An IEEFA report says Bangladesh’s rising fossil fuel dependence has sharply increased electricity costs, exposing the country to global market shocks and intensifying calls for faster renewable energy expansion.
Bangladesh’s growing dependence on imported fossil fuels has pushed up power generation costs and deepened the country’s exposure to global market shocks, according to a new report by the Institute for Energy Economics and Financial Analysis.
The report, released on Tuesday, said Bangladesh’s primary energy imports rose from 47.7% to 62.5% over four years, while power generation costs climbed by 83% during the same period. It said renewable energy, including hydropower, accounted for only 2.3% of the country’s power generation, far below the global average of around 33.8%.
The findings, published in the report titled Fostering Bangladesh’s energy transition, underscore what the authors describe as growing risks from global supply disruptions, mounting fiscal pressure and rising electricity costs, while arguing for a faster shift toward domestic renewable energy, greater energy efficiency and stronger regional power cooperation.
Analysing data from fiscal year 2020-21 to fiscal year 2024-25, the report said Bangladesh’s soaring electricity generation costs were driven not only by expensive imported fuels and the depreciation of the taka against the US dollar, but also by high capacity payments linked to weak demand growth and fuel supply shortages.
It said the average coal price surged by 290% between fiscal years 2020-21 and 2022-23. Although coal prices later fell by 59.7% compared with 2022-23 and oil prices remained low, generation costs did not decline in fiscal year 2024-25.
“The average capacity payments of approximately BDT9.5 per kilowatt hour (kWh) (USD0.077/kWh) and BDT5.9/kWh (USD0.048/kWh) paid to private oil- and coal-fired plants, respectively, in FY2024-25 raised overall generation costs,” said Shafiqul Alam, the report’s author and lead energy analyst at IEEFA.
“Further, gas supply shortage increased cost. Plants with load factor under 25% generated power at BDT16.85/kWh (USD0.137/kWh) while plants operating at around 75% load factor did so at a cost of BDT6/kWh (USD0.049/kWh),” he said.
The report said declining domestic gas production has also forced Bangladesh to rely increasingly on expensive liquefied natural gas imports.
It estimated that the country could pay a subsidy of around USD1.07 billion, or BDT131.34 billion, for LNG imports between April and June 2026 to meet power demand. The estimate is based on the import trend from April to June 2025 and the current import price of about USD20 per million British thermal units, excluding regasification and terminal costs.
The study said Bangladesh’s low renewable energy share has limited its ability to cushion itself from volatility in international fossil fuel markets.
It also noted that high import duties are currently imposed on distributed renewable energy systems. According to the report, a combined rooftop solar capacity of 100 megawatts would save more than 30 times the one-off import duties by reducing furnace oil imports over the system’s lifetime, prompting the authors to call for a duty waiver.
“The solutions to Bangladesh’s persistent problems lie closer to home, such as in expanding domestic renewable energy at scale while limiting fossil fuel-based plants to contain overcapacity,” Alam said.
“Given the requirement of spinning reserve and grid balancing, the government may consider retaining part of the operational oil-fired plants in its ownership to avoid the hefty capacity payments once their contracts expire,” he said.
The report said Bangladesh could also cut gas demand by tapping into hydropower potential under the Bangladesh-Bhutan-India-Nepal framework.
It said a combined hydropower capacity of 6,000MW from Nepal and Bhutan during the high-demand March-September period could help Bangladesh reduce annual gas consumption by up to 257 billion cubic feet after 2030.
The report also urged policymakers to keep the open access cost of renewable energy projects under Corporate Power Purchase Agreements at a minimum. It said that would help the apparel sector and other companies decarbonise operations in line with environmental, social and governance targets.
While power utilities have expressed concern over possible revenue losses from such projects, the report said electricity consumption in industries rose by 4.8% in fiscal year 2024-25.
It added that the Bangladesh Power Development Board recorded a revenue shortfall of BDT556.6 billion, equivalent to USD4.53 billion, in fiscal year 2024-25.
“The West Asia conflict will likely add to the financial stress of other key energy sector utilities,” Alam said.
“Ultimately, the pathway to energy transition hinges on prudent policy decisions about implementing realistic targets on the ground supported by a favourable ecosystem, thereby minimising the country’s continued reliance on imported fossil fuels and high subsidies,” he said.
The Institute for Energy Economics and Financial Analysis said the report highlights the importance of fostering Bangladesh’s energy transition to reduce economic vulnerability and improve long-term energy security.
IEEFA describes itself as an organisation that examines issues related to energy markets, trends and policies, with a mission to accelerate the transition to a diverse, sustainable and profitable energy economy.
