Why is the government pushing solar power expansion?

The government is stepping up efforts to expand solar power as it seeks to reduce Bangladesh's dependence on fossil fuels and imported energy while easing pressure on fuel subsidies.

As part of the push, the government is setting up a Tk1,500 crore financing fund to provide low-cost loans for renewable energy systems, including rooftop solar, across households, institutions and industries. The loans will be available at a maximum effective interest rate of 6%, including fees, with a one-year grace period and repayment tenure of up to 10 years.

The government has also set a target of meeting 20% of the country's total electricity demand from renewable sources by 2030, signalling a shift towards alternative sources of energy amid persistent pressure on the existing fossil-fuel and import-dependent system.

Energy economist Shafiqul Alam said the new financing facility reflects the government's growing emphasis on renewable energy.

"The fund shows how much importance the government is giving to renewable energy. Involving Infrastructure Development Company Ltd (Idcol) and Palli Karma-Sahayak Foundation (PKSF) in distributing the loans will also allow people interested in solar power in rural areas to access financing," he told TBS.

The government has simultaneously reduced the tax burden on imported solar equipment to make renewable energy projects more viable.

According to an order issued by the Internal Resources Division of the finance ministry on 16 September, solar equipment imported for industrial use will be subject to only 1% customs duty, while the existing 15% VAT and 2% advance tax have been waived.

For non-industrial commercial importers, almost all solar equipment and components will also be eligible for import at a 1% duty, except for a few components that are manufactured locally. Import taxes on those components had previously ranged from 23% to 64%.

The government is also encouraging large-scale investment in renewable energy and promoting net metering for household solar systems.

Under the net-metering system, the government plans to purchase electricity generated by solar producers at Tk10.50 per unit, creating an additional incentive for consumers and investors to install solar systems.

The push comes as Bangladesh continues to face challenges in meeting energy demand through its existing fuel-dependent power system. Expanding solar generation would allow the country to diversify its energy mix and reduce its exposure to fluctuations in imported fuel and LNG prices.

However, experts have cautioned that access to financing alone may not be enough to ensure widespread adoption, particularly among low-income households.

"Capital subsidies or incentives for people below the poverty line could produce better results. India has such arrangements," Shafiqul Alam said.

The new fund is intended to finance rooftop solar systems with net-metering connections, solar home systems, industrial solar installations, solar-powered irrigation pumps, as well as inverters, meters and batteries used for solar generation and storage.