Buyer pressure, lower electricity costs drive small entrepreneurs to solar

Highlights:

• Small factories increasingly adopt rooftop solar despite high installation costs
• European sustainability rules push exporters toward renewable energy adoption
• Solar power significantly reduces factories' monthly electricity expenses
• Over 1,100 Bangladeshi garment factories already installed solar panels
• Rising fuel and electricity prices accelerate renewable energy investments
• Limited financing and high import duties hinder wider solar adoption

Renewable energy investment was once largely confined to major industrial groups, but smaller factories are now steadily adopting rooftop solar and other green technologies.

Despite high upfront costs, limited access to bank financing, and steep import duties on equipment, many small export-oriented firms are increasingly embracing solar energy.

Industry insiders say the main drivers are business survival and long-term savings. Pressure from export destinations, particularly in Europe, is also accelerating the shift.

Infograph: TBS

Besides, energy disruptions, caused by both global and domestic factors, alongside the prospect of lower electricity costs, are encouraging more businesses to invest in renewables.

Entrepreneurs and researchers believe many more factories would come forward if businesses could access easy loans and if import duties on solar equipment were reduced.

Smaller factories join green transition

A small Narayanganj-based factory, Fatullah Apparels, employing only 500 workers, invested Tk56 lakh in solar power four years ago, with an expected payback period of eight years.

The factory is now ranked among Bangladesh's top 10 green factories and is on course to recover its investment two years ahead of schedule. It now plans to expand its investment.

Fazlee Shamim Ehsan, managing director of Fatullah Apparels, told The Business Standard that around 90% of his company's exports go to European Union countries.

"Europe has introduced several regulations for environmentally sustainable production in supply chains, which will be fully implemented by 2030. To retain exports, we have no alternative but to shift towards green production in line with those requirements," he said.

He added that solar power currently meets 25% of the factory's electricity demand. "We plan to meet our entire electricity demand through solar energy within next year."

Installing a solar requires heavy investment, but long-term electricity costs are lower than conventional fossil fuel-based power, said Ehsan, also the executive president of BKMEA.

Shantir Nir Sweaters Limited, another small export-oriented garment factory employing around 650 workers, has also installed solar panels at its facility.

Abdur Rouf, manager of administration and human resource at the company, said the factory's monthly electricity bill previously stood at around Tk3.5 lakh under conventional power use, which has now fallen to Tk1.21 lakh.

"Initially, we had to invest nearly Tk1 crore for the solar panels, and the owners had to arrange the funds from their own resources," he added.

Rise of solar reflected in industry surveys

A recent study by Mapped, a research platform, found 1,107 out of 3,320 surveyed garment factories have already installed solar panels to meet part of their electricity demand.

Among them, 506 were small and medium-sized factories employing fewer than 1,000 workers. Another 289 factories had workforces of fewer than 500 employees.

According to the platform's data, nearly 80 garment factories outside the memberships of the BGMEA and BKMEA have also installed solar systems for power generation.

Shehab Udduza Chowdhury, vice-president of BGMEA, told The Business Standard that at least 50 more member factories have recently begun the process of installing solar panels.

There is no comprehensive official data on how much industrial electricity demand is currently being met through solar power.

However, a recent report by TBS, citing entrepreneurs and solar developers, estimated that industries are now generating nearly 500MW through solar panels and other renewable energy sources. Another 500MW to come online within the next year.

No longer optional, but business necessity

Industry insiders said a key driver is rising pressure from European buyers, Bangladesh's largest export market, where future trade rules will require sustainable production and renewable energy across supply chains, along with proof of compliance.

BGMEA's Shehab Udduza said, "Electricity generation through solar panels is now less about environmental concerns and more about remaining competitive in business."

Last year, four apparel sector associations wrote to the then energy adviser, stating that gas prices for captive power generation had increased by 286% over the previous five years. During the period, electricity prices rose by 34%, while diesel prices climbed 68%.

Amid global price pressures linked to the ongoing Middle East war, fuel prices in Bangladesh were raised by 16% last month. An increase in electricity tariffs has also been proposed.

Renewable becoming mandatory under new European rules

The European Union remains Bangladesh's largest export destination, accounting for around 44% of total exports. Including the United Kingdom, the share rises to nearly 60%.

In November 2018, the European Commission unveiled its long-term strategy to achieve net-zero greenhouse gas emissions by 2050.

As part of that effort, the EU introduced the Corporate Sustainability Due Diligence Directive (CSDDD), requiring companies to assess environmental risks, carbon emissions, energy use, and climate impacts throughout their supply chains.

The bloc is also moving to make Digital Product Passports (DPPs) mandatory to verify whether factories in supply chains are providing accurate sustainability data. 

Under the DPP, each product will carry a unique digital identifier, such as a QR code or NFC tag, linked to an online record tracing the product's entire lifecycle – from raw materials and manufacturing processes to environmental impact and end-of-life management. 

The initiative aims to strengthen sustainability, ethical sourcing, and human rights standards across global supply chains. The system is expected to become fully operational by 2030.

The EU has also introduced measures such as the Carbon Border Adjustment Mechanism, which will pressure exporting countries to reduce carbon emissions in production processes.

Most European brands sourcing from Bangladesh have already asked factories to cut carbon emissions by around 50% by 2030, according to sector insiders.

Risk of losing orders

TBS spoke to two leading global apparel brands sourcing from Bangladesh, both warning that factories failing to shift to renewable energy risk losing orders.

H&M, the largest buyer of Bangladeshi apparel, said when expectations are not met, their  approach prioritises improvement, training, and time-bound corrective action plans.

"Only if sufficient progress is not achieved, we would consider reducing volumes or responsibly exiting a relationship," H&M added in an emailed response.

However, the company also noted that the growing use of solar panels among its supplier factories in Bangladesh is already generating around 2MW, marking a significant progress.

Kazy Mohammad Iqbal Hossain, South Asia sustainability manager and global climate actions lead at Lindex HK Limited's Dhaka office, said suppliers need to adopt concrete climate actions, including energy efficiency improvements and a shift toward renewable energy. 

"In future, failure to meet such requirements could affect sourcing decisions, as products associated with high emissions or may face market barriers in the EU," he added.

"Lindex HK currently works with 17 suppliers in Bangladesh, covering more than 30 production units. Around 50% have already installed rooftop solar systems," he added.

Financing constraints major barrier

Stakeholders said solar adoption requires heavy upfront investment that many small and medium factories cannot finance on their own. Although low-interest loans exist under the central bank's sustainable finance schemes, access remains limited for smaller firms. 

Mutual Trust Bank Managing Director Syed Mahbubur Rahman said most green financing so far has gone to large companies. "Very little financing has reached small entrepreneurs."

Solar projects require 8-10 years of investment with slow returns. "Small borrowers also face collateral challenges. Banks need to be confident about repayment," he added.

A senior official of a leading commercial bank, who works on green financing, said he is yet to see any small-scale factory receive such funding. "Even for large borrowers, multiple factors are assessed. For small ones, the risk is harder to justify."

He also pointed to procedural delays in central bank-backed schemes. "Approval can take six to eight months, while interest is charged at regular rates during this period," he said.

When contacted about how many industries have accessed loans under the central bank's green finance schemes, Bangladesh Bank spokesperson Arif Hossain Khan requested written questions. However, no response was received by the time of reporting.

Former vice-president of the Bangladesh Textile Mills Association, Salehuddin Zaman Khan, said high import duties on solar equipment are another major cost driver.

He said tariffs on some solar components can reach up to 77%, increasing project costs by 30% to 50%. "As a result, a project that costs Tk1.5 crore in India can cost as much as Tk2.5 crore in Bangladesh."

During a recent budget discussion with business leaders, National Board of Revenue Chairman Abdur Rahman Khan pledged to simplify import procedures for solar equipment.

Govt plans tax incentives

Although successive governments have long discussed encouraging investment in solar power, limited effective action has followed. 

However, the current administration is now considering concrete measures, according to Power, Energy and Mineral Resources Minister Iqbal Hasan Mahmud Tuku.

At a recent event, he said the government is weighing nominal import duties and a five-year tax holiday to boost investment in the solar sector. He added that an investment-friendly policy for solar is expected to be announced by June.

Referring to Pakistan as an example, the minister said that the government there imported solar equipment and provided it to investors with incentives. He said Bangladesh could also consider direct imports of solar equipment or allow private sector imports at zero duty.