BD to require around US$1 bn annually until 2030 to renewable energy target

Bangladesh will require between US$933 million and US$980 million annually until 2030 to meet the new target under Renewable Energy Policy, a new report by the Institute of Energy Economics and Financial Analysis (IEEFA) revealed Wednesday.

During the post-2030, the country will need between US$1.37 billion and US$1.46 billion annually until 2040, the IEEFA report finds.

IEEFA is a global team of energy finance analysts, communications experts, and management professionals, based in Asia, Australia, Europe, North America, and South Asia.

Bangladesh government has set targets for generating 20 per cent and 30 per cent of electricity from renewable energy sources by 2030 and 2040, respectively, under the country’s new Renewable Energy Policy.

“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 noted.

By engaging with Multilateral Development Banks, international climate finance institutions and bilateral development financial institutions, the government can consider establishing a currency hedging fund to mitigate currency risk.

The current government has suspended 31 utility-scale renewable energy projects that received Letters of Intent 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, 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 disbursement.

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 emphasises.

Azizjst@yahoo.com