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Bangladesh will require nearly US$ 1.0 billion in annual investments to meet the new goals outlined in its updated Renewable Energy Policy, a new report revealed Wednesday.
The country must channel US$ 933-980 million annually until 2030 and ramp up to US$ 1.37-1.46 billion per year through 2040 to reach its renewable energy (RE) ambitions, according to the Institute of Energy Economics and Financial Analysis (IEEFA).
IEEFA is a global team of energy finance analysts, communication experts, and management professionals, based in Asia, Australia, Europe, North America, and South Asia.
In its new Renewable Energy Policy, Bangladesh has set targets for generating 20 per cent and 30 per cent of electricity from renewable sources by 2030 and 2040 respectively.
"Public finance alone is unlikely to meet these funding requirements, necessitating large-scale private investment," says the report's co-author, Shafiqul Alam, IEEFA's lead energy analyst for Bangladesh.
However, abrupt policy changes, off-taker risk, technology and performance risk, weak project pipelines, a cumbersome loan disbursal process, land acquisition challenges, currency volatility, and lower sovereign rating limit private sector investment in the sector, the report notes.
By engaging with multilateral development banks (MDBs), international climate finance institutions and bilateral development financial institutions, the report suggests, the country could consider establishing a currency hedging fund to mitigate currency risk.
The interim government has suspended 31 utility-scale renewable energy projects that received Letters of Intent (LoIs) through the non-competitive bidding process under the previous government. This sudden shift to competitive bidding and the resulting contractual uncertainties have left investors feeling disconcerted.
The report highlights that Bangladesh should ensure regulatory stability, restore investor guarantees, map and allocate land for projects, and build capacity in both the banking and service provider ecosystems to attract investment.
The report underscores the importance of reinstating the "project implementation clause" to dispel uncertainties over payment or establish a funding mechanism to provide revenue assurance to renewable energy producers, mitigating counterparty risks.
"Land acquisition challenges can be mitigated through the public-private partnership model, which can help mobilise investment in renewable energy projects through special economic zones," the report suggests.
"In the case of small-scale renewable energy projects, their accelerated deployment will depend on addressing the high import duty on critical components, performance issues and perceived risks. Easing lending norms for green funds can also help scale up such projects," says Labanya Prakash Jena, Sustainable Finance Consultant at the IEEFA.
The report acknowledges the government's positive move in reducing the customs duty on imported solar inverters and calls on the government to reduce the import duty on components of small-scale solar projects, such as solar panels, FRP walkway, mounting structure and DC cable.
It emphasises the importance of adopting a pre-finance modality of the central bank's green funds to minimise delays and simplify disbursements.
Bangladesh's low sovereign credit ratings also deter foreign investors. "Moody's downgraded Bangladesh's credit rating to B2 in November 2024 from B1 earlier, based on the country's lower-than-expected economic growth in the near term, political challenges and banking sector risks.
"This has further deteriorated the country's credit profile in the international financial market, making borrowing expensive," notes Jena.
"The government, international organisations, financial institutions, private investors, and renewable energy companies should collaborate to create a conducive environment that fosters innovation, investment, and sustainable growth," the report says.
Azizjst@yahoo.com