Fossil fuel imports rise 14.8% in four years as renewable share remains at 2.3%

Heightened risks of global supply disruptions, fiscal burden and rising costs underscore the importance of accelerating Bangladesh's energy transition, according to a new report by the Institute for Energy Economics and Financial Analysis.

Key takeaways

Renewable energy, including hydropower, contributes only 2.3% to Bangladesh's power generation, against the global average of around 33.8%. This highlights the need to rapidly strengthen the country's renewable energy capacity to protect it from volatility in global energy markets.

Currency depreciation and high prices of imported fossil fuels do not fully explain Bangladesh's soaring power generation cost. Costly peaking plants, capacity payments arising from a high reserve margin, and fuel supply shortages have made power generation significantly expensive, leading to a continued fiscal burden.

The high cost of liquefied natural gas continues to affect Bangladesh, which could pay around $1.07 billion in subsidy to import the fuel to meet power demand during April-June 2026.

Besides accelerating renewable energy-based power generation, stronger cross-border energy cooperation through the Bangladesh-Bhutan-India-Nepal framework, improved energy efficiency and higher domestic gas supply could reduce Bangladesh's dependence on imported fossil fuels.

Bangladesh's primary energy imports rose from 47.7% to 62.5% in four years, exposing the country to volatility in the international fossil fuel market and raising power generation cost by 83%, according to a new report by the Institute for Energy Economics and Financial Analysis.

The report, titled "Fostering Bangladesh's energy transition", says expensive fossil fuels, depreciation of the Taka against the US dollar, and large capacity payments resulting from low demand growth have significantly influenced rising power costs.

Analysing data from FY2020-21 to FY2024-25, the report finds that a 290% surge in average coal prices between FY2020-21 and FY2022-23, along with high oil prices for a brief period and sharp currency depreciation, drastically increased Bangladesh's power generation cost.

However, despite a 59.7% fall in coal prices compared with FY2022-23 and relatively low oil prices, generation cost did not decline in FY2024-25.

"The average capacity payments of approximately Tk9.5 per kilowatt-hour and Tk5.9 per kilowatt-hour 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 Tk16.85 per kilowatt-hour, while plants operating at around 75% load factor did so at a cost of Tk6 per kilowatt-hour," he added.

The report also says declining domestic gas production means Bangladesh needs to import expensive liquefied natural gas.

It estimates that the country could pay a subsidy of $1.07 billion, or Tk13,134 crore, for LNG imports from April to June 2026.

The estimate is based on the import trend from April to June 2025 and the current import price of around $20 per million British thermal units, excluding regasification and terminal costs.

The report says the share of renewable energy remains only 2.3% of grid-based power generation, far below the global average of around 33.8%. This limits Bangladesh's ability to hedge against volatile prices in international fossil fuel markets.

Currently, high import duties are imposed on distributed renewable energy systems, it says.

The report estimates that a combined rooftop solar capacity of 100MW could save more than 30 times the one-off import duties by reducing furnace oil imports over the lifecycle of the systems. It therefore calls on the government to offer 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 added.

To reduce gas demand, Bangladesh could tap into the cost-competitive hydropower potential under the Bangladesh-Bhutan-India-Nepal framework, the report says.

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 draws policymakers' attention to the need to keep the open access cost of renewable energy projects under corporate power purchase agreements at a minimum.

This would enable the apparel sector and other corporations to decarbonise operations as part of their environmental, social and governance targets.

While power utilities fear revenue losses from such projects under corporate power purchase agreements, IEEFA's analysis shows that electricity consumption in industries increased by 4.8% in FY2024-25.

"BPDB recorded revenue shortfalls of Tk55,660 crore in FY2024-25. 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 added.