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BANGLADESH’S energy sector stands at a critical inflection point, caught between the urgent need to meet growing demand and the imperative to transition towards sustainable solutions. The country has made impressive strides in electricity coverage, expanding access to over 96 per cent today. Yet this remarkable achievement rests on increasingly shaky foundations — an overreliance on imported fossil fuels that drains foreign reserves, exposes the economy to volatile global markets, and contributes significantly to environmental degradation. With peak electricity demand projected to reach 40,000 MW by 2041 and climate change intensifying vulnerabilities across the country, Bangladesh faces a defining challenge: how to power its economic ambitions while ensuring energy security and environmental sustainability.

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The cost of fossil fuel dependence

BANGLADESH’S current energy model has become economically unsustainable. The country spends approximately $2.5 billion annually on fossil fuel subsidies — equivalent to 15 per cent of its total import bill — while simultaneously grappling with a dollar shortage crisis. The much-touted shift to liquefied natural gas (LNG) as a bridge fuel has backfired spectacularly, with import prices soaring 300 per cent since 2021 and forcing painful cuts to power generation. Meanwhile, the coal power expansion strategy, which envisioned 22,000 MW of new capacity, has left the country with underutilised white elephants like the 1,320 MW Payra plant that operates at just 40 per cent capacity due to fuel affordability issues. This overreliance on imported energy has not only created fiscal strain but also environmental consequences, with air pollution from fossil fuel combustion estimated to cause 80,000 premature deaths annually.

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Structural barriers to clean energy transition

SEVERAL entrenched obstacles stand in the way of Bangladesh’s renewable energy potential. Policy inconsistency remains a fundamental challenge — the 2008 Renewable Energy Policy’s target of 10 per cent renewables by 2020 was missed by a staggering 65 per cent, even as contradictory support for coal power continued. Financial constraints compound these issues, with dollar shortages limiting clean technology imports and risk-averse local banks preferring to finance conventional fossil projects. The grid itself presents technical barriers, lacking the flexibility to handle variable renewable output and constrained by land scarcity that complicates large-scale solar and wind deployment. These challenges are exacerbated by institutional fragmentation, where overlapping mandates between the Bangladesh Energy Regulatory Commission, Power Division, and Sustainable and Renewable Energy Development Authority often lead to conflicting priorities and stalled progress.

Overdependence on imported fossil fuels: Bangladesh’s energy security is compromised by its heavy reliance on imported fossil fuels. The volatility of global fuel prices, as evidenced during the Russia-Ukraine conflict, has led to increased electricity generation costs and significant subsidy burdens. In the fiscal year 2021–22, the power sector’s subsidy burden escalated to approximately $2.82 billion. This financial strain limits the government’s capacity to invest in renewable energy infrastructure and technologies.

Limited land availability: As one of the most densely populated countries, Bangladesh faces acute land scarcity, posing a significant challenge for large-scale renewable energy projects. The competition for land use between agriculture, habitation, and energy infrastructure necessitates innovative solutions, such as rooftop solar installations and floating solar systems, to optimize space utilization.

Grid infrastructure constraints: The existing electricity grid infrastructure is ill-equipped to handle the variability and intermittency associated with renewable energy sources. The lack of modern grid management systems, energy storage solutions, and smart grid technologies hampers the integration of renewables into the national grid, leading to inefficiencies and potential reliability issues.

Policy and regulatory challenges: While the government has introduced policies to promote renewable energy, such as net metering guidelines, the overall policy framework lacks coherence and long-term vision. The absence of a comprehensive, integrated energy and power master plan has resulted in fragmented efforts and limited investor confidence. Additionally, bureaucratic hurdles and inconsistent regulatory practices deter private sector participation and investment in the renewable energy sector.

Financial and investment barriers: The high upfront costs associated with renewable energy projects, coupled with limited access to affordable financing, pose significant challenges. Despite the Bangladesh Bank’s directive for financial institutions to allocate at least 5 per cent of their loan portfolios to green financing, actual disbursements remain below target. Furthermore, the lack of risk mitigation instruments and incentives for investors impedes the mobilization of private capital.​

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Untapped renewable potential

BENEATH these challenges lies extraordinary untapped potential. Bangladesh’s solar energy capacity alone could theoretically generate 3,000 MW from rooftops — equivalent to six mid-sized coal plants — yet current installations total just 329 MW. The country’s extensive coastline holds an estimated 5,000 MW of wind power potential, while agricultural residues could produce 500 MW of bioenergy. The success of Bangladesh’s pioneering solar home system programme, which brought electricity to 20 million people, demonstrates the viability of distributed renewable solutions. Coastal areas could host hybrid offshore wind and solar farms, while Kaptai Lake’s 3,000 MW floating solar potential remains virtually unexploited. Emerging technologies like green hydrogen could eventually decarbonize hard-to-abate industries like fertiliser production by leveraging existing gas infrastructure.

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Policy priorities for accelerated transition

Reforming the financial architecture: The transition requires fundamental financial restructuring. Bangladesh must move from blanket fossil fuel subsidies to targeted incentives for renewables, establishing aÌý500 million green bond market to attract institutional investors. Partnering with multilateral development banks on currency hedging instruments could mitigate forex risks for renewable projects, while development partners could help capitalise a renewable energy development fund. The recent 4.5 billion IMF bailout, partially necessitated by energy sector strains, underscores the urgency of these financial reforms.

Modernizing grid infrastructure: Grid modernization represents another critical frontier. Deploying smart meters and AI-driven demand forecasting could better manage variable renewable supply, while creating dedicated renewable energy zones with streamlined land allocation would accelerate project development. Pilot battery storage installations at 50 strategic substations could demonstrate the viability of energy storage for grid stability. These technical upgrades must be paired with regulatory reforms that properly value distributed generation and encourage private investment in grid flexibility solutions.

Strengthening institutions and human capital: Institutional strengthening is equally vital. Elevating Sustainable and Renewable Energy Development Authority to a statutory authority with real enforcement power would give renewables policy more teeth, while implementing renewable purchase obligations for large industrial consumers could create guaranteed demand. Launching a ‘Clean Energy Corps’ fellowship programme could build the technical capacity needed across government and utilities, ensuring the workforce keeps pace with technological change.

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Economic imperative of transition

THE case for energy transition is fundamentally economic. Every 1,000 MW of added solar capacity could save $300 million annually in avoided fuel imports while creating three times more jobs per megawatt than fossil fuel projects. Renewable energy offers insulation from commodity price shocks — during the 2022 global energy crisis, solar-powered factories maintained operations while gas-dependent industries faltered. Moreover, positioning Bangladesh as a regional leader in offshore wind and green hydrogen could attract significant foreign investment in coming decades.

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A just transition road map

THE path forward must balance urgency with equity. In the short term (2025–2026), Bangladesh should impose a moratorium on new coal and LNG plants while launching a 500 MW rooftop solar initiative and reforming tariff structures to favour renewables. The medium-term (2027–2030) should focus on achieving 15 per cent renewable penetration through offshore wind and waste-to-energy projects, coupled with retraining programmes for 50,000 fossil sector workers. Long-term planning (2031–2041) should envision Bangladesh as a regional clean energy leader, with 40 per cent renewable generation supported by green hydrogen backup and potential electricity exports to neighbouring countries.

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Seizing the moment

BANGLADESH’S energy choices in the coming years will determine whether it becomes trapped in a cycle of fossil fuel dependency or emerges as a solar-powered pioneer. With coordinated policy action, financial innovation and technological adaptation, the country can build an energy system that powers inclusive growth while meeting climate commitments. The alternative — continued reliance on expensive, unreliable fossil imports — risks economic stagnation and ecological harm. For a nation that has already shown remarkable ingenuity in expanding energy access, the renewable energy transition represents the next great challenge — and opportunity — in its development journey.

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Musharraf Tansen is a development analyst and former Country Representative of Malala Fund.