Renewables offer solution to risks of import-dependent energy: IEEFA

Bangladesh could save nearly $3 billion in liquefied natural gas (LNG) import costs over 25 years by developing 1 gigawatt (GW) of solar power capacity, according to a new report by the Institute for Energy Economics and Financial Analysis (IEEFA).

The report, titled "Iran tensions underscore the urgency of Asia's renewables pivot for macroeconomic stability," warns that escalating geopolitical tensions are once again exposing the economic vulnerabilities of countries heavily dependent on imported fossil fuels, reads a press release.

According to the report, the ongoing tensions involving Iran have triggered sharp increases in global energy prices, with crude oil prices rising 51% and LNG prices increasing by as much as 77% in recent weeks. The surge is placing renewed pressure on energy-import-dependent Asian economies, including Bangladesh.

IEEFA said that if the crisis continues, energy prices could rise even further, potentially driving up inflation, putting pressure on foreign exchange reserves, and weakening overall macroeconomic stability across the region.

"In such a volatile global energy environment, accelerating the transition to renewable energy is no longer optional but essential for economic resilience," the report said.

Bangladesh relies heavily on imported LNG to meet its growing energy demand. A significant share of the country's LNG supply comes from Qatar and Oman under long-term agreements.

However, the country also purchases LNG from the spot market during supply shortages. According to the report, Bangladesh recently bought a spot LNG cargo at $28.28 per million British thermal units (MMBtu)—almost three times the benchmark Japan-Korea Marker (JKM) price recorded last month.

IEEFA said such price volatility demonstrates how reliance on imported LNG can quickly translate into fiscal pressure for developing economies.

Energy analysts say Bangladesh remains particularly exposed due to limited domestic gas reserves and a long-standing dependence on imported fossil fuels.

A similar situation unfolded during the 2022 global energy crisis triggered by the Russian invasion of Ukraine. Although Bangladesh reduced LNG consumption during that period, the country's overall import bill nearly doubled because of soaring prices.

The report also warns that rising global fuel prices can create a self-reinforcing economic cycle. As international energy prices increase, the local currency tends to weaken against the US dollar, raising the cost of energy imports even further. This can push inflation higher, increase production costs for businesses that operate in dollar-denominated markets, and raise the burden of servicing foreign debt.

To mitigate these pressures, governments across Asia have introduced various short-term policy measures, including fuel subsidies, retail price caps, and tighter monetary policies.

However, IEEFA cautioned that such interventions provide only temporary relief and could strain public finances if maintained for long periods.

Several Asian economies have already taken steps to manage rising energy costs. Thailand has capped diesel prices and is considering reducing fuel taxes to ease consumer pressure. Meanwhile, refiners in China, Thailand and India have temporarily restricted exports of crude and refined petroleum products to protect domestic supplies.

The central bank of the Philippines has also warned that it may tighten monetary policy if oil prices climb above $100 per barrel, reflecting concerns about inflationary pressure.

The report emphasises that heavy reliance on fossil fuels leaves countries exposed to geopolitical shocks and global market volatility. In Bangladesh, electricity generated from LNG is already three to four times more expensive than electricity produced from solar or wind energy, according to IEEFA.

Beyond cost savings, expanding renewable energy would improve energy security and shield the economy from unpredictable fluctuations in global fuel prices.

The duration of the current geopolitical tensions remains uncertain. US President Donald Trump recently said the conflict could last "four to five weeks" and called for Tehran's "unconditional surrender."

At the same time, Qatar's energy minister has warned that prolonged instability could push global oil prices to as high as $150 per barrel, potentially triggering another wave of global inflation.

Energy analysts say such scenarios would place substantial pressure on import-dependent economies like Bangladesh. IEEFA concludes that renewable energy is no longer only an environmental objective but also a strategic economic priority.

Scaling up investments in solar, wind and energy storage technologies, the report says, could help Bangladesh reduce its vulnerability to global energy shocks while strengthening long-term economic and energy security.

"In an increasingly uncertain geopolitical landscape, countries that accelerate the transition to renewable energy will be better positioned to protect their economies from future energy crises," the report added.