Fossil fuel dependence drives up Bangladesh's power costs by 83% in 5yrs: Report
"The elevated risk of fossil fuel dependence is a clear signal to swiftly expand renewable energy," the IEEFA report said, warning that Bangladesh's current energy pathway is becoming economically unsustainable
Highlights:
- Import dependence reached 62.5% in FY25, increasing exposure to global shocks
- High reserve margins and idle plant payments are driving up system costs
- Subsidies jumped to Tk386.7 billion in FY25, led by costly oil-based power
- Renewables remain low at 2.3% of generation, far below global levels
- The report urges boosting renewables to 20% by 2030
Bangladesh's increasing reliance on imported fossil fuels has caused electricity generation costs to surge by 83% over the last five years, widening the subsidy burden and exposing the economy to global supply shocks, according to a new energy economics report.
The report, titled "Fostering Bangladesh's Energy Transition" and authored by Shafiqul Alam, lead energy analyst at the Institute for Energy Economics and Financial Analysis (IEEFA), warned that the country's current energy pathway is becoming economically unsustainable.
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Released yesterday (6 May), the study highlighted that while renewable energy costs are declining globally, the sector remains significantly underdeveloped in Bangladesh.
Primary energy import dependence rose from 47.7% in the fiscal year 2020-21 to 62.5% in FY25, leaving the nation vulnerable to international price volatility and geopolitical tensions.
Consequently, the average cost of power generation (rounded) jumped 83% to Tk12.1 per kilowatt-hour (kWh) from Tk6.61 per kWh during the same period.
Far exceeding int'l norms
The IEEFA attributed this hike to expensive imported fuels, excessive reserve margins, and mounting capacity payments to fossil fuel-based power generation plants.
Bangladesh's power system's reserve margin has reached 61.3%, far exceeding international norms and resulting in large payments to idle plants, the report added.
In FY25, private coal-fired plants received Tk5.9 per kWh and oil-fired plants Tk9.5 per kWh in capacity payments.
Oil-based generation remains the most expensive source at Tk27.5 per kWh.
Despite the high cost, oil-fired plants contributed 10.7% of total power generation, resulting in power sector subsidies ballooning from Tk79.7 billion in FY19 to Tk386.7 billion in FY25.
Notably, the country's 10.7% power generation through oil is a figure significantly higher than in India (0.02%), Pakistan (0.6%), and Vietnam (0.06%).
Exchequer further strained
The IEEFA report warned that global LNG price volatility could further strain the exchequer.
With spot LNG prices hitting $20 per MMBtu due to the US-Israeli war on Iran, Bangladesh may need an additional $1.07 billion in subsidies between April and June this year if import levels remain constant to last year's.
Domestic gas reserves also face depletion by 2036 without new discoveries, as LNG already makes up 28.8% of total gas consumption.
System inefficiencies further compound the crisis.
Unaccounted-for gas losses reached 7.95% in FY25, while power transmission and distribution losses stood at 10.13%, exceeding the technical benchmark of below 8%.
To ensure energy security, the IEEFA urged the government to raise renewable energy's share to at least 20% of the total power by 2030, including 10,000MW of solar capacity.
Currently, renewables contribute only 2.3% to the national grid, lower than in 2010 and far below the global average of 33.8%.
The report also recommended gradually phasing down oil-fired generation to 5% by 2030 and 1% by 2040, while capping energy reserve margins at 20% excluding variable renewables.
Accelerate renewables' deployment
Against this backdrop, the report said Bangladesh urgently needs to accelerate renewable energy deployment to reduce long-term electricity costs and improve energy security.
IEEFA argued that renewable energy, particularly solar, could provide a more stable and cost-effective alternative to imported fossil fuels, as it is not exposed to international commodity price fluctuations.
To support the transition, the energy report advocated for large-scale hydropower imports from Bhutan, India, and Nepal under the BBIN framework, estimating that 6,000MW of firm power generation capacity after 2030 could save the nation 257Bcf of gas per year, equivalent to nearly 704MMcfd.
The BBIN framework is a subregional outline involving Bangladesh, Bhutan, India, and Nepal, which was formed to strengthen economic cooperation via enhanced connectivity, water management, and energy trading.
The report further suggested industrial electrification measures, including shifting half of captive power generation and gas-based industrial boilers to grid electricity or electric alternatives by 2030.
It also recommended improving energy efficiency by 1.5% annually and reducing transmission and distribution losses to 8% by 2030.
To attract renewable energy investment, the report called for duty waivers on solar panels, batteries and related equipment, alongside stronger payment guarantees for private investors.
"The elevated risk of fossil fuel dependence is a clear signal to swiftly expand renewable energy," the report said.
