development Authority (SREDA) should plan and execute national awareness-raising campaigns on energy efficiency and conservation. Additionally, rationalising high import duties on components of efficient appliances would help reduce upfront costs and make them affordable. Meanwhile, government offices should work to implement the SREDA-developed benchmark energy consumption standards for different appliances at all levels.

Dilemma over IMF pressure to raise power tariffs

The BPDB incurred an aggregate revenue shortfall of Tk 55,600 crore in FY2024-25, driven by a loss of about Tk 5 per kilowatt-hour (kWh). The government covered the lion’s share of this loss, injecting subsidies worth more than Tk 38,600 crore. The IMF reportedly prescribed that Bangladesh reduce this hefty subsidy by 2028 as part of its evaluation of the $4.7 billion loan facility approved in January 2023 to support the country’s macroeconomic stability. In June 2025, IMF extended the loan to $5.5 billion.

So far, Bangladesh has received $3.6 billion in five tranches. The sixth was deferred pending the formation of an elected government, alongside a call to raise power tariffs to minimise subsidies. However, IEEFA’s ballpark estimate shows that cutting the current subsidy by even 50 percent will require the BPDB to raise the average bulk electricity selling price for distribution utilities by more than 25 percent and adjust the retail price. This may adversely affect the country’s apparel sector.

For instance, the textile industry, with a sanctioned load of 5MW operating for 12 hours a day, pays roughly Tk 10.935 per kWh, which is around 6.4 percent less than its Vietnamese counterpart. This is calculated based on the peak and off-peak power tariff and demand charge of Bangladeshi industries connected to a 33kV line and peak, off-peak, and standard tariffs of Vietnamese industries.

The new government will need to consider a rational adjustment for industry. This is especially relevant for the apparel sector, which accounts for more than 80 percent of the country’s export earnings. Moreover, instead of passing all costs on to the consumers, the government must focus on enhancing energy efficiency and reducing wastage. For instance, by limiting losses due to leakage and pilferage, which amount to more than 7,000 crore cubic feet per annum, Bangladesh may slightly reduce capacity payments by redirecting part of this saved gas to independent power producers (IPPs) operating at lower capacity, thereby reducing the power generation cost.

Besides, the government can refrain from adding new fossil fuel-fired plants and catalyse the uptake of cost-competitive renewable energy that will help limit costs by replacing expensive peaking power plants during the day. In the medium term, it should explore the South Asian region’s vast hydro potential, such as in Nepal, building on its 40MW power trade agreement with the nation. Simultaneously, the country could explore the feasibility of exporting surplus power to Nepal during the winter season, when hydropower generation falls.

Unless Bangladesh makes efforts to control power generation costs, price hikes alone will not significantly minimise the subsidy burden.

Attracting renewable energy investment

New investments in the renewable energy sector almost stagnated in 2025 due to a lack of new projects. Prior to this, the sector had roughly attracted investment worth $238 million per annum on average. The new government’s intention to expand renewable energy capacity to 20 percent by 2030 should help accelerate the annual flow of investment by 4.1 times compared to the previous trend. This will necessitate mobilising private and international capital at scale, for which a viable project pipeline is key.

The government must urgently engage with key renewable energy stakeholders, including investors and financiers, to identify and resolve barriers to investment. Unless these concerns are resolved, the renewable energy sector’s growth will likely remain sluggish, and the country will fall short of its 2030 goal. Once the government overcomes these initial challenges, it will have scope to manoeuvre the energy and power sector through well-devised plans, backed by funding allocations in the upcoming budget for FY2026-27.

Shafiqul Alam is lead energy analyst for Bangladesh at the Institute for Energy Economics and Financial Analysis (IEEFA).​