Introduction

Bangladesh has experienced significant economic growth and development over the past two decades. Alongside the economic growth, there has also been a rapid rise in energy consumption. This trend is expected to intensify further in the upcoming years to cater to the dynamic fast-growing market in Bangladesh as it strives to become a high-income country by 2041.

Energy and power are key ingredients for alleviating poverty and improving the socio-economic conditions in any country. The government of Bangladesh has given top priority to development of the power sector, considering its importance in the overall development of the Bangladesh economy and has set the goal of providing electricity to all citizens in Bangladesh by 2041.

As the power sector is a highly capital-intensive industry, huge investments are required to generate additional capacity. Competing demands on the government’s resources and declining levels of external assistance from multilateral and bilateral donor agencies have constrained the potential for public investment in the power sector. Recognising these trends, the government of Bangladesh amended its existing industrial policies and approved the “Private Sector Power Generation Policy of Bangladesh” in October 1996, which was then revised in November 2004 to enable and encourage the flow of private investment into the power sector. The government of Bangladesh has also introduced a wide array of facilities and attractive incentive policies to encourage investment in the power sector.

Based on the liberal investment regime, Bangladesh has been successful in attracting domestic and foreign investment in the power sector, enabling remarkable progress to be made.

Transition to Renewables

The government of Bangladesh recognises that there is a major transition underway in the energy sector worldwide and Bangladesh is yet to achieve efficient utilisation of renewable energy resources. Recognising these trends, the government adopted the Renewable Energy Policy 2008 to enable, encourage and facilitate both public and private sector investment in renewable energy projects.

Bangladesh’s installed renewable energy capacity (including on-grid and off-grid) at present is approximately 1,200 MW with solar making up approximately 950 MW and hydropower producing approximately 230 MW. The remainder is produced by wind, biogas and biomass.

Solar Power Projects

At present, solar power dominates the renewable energy mix in Bangladesh.

Through the Infrastructure Development Company Limited, the government of Bangladesh has partnered with the World Bank and other development partners to implement the Solar Home System (SHS) programme, so as to provide clean and affordable electricity to communities in far-flung areas. As a result of the SHS programme, there have been developments in off-grid rooftop solar power, which has provided access to electricity to a large number of people living in rather remote off-grid locations. The contribution is approximately 260 MW, which is expected to increase further in the future.

There has also been rapid installation of rooftop solar systems in Bangladesh, which is expected to play a vital role in decarbonising the energy sector. To encourage this further, the government of Bangladesh promulgated the Net Metering Guidelines 2018, whereby electricity consumers are able to export any additional electricity generated by the solar system installed at their premises to the distribution grid network, after self-consumption. This has now seemingly become a popular choice for industries to minimise their electricity costs.

The contribution of SHS and the rooftop solar systems in the context of national power demand and generation is, however, insignificant. The government has awarded a number of grid-tied solar power projects over the last decade but only a handful of them have materialised. The largest solar project in the country, the 200 MW solar park in Sundarganj, Gaibandha achieved commercial operations in January 2023. Another 100 MW solar park in Mongla Upazila, Bagerhat became a commercial operation in 2021. The rest are smaller-scale projects.

Challenges in solar power projects

The major challenge faced in implementing grid-tied solar power projects is the inadequacy of the land, as approximately three acres of land is required for the generation of one megawatt of power. As per the direction of the government, no agricultural land can be used for power projects, including solar power projects, and since Bangladesh is a densely populated, fertile agricultural country, non-agricultural unused land is not easily available. Private investors initially struggle to identify a suitable parcel of land and once that has been identified, they struggle to acquire clean title over the earmarked land. Price negotiations between land owners and land aggregators are usually prolonged and sometimes even retracted at the whim of the land owners, resulting in a prolonged pause in the development of the project.

The government is considering implementing a couple of projects where a government entity would lease land to the private sector for the construction of solar power projects. One such project is located in Kushtia, Bangladesh where the government entity, the Sustainable and Renewable Energy Development Authority, has appointed International Finance Corporation (IFC) as its transaction adviser. During the feasibility study, IFC advised that the tariff is expected to be much lower if land owned by the government is used for the project, as the private partner would not have to bear the risk of acquiring the land.

However, considering that land is a scarce resource in Bangladesh, a major technological breakthrough is required to increase the number of solar projects in the country.

Hydro-power Projects

There is only one hydro-power generation facility in Kaptai, Bangladesh, which generates 230 MW. There is, however, a cross-border deal being negotiated at present whereby hydro-power of approximately 40–50 MW will be exported from Nepal to Bangladesh.

Other Renewable Power Projects

Bangladesh is largely untapped with respect to other renewables like wind, biogas and biomass. The first large wind-power project of approximately 66 MW capacity located in Cox’s Bazar, Bangladesh became a commercial operation in May 2023. There are a few other wind projects in the planning and implementation stage.

The government has also signed agreements with private investors for waste-to-power projects, the commercial operation of which is expected to be achieved in 2024. Successful implementation of these waste-to-power projects will diversify the country’s renewable energy sources and also help to manage waste.

The transition to clean energy will play an active role in promoting economic development, saving energy and reducing emissions, as well as protecting the environment in Bangladesh.

Developments in Fiscal Incentives

Local and foreign investors are keen to invest in the power industry in Bangladesh, mainly because of the various tax incentives granted by the government. From mid-2013 up until the beginning of 2020, private power-generation companies enjoyed exemption from corporate income tax for a flat period of 15 years, commencing from their respective commercial operations dates.

However, in 2020 the government took a different stance when it decided that power-generation companies that became commercial operations by 31 December 2022 would be eligible for exemption from corporate income taxes for a period commencing from their respective commercial operations dates up until 31 December 2034. This meant that a company achieving commercial operations status in December 2022 would only be entitled to income tax exemption for 12 years.

The stakeholders in the power industry were truly concerned in the six-month period between December 2022 and June 2023 when the above exemption was not extended to private generation companies achieving commercial operations after 31 December 2022. There was a lot of speculation as to whether the government would extend the timeline or whether private generation companies would now have to change their financial models to take into account the next available incentive. The next available incentive was an exemption from income tax at truncated rates for a period of ten years.

To everyone’s relief, the government has now passed a new order whereby power-generation companies that achieve commercial operations before 31 December 2024 will be eligible for exemption from corporate income taxes for a period commencing from their respective commercial operations date up until 31 December 2036, and those who achieve commercial operations before 31 December 2025 will be eligible for exemption from income tax at truncated rates for a period of ten years.

The initial 15-year tax exemption was used by the government as a tool to promote investment in the power sector to meet the goal of providing electricity to all citizens in Bangladesh. Recent developments in the income tax incentives indicate that the government is now shortening the exemption period and there may be no further exemption for private power-generation companies who achieve commercial operations in or after the year 2026. The government is now more prone to revenue collection to meet other economic goals of the country. 

Developments in Transmission Lines

The Power Grid Company of Bangladesh Limited (PGCB) is the sole transmission company in Bangladesh. Previously, the interconnection line from the power-generation facility to the nearest substation was implemented by PGCB. However, in recent times, the private partner has been made responsible for the construction of the interconnecting line, including the arrangement of the necessary land and any right of way.

These changes arise from the government’s and PGCB’s decision to allocate the risk of construction of the interconnection line and its operation and maintenance to private power-generation companies. The cost and risk of construction of the interconnection facilities is not expected to be a serious problem, but the obligation on the private power-generation companies to procure the right of way is a concern.

Pursuant to the Electricity Act 2018, the power-generation company reserves the right-of-way over the land and the space above or underground, for the purpose of laying power supply lines or doing civil works, subject to certain terms and conditions. This includes payment of a compensation amount to the person affected if any damage, harm or inconvenience is caused while doing civil works. The government promulgated the Electricity Rules in 2020, which provide further details on the notification requirements and compensation mechanism with respect to right of way. The Electricity Rules also outline the procedure to be followed for acquisition of the land on which the tower is to be installed.

In the absence of these express provisions, power-generation companies were struggling to construct these interconnection lines, which resulted in an overall delay in the implementation of projects. The new rules have been issued to assist the project company, but only time will tell to what extent they will resolve the existing issues.

Recent Impediments

The Bangladesh economy has been facing considerable challenges with global economic uncertainty, rising inflationary pressure, dwindling foreign exchange reserves and fuel shortage. The country also faced disruptions to electricity supply due to erratic weather this year, with soaring temperatures pushing up demand in April and a deadly cyclone cutting off supplies of natural gas to power plants the following month. These resulted in frequent power cuts during April and May 2023.

However, the government of Bangladesh is giving top priority to the power sector and is exploring alternative ways to meet the soaring demand for electricity. The situation had already improved in June 2023, when power cuts were significantly reduced.

Conclusion

The government of Bangladesh wants to increase the share of power generation from renewable sources to 40% of the production mix by 2050. With the ongoing initiatives and strategies, Bangladesh is expected to attract further investment in the power sector, mainly the renewables sector, on which it can build a sustainable future.