Budget for the difficult energy transition fix

2026 is yet another year when industries, businesses, and households continue to experience significant energy and power supply disruptions. While the government has increased tariffs to reduce the power sector's revenue shortfall, the subsidy burden will remain very high. This price hike also does not guarantee an uninterrupted power supply.

High dependence on imported fossil fuels (62.5%), slow progress of renewable energy (2.3% in power generation in 2024-25) and delays in front-loading reforms have landed the power and energy sectors in this unsustainable situation. 

Be that as it may, the budget to be unveiled on 11 June 2026 is an opportunity for the government to lay the foundation for revamping the energy and power sectors. Given that renewable energy could shield the country's energy system from the price spikes and supply volatility in the international fossil fuel market, the new budget could incentivise the uptake of renewable energy. By waiving the disproportionately high import duties applicable to the components of distributed renewable energy systems, such as rooftop solar, the budget could provide a signal to industries, commercial buildings and households for a rapid scale-up of this intervention.

With the increasing share of variable renewable energy during the day, the formation of a duck curve is a possibility. While battery energy storage could address this challenge, high import duties make lithium-ion batteries expensive. A duty waiver could help the greater adoption of battery energy storage systems.

Small-scale renewable energy technologies often face significant hurdles in accessing finance. A budgetary allocation could ultimately remove financing challenges.

Besides incentivising clean energy, the budget should allocate sufficient funding for harnessing local gas to avoid the country's rising dependence on expensive and volatile LNG. The government needs to reshape its traditional budgetary allocation, which was heavily tilted towards the power sector in the past, and instead, it should focus on raising domestic production of gas. This will hedge the country against the high cost of imported LNG that has severely affected its overall energy system in the last several years.

Among other things, the budget must strategically allocate resources for reducing gas sector T&D losses and grid modernisation.

Streamlining subsidy-laden energy and power sectors will require time and funding support. By prudently allocating resources and incentivising clean energy, this budget can make a stride in that direction.

The article was prepared by TBS' Shazzad Hossen based on a telephone conversation with Shafiqul Alam