Transition challenges for greening the fashion industry

In November 2021, the Fashion Industry Charter for Climate Action convened by the UN Climate Change (UNCC) Global Climate Action, committed to driving the fashion industry towards a 1.5C future, including net-zero GHG emissions in the second half of the twenty-first century. The Charter provided a framework for fashion companies to follow, which included reducing greenhouse gas emissions, using sustainable materials and promoting circularity.

Out of the 100 signatories so far, there are three from Bangladesh, including BGMEA. The signatories are committed to bringing changes in their operations and engaging with their global supply chains in support of the broader goals of the Paris Agreement. In February 2023, a dialogue was held in Dhaka where several speakers highlighted the importance of using renewable energy to reach the goal. It was also mentioned that the transition needs to be quicker and at the same time cheaper.

The dialogue featured a number of case studies on countries that have switched to cleaner energy to reduce emissions. It also emphasised the need for powerful collaborations and more support from experts while keeping in consideration that we have seven years on hand to achieve Sustainable Development Goals (SDGs). 

According to the dialogue, in Australia the total number of EVs almost doubled in 2022, growing from 11,000 to 83,000. The highest rooftop capacity and PV installation reached about 30,000 MW within fifteen years. They framed effective policies using Power Purchase Agreement (PPA) for the transformation to renewable energy. The dialogue discussed the experiences of other countries on how corporations can use Power Purchase Agreement (PPA) mechanisms to learn about the best available practices in the world.  

Bangladesh aims to achieve 30% renewable energy by 2030 and at least 40% by 2041, but it currently has only 3.1% RE in its energy mix (2020 targets were not met). Of this, about 70% of the RE capacity comes from solar. The potential of other solar energy sources should be explored further to scale up RE production in Bangladesh. 

Currently, all the power produced in Bangladesh is sold to distribution utilities namely Bangladesh Power Development Board (BPDB) and hence there are no PPAs for large-scale solar projects between the power producer and consumer.

Bilateral PPAs in Bangladesh are signed between the Independent Power Producer (IPP) and the government. To help reach our 25% renewable energy goals, the government can bring in competitive tariffs and increase private sector interest. 

Bangladesh has set a goal of generating more than 8,080 MW of electricity from RE energy sources by 2030. The present production of Solar (Solar Park, Rooftop, Solar Irrigation) energy is 958.49 MW, so Bangladesh has a long way to go to achieve its 2030 target. In that respect, financing is one of the constraints. The government is planning to move forward with some promising projects, however, so far financing remains one of the central issues.

Among the domestic stakeholders, solar panels are a key factor in the success of the solar energy industry. The service life of a solar panel is over 25 years, and it has simpler maintenance requirements. While there are seven solar panel producers, the production of these industries is almost closed except for a few. 

There are several reasons behind this, namely the continuous changes in technology, quality and compliance issues, entrepreneurs not being able to gather quality certification of importing raw materials easily, and at the same time not being in a position to produce quality products because of poor research. Moreover, there are industries in the EPZ that could buy local products, but instead, they are allowed to import solar panels duty-free. Furthermore, the supply chain is not properly earmarked and a significant amount of new investment is needed to support entrepreneurs. 

Bangladesh Bank has several financial schemes announced for RE, one of them is the BDT 2 billion refinancing scheme that started in 2009 and an increase of BDT 4 billion for 68 green products (SFD Circular no.- 04, 24th July 2022). The financial schemes usually contain stringent conditionalities for banks. It allows banks and financial institutions to set their own annual green finance disbursement targets. 

About 39 banks and 19 financial institutions (FI) have signed agreements with Bangladesh Bank. The total disbursement is 4 billion Taka (Bank's- 2.70 billion, NBFIs- 1.30 billion) as per the Bangladesh Bank report, however, among the category-wise green finance, only 5% has been allocated for RE in FY22. There are eleven specific categories for green financing, of which renewable energy is one.  

Another important financing instrument is the Green Transformation Fund (GTF) for Renewable Energy, which is a revolving amount of USD 200 million and Euro 200 million for all E/O sectors (2019). Bangladesh Bank has signed agreements with 16 banks for the GTF. 

The disbursement up to FY22 was USD 138.75 million in 43 projects and Euro 61.72 million in 26 projects. A new GTF (Dec 2022) of BDT 5,000 crore (revolving) has been announced for 5-10 years as a term loan/working capital with 6% interest (PFI 1%- customer level not more than 5%). Concerned businesses feel that this time GTF could be helpful for them if proper importance is given to investors for renewable energy. 

GTF does have some limitations - the fund is meant for buying machinery only, and business entrepreneurs expect the scope of the loan to cover not only machinery but also other aspects of a sustainable industry. For example, the cost of capital machinery for a green project is only 20%-25% of the total project cost. 

Considering the reality, banks may partly waive or reduce the due diligence requirements for small borrowers while applying for green finance, including GTF. Allowing GTF to be integrated into the composite term loans could be helpful, alongside this, joint processing should be allowed so that a borrower can apply for a term loan of which a certain part would qualify for GTF.

Export-oriented firms procuring capital machinery or accessories from local manufacturing firms may be considered for availing GTF. Credit guarantee schemes (CGS) could be extended to cover all types of CMSME loans. Currently, the coverage is limited only to CMSME stimulus package loans.

Solar power is a complex business since many external factors influence the viability of photovoltaic systems, such as huge land requirements and the availability of sunshine. The return on investment is better when these factors are aligned. Concerned players believe that there should be an integrated system of programmes and projects, and at the same time, there should be an adequate budget and proper coordination in these three activities. 

The idea of a solar park has not yet flourished in the country. A solar park is a concentrated zone of solar power generation projects, it provides developers with an area that is well-characterised with proper infrastructure and access to amenities where the risk of the projects can be minimised. 

India has the largest Solar park in Jodhpur with a 14,000 acres area. Bangladesh has a plan for 8 Solar parks which are still in the planning stage. 

Net-metering within the EPZ is not allowed for the transfer of power to the grid. EPC developers are not interested in setting up rooftop solar power plants under the OPEX model. In terms of export and import from the grid, the adjustment of balances is not clear. Widening net-metering initiatives across EPZs in Bangladesh through BEPZA and BEZA can be helpful. Some of the EPZs such as Uttara EPZ at Nilphamari and Cumilla EPZ have come under the net metering facility, so there are existing examples in the EPZ which can be incorporated into others.

Concerned stakeholders have suggested that a completely separate authority equipped with a proper budget be ensured to encourage investment in RE. Presently, the Power Division, Ministry of Power, Energy & Mineral Resources look after this issue. 

Approximately 6 Acts, 5 Rules, 1 Regulation and 10 Policies regulate RE issues. There is a need for coordination among the approving and supporting organisations which will ensure that a single entity takes care of relevant issues. There should be specific/identified bodies/institutions for the certification of environment-friendly products/machinery. 

Incentives should be available for R&D to improve RE technology, such as solar panels, wind turbines etc.  Import of technology from other countries will gradually rise in cost unless we develop our capacity to produce these materials. Delta Plan 2100 of Bangladesh has devised a plan for the R&D of RE Technology in universities and research institutions. 

Many countries have developed different strategies for rewarding clean energy producers, one of them is providing digital currency called NRGcoin, which is based on blockchain and AI technology. Tax incentives and regulatory simplification for green certification, power purchase legislation and regional cooperation, incentives for market development, awarding projects based on the merits, GRID infrastructure development, tariff incentives, updating net metering guidelines, exploring alternatives of Carbon Taxation etc, are some other options that can be offered to encourage clean energy production.  

The dialogue brought up that innovative financial schemes can promote and accelerate transformation. Every transition indeed involves money, however, if the price of the products is not in commensuration, investors will not be encouraged. A collaborative approach to bringing changes in the policy mechanisms and the acquisition of effective technology is a must. 

Ferdaus Ara Begum is the chief executive officer of BUILD, a public-private dialogue platform that works in the area of private-sector development.

Disclaimer: The views and opinions expressed in this article are those of the author and do not necessarily reflect the opinions and views of The Business Standard.