Bangladesh requires as much as $1.71 billion annually over the next 18 years to move away from expensive fossil-fuel imports and generate 40% of its electricity from renewable sources, according to the Institute for Energy Economics and Financial Analysis.

The investment required for enhancing renewable energy capacity is lower than the power sector’s growing $2.82 billion government subsidy in the 2021-22 fiscal year, which is nearly 152% higher than the previous year, according to a report released on Wednesday by the US-based think tank. 

A faster transition to renewable sources will free up financial resources that otherwise end up as subsidy payments, IEEFA said. That might be crucial to shield Bangladesh from future global energy shocks. In the past 14 years, the South Asian nation has rapidly ramped up its electricity generation capacity more than fourfold as it sought to fill rising demand and avoid power blackouts. 

But that has left the country reliant on imported fossil fuels and less than 5% of its energy comes from renewable sources. As a result, Bangladesh last year asked the International Monetary Fund for a $4.7 billion loan package while the country grappled with an energy crisis as commodity prices soared following Russia’s invasion of Ukraine. Rising import costs widened the country’s trade deficit, causing the local currency to weaken and foreign reserves plunge. 

“Bangladesh’s electricity generation model appears unsustainable without a clear transition pathway,” said Shafiqul Alam, an IEEFA analyst who authored the report. “Policymakers should raise their renewable energy targets.” 

While higher subsidies are eventually passed on to consumers, Bangladesh’s power sector subsidy burden in the current fiscal year ending June will still likely be higher than the previous year, Alam said. 

Analysis by IEEFA shows that the existing power system can immediately incorporate 1,700 megawatts to 3,400 megawatts of solar power during the day and 2,500 megawatts to 4,000 megawatts of wind power at night, reducing the use of costly furnace oil-based power generation. 

The move will also help lower average electricity generation costs, according to the think tank’s report. IEEFA estimates show that the levelized cost of electricity from rooftop and utility-scale solar is around $0.05 per unit and $0.072 per unit respectively, compared to the current average of $0.084 quoted by the Bangladesh Power Development Board.