Dhaka: Bangladesh’s primary energy imports have surged from 47.7% to 62.5% over the past four years, highlighting the country’s vulnerability to international fossil fuel market fluctuations and escalating power generation costs by 83%, as revealed by a recent report by the Institute for Energy Economics and Financial Analysis (IEEFA).
According to United News of Bangladesh, the report titled ‘Fostering Bangladesh’s energy transition’ attributes the rising power costs to expensive fossil fuels, the depreciation of the Bangladeshi Taka (BDT) against the United States Dollar (USD), and large capacity payments stemming from sluggish demand growth. Analysis of data from FY2020-21 to FY2024-25 indicates a significant increase in the average coal price by 290% between FY2020-21 and FY2022-23. This, coupled with rising oil prices and currency depreciation, contributed to the drastic increase in Bangladesh’s power generation costs.
Despite a 59.7% fall in coal prices compared to FY2022-23 and stable oil prices, generation costs did not decrease in FY2024-25. Shafiqul Alam, the report’s author and lead energy analyst at IEEFA, noted that average capacity payments of approximately BDT9.5/Kilowatt hour (kWh) (USD0.077/kWh) for private oil-fired plants and BDT5.9/kWh (USD0.048/kWh) for coal-fired plants in FY2024-25 further elevated generation costs.
Additionally, a gas supply shortage led to power generation costs of BDT16.85/kWh (USD0.137/kWh) for plants with a load factor under 25%, while those operating at around 75% did so at a cost of BDT6/kWh (USD0.049/kWh). The decline in domestic gas production necessitates the import of expensive liquefied natural gas (LNG), with the report estimating a subsidy of USD1.07 billion (BDT131.34 billion) for LNG imports from April to June 2026.
The report highlights that renewable energy accounts for a mere 2.3% of grid-based power generation, significantly below the global average of approximately 33.8%. To counteract this, the report suggests reducing import duties on distributed renewable energy (DRE) systems, including a proposed duty waiver for rooftop solar installations, which could save more than 30 times their one-off import duties by reducing furnace oil imports over their lifecycle.
Alam emphasized the necessity of expanding domestic renewable energy on a large scale while restricting fossil fuel-based plants to manage overcapacity. He suggests that the government consider retaining part of the operational oil-fired plants to avoid hefty capacity payments once their contracts expire. Additionally, Bangladesh could leverage the Bangladesh-Bhutan-India-Nepal (BBIN) framework’s hydropower potential, with a combined capacity of 6,000MW from Nepal and Bhutan projected to reduce annual gas consumption by up to 257 billion cubic feet post-2030.
The report also urges policymakers to minimize open access costs for renewable energy projects under Corporate Power Purchase Agreements (CPPAs), enabling the apparel sector and corporates to decarbonize operations as part of their environmental, social, and governance (ESG) targets. While power utilities fear revenue loss from CPPA projects, IEEFA’s analysis shows that electricity consumption in industries rose by 4.8% in FY2024-25.
Bangladesh Power Development Board (BPDB) recorded revenue shortfalls of BDT556.6 billion (USD4.53 billion) in FY2024-25. Ongoing conflicts in West Asia may further exacerbate financial stress for key energy sector utilities. The report concludes that Bangladesh’s energy transition relies on prudent policy decisions and realistic target implementation, supported by a conducive ecosystem to reduce reliance on imported fossil fuels and high subsidies.