Fluctuations in fuel prices a threat to macroeconomic stability: Sanem

Highlights:

• Fuel price fluctuations threaten derailment of govt's development goals
• Fossil fuel lobbies caused stagnation in renewables in Bangladesh
• Lobbies caused policy capture, mismanagement, corruption, plundering 
• Study suggests PPPs, int'l funding, green bonds, special renewable fund 
• Govt should support small and medium renewable energy projects  

Fluctuations in fossil fuel prices pose a threat to Bangladesh's macroeconomic stability, potentially derailing the government's development targets, according to the South Asian Network on Economic Modeling (Sanem).

Bangladesh must reduce its reliance on fossil fuels and transition to renewable energy sources to ensure sustainable development and economic stability, Sanem recommended citing its recent study findings.

Such a transition would enhance environmental sustainability, stabilise the economy and support sustainable development goals, the non-profit research organisation's researchers said while presenting the findings at a dialogue held at the BRAC Centre in Dhaka today.

They said the government should focus on diversifying energy sources, adopting effective monetary policies, implementing dynamic pricing mechanisms, reassessing energy planning, building strategic energy reserves, improving energy infrastructure, embracing advanced technologies, and encouraging foreign investments in renewable energy projects.  

The national-level dialogue on "Exploring a Sustainable Pathway for Bangladesh's Energy Transformation Towards Green and Clean Energy", presented findings from three studies. 

It was chaired by Selim Raihan, professor of economics at Dhaka University and executive director of Sanem. 

He pointed out, "Fifteen years ago, the energy sectors of our competitor nations were similar to ours. Today, they are far ahead, leaving us struggling to catch up. We've lost significant ground."

The economist said the stagnation is due to the influence of fossil fuel import lobbies, which have led to policy capture, state mismanagement, capitalist corruption, and plundering. 

"These challenges have made it increasingly difficult for us to pivot toward renewable energy solutions," he added.  

He added that the change of government after 5 August has created a new opportunity and hoped this potential will not be allowed to fail.

During discussions, Bangladesh Energy Regulatory Commission (BERC) Secretary Md Khalilur Rahman Khan criticised the quick rental policy, saying that incentivising capacity charges under this scheme had caused "severe disruptions" in the power sector.  

Mohammad Amzad Hossain, joint secretary at Renewable Energy Division, added that the quick rental power act was intended as a temporary measure but became problematic when extended indefinitely. 

"The current government has discontinued this practice, and the courts have repealed two provisions of the act," he noted.

Research findings presentation

The first study, titled "Macroeconomic Effects of Energy Price Fluctuations: Evidence from Bangladesh", examined the impact of global fossil fuel energy price shocks on Bangladesh's macroeconomy, reports UNB.

The second study titled "An Assessment of Institutional Quality and Political Economy Dynamics of the Power and Energy Sector in Light of the Renewable Energy Transition in Bangladesh", assessed the institutional quality and political economy of Bangladesh's power and energy sector.

It recommends Bangladesh must adopt a cohesive and transparent policy framework to drive its transition to renewable energy. Key actions include abolishing the Quick Enhancement of Electricity and Energy Supply (Special Provision) Act, 2010, revising the IEPMP 2023 to phase out fossil fuels and inefficient power plants, and restoring the capacity of the Bangladesh Energy Regulatory Commission through comprehensive reforms.

Eliminating high duties on renewable energy equipment, introducing performance-based subsidies, and implementing financial incentives for energy efficiency are critical to encouraging private-sector investment, it said.

Transparency in project tendering, investor selection, and the renegotiation of Independent Power Producer (IPP) contracts to include "no electricity, no pay" clauses are necessary to ensure fairness and accountability. 

Empowering the Sustainable and Renewable Energy Development Authority with adequate authority and resources, along with robust oversight mechanisms, will address policy mismatches, prevent mismanagement, and accelerate the country's energy transition.

The third study, titled "Assessing Investment Needs for Renewable Energy Transition in Bangladesh by 2041" focused on solar and wind power development.

It recommends mobilising the necessary investment, public-private partnerships, green bonds, and concessional financing from international institutions like the World Bank, ADB, and GCF.

Besides, creating a dedicated renewable energy fund with blended financing—comprising grants, loans, and equity—could support small- and medium-scale renewable energy projects, it said.