EU offers €395m for renewables

Bangladesh's transition to renewable energy is set to receive a major boost with a €395 million loan from the European Investment Bank (EIB), the lending arm of the European Union. The loan will finance green energy projects that will help Bangladesh reduce its reliance on fossil fuels and combat climate change.

Of the total amount, €45 million will be provided as a grant by the EU and the remaining €350 million will be given as loan, said officials of the Economic Relations Division (ERD). 

A formal agreement is scheduled to be signed in Belgium on 24-25 October, with Prime Minister Sheikh Hasina expected to attend the signing event, a senior ERD official told The Business Standard.

Speaking on the matter on Tuesday, Md Habibur Rahman, senior secretary of the Power Division, told TBS, "The government has increased its focus on renewable energy and the EU's funding will play an important role in advancing the country's renewable energy initiatives."

Bangladesh has been making strides in adopting renewable energy sources and attracting foreign investments in this sector. In August this year, a joint venture led by the Saudi-based ACWA Power Company, along with two local firms, agreed to establish Bangladesh's largest solar power plant in the Rampal upazila of Bagerhat, with an investment of $430 million.

In the same month, US Ambassador to Bangladesh Peter Haas revealed that the American investment firm Blackstone is actively exploring opportunities to invest in Bangladesh's solar energy sector.

The €395 million loan is the largest financing agreement to date between the EIB and Bangladesh. According to the EIB's official website, their total financing support to Bangladesh has reached €800 million. 

During the pandemic, the EIB extended €250 million as budget support. The bank has been a key financial partner in funding at least two railway projects and the Dhaka Environmentally Sustainable Water Supply Project. 

According to ERD officials, the European Investment Bank expressed interest in providing loans to Bangladesh for renewable energy projects in November last year. The EU later offered a grant to supplement the loan. All preparatory work for the loan and grant agreements is in the final stages.

A summary of the loan and grant agreements was sent to the prime minister this week. The agreements will be finalised upon her approval. However, the specific projects that will be funded have not yet been finalised, officials said.

"Although the assurance of this money has been received from the EU, we are yet to decide on the projects. One project has been selected and the Sustainable and Renewable Energy Development Authority is working on selecting more projects in the quickest way possible," Md Habibur Rahman said.

ERD officials said the EIB usually does not dictate the terms and conditions of this type of loan. Bangladesh will decide on the instalment amount and interest rate, which can be either fixed or variable depending on the market situation.

Interest rates of multilateral and bilateral loans

The World Bank is Bangladesh's largest lender, followed by the Asian Development Bank (ADB), the Japan International Cooperation Agency (Jica), and the Asian Infrastructure Investment Bank (AIIB).

The interest rate for EIB loans is tied to the six-month Euribor (Euro Interbank Offer Rate), which currently stands at 4.13%. In contrast, the two largest lenders, the World Bank and the ADB, offer loans at fixed rates of 2%, and they also provide options tied to the Secured Overnight Financing Rate (SOFR), which is currently at 5.3%.

Bangladesh's clean energy generation capacity

According to Sustainable and Renewable Energy Development Authority data, Bangladesh currently generates 1,194.63MW of electricity from renewable sources, off-grid and on-grid combined. Out of this, 825.45MW is on-grid and 369.16MW is off-grid. 

Of the total renewable power, 960.64MW is solar, 2.9MW is wind and 230MW is hydro.

According to a report by the International Renewable Energy Agency, only 2.9% of the total power Bangladesh has produced in the last 10 years has come from renewable sources. In 2013, Bangladesh had the capacity to generate 329MW of renewable power, which rose to 775MW in 2022.

Roadmap for green energy

Bangladesh, like many other countries around the world, has developed a roadmap for renewable energy. The government aims to secure over 4,100MW of renewable energy capacity by 2030.

In addition to generating electricity from conventional fossil fuels, the master plan also sets out plans and targets for power generation from renewable sources and the import of electricity under the cross-border electricity trade.

In January 2023, the government announced its target to generate 40% of power from clean energy by 2041 and import about 9,000MW under regional and sub-regional cooperation from neighbouring countries.

Currently, the country has a power generation capacity of 27,361MW, including captive and renewables, against a demand of 15,500-16,000MW in the peak season.

At the Glasgow climate summit in 2021, Bangladesh announced that it would cut carbon emissions by 89.47 million tonnes by 2030 as part of efforts to promote renewable energy, energy efficiency and conservation.

Some new investments in renewable energy

In August this year, Prime Minister Sheikh Hasina inaugurated the 200MW Teesta Solar Plant, which is the largest solar power plant in Bangladesh so far. Beximco Power Limited, an associate company of Beximco Group, has built this plant in Sundarganj upazila of Gaibandha.

Besides, a solar park has been built on 350 acres of land in Rampal by Energy Renewables, an associate company of Orion Group. From this park, 134.3MW of peak (solar energy measuring unit) electricity is being supplied to the national grid.

Costs of electricity

According to data from the Bangladesh Power Development Board (BPDB), the production cost per unit of electricity in the country's diesel-powered plants is Tk22.

The cost of generating electricity from liquified natural gas (LNG) is Tk10 per unit; from local coal in Barapukuria, it is Tk4 per unit; from imported coal, it is Tk6 per unit; and from furnace oil, it is Tk12 per unit. However, these sources of electricity are not environmentally friendly.

The production cost per unit of solar power in Bangladesh is Tk8-10. The cost at the country's only hydropower plant in Kaptai ranges from Tk0.30 to Tk1, depending on the season.