Policy gaps, credit risks, and land hurdles stalling private investment in green energy sector
Bangladesh must secure nearly $1 billion in annual investment until 2030 to meet its goal of generating 20% of electricity from renewable sources, according to a new report released by the Institute for Energy Economics and Financial Analysis (IEEFA).
The report, titled “Catalysing Renewable Energy Finance in Bangladesh,” also estimates that to reach 30% renewable energy generation by 2040, the country will require an even larger annual investment—approximately $1.46 billion—from 2030 to 2040.
Despite the urgent need for clean energy financing, the report warns that Bangladesh faces major hurdles in attracting private capital. These include policy uncertainty, land acquisition bottlenecks, offtaker risk, currency devaluation and a downgraded sovereign credit rating—all of which undermine investor confidence in the sector.
Financing gap and fiscal priorities
The IEEFA notes that public financing alone cannot close the funding gap, making it essential to unlock large-scale private sector participation. Mustafizur Rahman, distinguished fellow at the Centre for Policy Dialogue (CPD), said the challenge is not the availability of funds but the lack of policy priority.
“In our development budget, we earmark more than $20 billion each year. Allocating $1–1.46 billion to renewable energy is not difficult—if it’s prioritised,” Mustafiz said. “The pressure will ease if the government creates a supportive environment for both foreign and domestic investors.”
Challenges in renewable energy financing
The IEEFA has identified several challenges in attracting private investment in the renewable energy sector.
The challenges are policy and regulatory changes, offtaker risk, technology and performance risk, weak project pipelines, a cumbersome loan disbursement process, land acquisition challenges, currency volatility and lower sovereign rating.
Apart from that, abrupt policy changes have also played a negative role to dent the investor confidence which ultimately minimised the inflow of foreign capital, it says.
Local investors and sponsors are not keen to invest in utility-scale renewable energy projects due to the lengthy land acquisition process, the IEEFA says, adding that the removal of the “implementation agreement” clause, similar to a sovereign guarantee, deters them from submitting proposals against the government’s tenders.
On the debt front, the IEEFA says, Bangladesh’s low credit ratings will increase the cost of foreign loans, which are essential for the country’s economic growth and energy transition.
“The devaluation of the Bangladeshi Taka by a massive 27% against the US dollar between May 2022 and January 2025 further complicates project financing. Loans are even more difficult to secure for small projects,” says the IEEFA.
Financial institutions often demand high collateral and perceive small-scale projects as risky, limiting access to financing for renewable energy ventures.
What can be done to attract investors
The IEEFA says the government can earmark land for utility-scale projects through proper resource mapping. The government can also address land acquisition challenges through the Public-Private Partnership model.
This can help mobilise private investment in renewable energy through special economic zones, thereby circumventing land acquisition uncertainties.
Policy certainty and a gradual transition from unsolicited project award to a competitive bidding process will help attract the consistent investment the sector needs until 2040.
The government can help establish a currency hedging facility to mitigate currency risk. Multilateral Development Banks (MDBs), international climate finance institutions and bilateral development financial institutions can support the creation of this facility, the IEEFA says in its recommendation.
To attract investors, it says, “The Bangladesh government may reinstate the ‘project implementation clause’ as a sovereign guarantee, dispel any uncertainty over payment owing to the Bangladesh Power Development Board’s hefty subsidy burden or establish a funding mechanism to provide revenue assurance to renewable energy producers, mitigating counterparty risks.”
