The energy transition in Bangladesh: Pathway to future energy security
Despite achieving record electricity generation, Bangladesh remains vulnerable to energy insecurity due to its reliance on costly fuel imports. A stronger commitment to renewables and regional cooperation is essential for long-term stability
Bangladesh, a country struggling with energy shortages, faces immense challenges in meeting its rising electricity demand and development goals.
Despite multiple reform initiatives in the energy sector, concerns remain over the slow adoption of renewable energy, limited exploration of domestic natural gas reserves, high dependence on imported oil, costly capacity charges, the absence of cost-reflective pricing, energy inequality, and inconsistent policies.
Over the last decade, Bangladesh has significantly increased its electricity generation capacity, now reaching around 28,000 MW (as of 2024). However, the high reliance on fossil fuels has also made the country increasingly dependent on imports.
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According to the latest data from the Bangladesh Power Development Board (BPDB), natural gas, including imported Liquefied Natural Gas (LNG), accounts for about 54.83% of electricity generation. Oil follows at 21.83%, coal at 20.45%, and renewable energy—including solar and hydro—at just 2.90%. Currently, around 50% of Bangladesh's fuel supply is imported.
However, projections from the Power Sector Master Plan (PSMP) 2016 and the Integrated Energy and Power Master Plan (IEPMP) 2022 suggest that by 2041, the country could be 90% reliant on imported fuel, with an annual energy import bill of at least $40 billion. The Global Carbon Project (2024) also estimates that oil use in Bangladesh results in 31.80 million tonnes of CO₂ emissions.
Energy prices and economic strains
Fuel prices have seen a notable decline since 2024. The average LNG price dropped to $11.21/MMBtu in 2024 from $33/MMBtu in 2022. Coal prices also fell from $344 per metric tonne in 2022 to $136.15 per metric tonne in 2024, while crude oil prices declined to an average of $78.73 per barrel in 2024, down from $97.10 per barrel in 2022.
Despite these reductions, the energy market remains highly volatile, with geopolitical risks continuing to pose challenges for Bangladesh.
The cost of imported energy also adds inflationary pressure, depletes foreign exchange reserves, and exacerbates the country's balance of payments crisis, threatening both economic stability and energy security. The recent depreciation of the Bangladeshi Taka has worsened the situation further, requiring an additional $12 million for crude oil imports in 2024 compared to the previous year.
Electricity generation costs vary widely depending on the energy source. As per the latest BPDB report, the cost of producing electricity from oil stands at around Tk18–20 per kWh, coal at Tk7 per kWh, and gas at Tk3 per kWh. Meanwhile, Bloomberg (2024) estimates that renewable energy generation costs approximately Tk10.5 per kWh, projected to decline to Tk8–10 per kWh by 2030.
The need for a stronger renewable energy policy
While Bangladesh recognises the importance of expanding its renewable energy sector, progress remains slow. Experts attribute this to policy shortcomings, inadequate budget allocations in the Annual Development Plan (ADP), insufficient investment in infrastructure, and market barriers. According to the Ministry of Finance, over the last decade, the average ADP allocation for renewable energy was just 5%, with the majority directed towards fossil fuels.
Bangladesh generates over 28,000 MW of electricity, but 50% of its fuel is imported, making the country vulnerable to price fluctuations and supply disruptions.
Bangladesh has made some strides in solar energy adoption, particularly through its Solar Home Systems (SHS) programme, which has brought electricity to over 25 million rural residents. However, several challenges—such as lack of financing options, high upfront costs, after-sales service issues, and limited public-private partnerships—hinder its full potential.
Technical issues, including low-quality materials, inefficient battery use, and inadequate technical knowledge, further reduce the effectiveness of the initiative.
The country also lacks a clear roadmap for renewable energy development. The National Renewable Energy Policy (NREP) was introduced in 2008, yet more than 15 years later, no significant updates or new strategies have been put in place. Existing policies, including the PSMPs, the IEPMP, and the draft NREP 2022, lack specific guidelines on achieving an optimal renewable energy mix.
Key issues such as investment frameworks, import duties, Feed-in Tariff (FiT) schemes, and competitive pricing remain unaddressed, limiting progress in this sector.
A call for policy reform and investment
Bangladesh's energy transition is not just an environmental necessity—it is vital for economic resilience and security. However, achieving this transition requires urgent policy reforms, institutional improvements, and large-scale investments.
The United Nations Conference on Trade and Development (UNCTAD) 2023 World Investment Report highlights that developing nations face investment shortages in renewable energy, with only 11% of global renewable energy funding directed towards them. Bangladesh needs $80–100 billion to meet its Paris Agreement commitment of phasing out fossil fuels by 2050.
Beyond financial investment, political will, technological advancements, and collaboration with financial institutions and international partners will be crucial to ensuring a successful transition. The government must establish a transparent, inclusive process for revising and updating energy policies, master plans, and legislation.
Engaging stakeholders early can help identify and address policy flaws.
Enabling a competitive renewable energy market
Bangladesh's current energy market, dominated by a few large corporations, is ill-suited for a renewable energy-driven future. A decentralised approach—with smaller-scale renewable projects—could allow greater participation from SMEs and local entrepreneurs.
The government should introduce financial incentives and institutional support for local renewable energy equipment manufacturers to increase renewable energy's share in the energy mix.
Expanding rooftop solar systems in government offices, businesses, schools, and places of worship is another crucial step. Fiscal incentives could accelerate the growth of the solar energy ecosystem. Additionally, exploring innovative solutions like solar panels along highways and canal tops could help generate significant solar power. Given Bangladesh's potential for offshore wind energy, a comprehensive feasibility study should be undertaken to assess investment requirements, resource availability, and financing options for wind energy projects.
Strengthening regional cooperation and foreign investment
To accelerate its energy transition, Bangladesh must explore diverse investment opportunities, including multilateral development banks (MDBs), green bonds, private equity funds, and financing facilities. China, the global leader in renewable energy production, presents a valuable partnership opportunity.
Since China is Bangladesh's largest trade partner, the country should develop strategies to attract Chinese investments in energy transition projects, taking inspiration from successful models in ASEAN nations.
Bangladesh should also take the lead in fostering regional energy cooperation within the BBIN (Bangladesh, Bhutan, India, and Nepal) framework. A unified policy approach and stronger cross-border energy trading (CBET) mechanisms could enable Bangladesh to access clean hydropower from Nepal and Bhutan through India.
A sustainable future for Bangladesh
The energy transition is a crucial opportunity for Bangladesh to secure its energy future while addressing social, economic, and environmental challenges. Nobel laureate Professor Muhammad Yunus' "Three Zeros" vision—zero poverty, zero unemployment, and zero net carbon emissions—promotes renewable energy as a key driver of sustainable development. By incorporating social business models, reducing fossil fuel dependency, and leveraging microfinance for small businesses, Bangladesh can navigate its energy crisis while advancing economic prosperity.
The road to a sustainable energy future requires bold decisions, strong policies, and strategic investments. By fostering an inclusive and dynamic renewable energy sector, Bangladesh can ensure long-term energy security and economic stability, while making significant contributions to global climate goals.
