Introduction

Bangladesh’s power sector has entered a period of significant transition. Over the last two years, the sector has been shaped by changes in government, shifting economic priorities and a wider reassessment of how projects should be procured, financed and implemented. Following the political developments of 2024 and the subsequent transition in 2026, electricity has remained one of the key areas of policy, fiscal and commercial attention.

For many years, planning in the sector was largely driven by the need to expand generation capacity and improve access to electricity. That priority was understandable at a time when Bangladesh was seeking to meet rising demand and support industrial and infrastructure growth. The present phase, however, appears to be different. The question is no longer only how quickly new capacity can be added, but also how projects are selected, priced, implemented and sustained over time.

Against this backdrop, the sector has seen several major developments, many of which are still unfolding. The policy direction appears to be moving from rapid capacity addition towards a more balanced approach involving competitive procurement, renewable energy, fiscal discipline, tariff rationalisation, payment security and grid reliability. These changes are likely to shape the next phase of Bangladesh’s power generation, transmission and distribution landscape.

New Policy and Regulatory Direction

One of the clearest developments in Bangladesh’s power sector is the renewed focus on renewable energy and private-sector participation. This is no longer limited to general policy statements. Over the last year, a number of policies and guidelines have been introduced which, when read together, suggest a shift in how renewable power projects are expected to be developed, procured, financed and connected to the grid.

The Renewable Energy Policy 2025 sets the overall direction. Its significance lies not only in increasing the share of renewable energy in the power mix, but in moving towards a broader renewable energy market. The policy refers to areas such as storage, smart-grid integration, floating solar, electric vehicle charging infrastructure, renewable purchase obligations, renewable energy certificates, open access and peer-to-peer trading. This indicates a move beyond traditional target-setting and towards a more structured framework for renewable generation, trading and consumption.

A more immediate development is the Policy for Renewable Energy-Based Commercial Electricity Generation/Setting up of Power Plants with Private Participation, 2025. The concept of private generation and direct supply is not entirely new in Bangladesh. Captive generation and commercial power plants have previously allowed private generation and supply arrangements, including sales to large consumers through negotiated tariffs and wheeling arrangements. The recent shift, however, is that this model is now being reframed around renewable energy, storage-backed capacity and industrial demand for green electricity.

Under the new framework, private renewable power producers may sell green electricity, available generation capacity or storage-backed capacity directly to large consumers or bulk power consumers under negotiated contracts. Transmission and distribution networks may be used through open access or wheeling arrangements. This is particularly relevant for export-oriented industries, including garments and textiles, which are increasingly required to demonstrate access to cleaner electricity as part of carbon-footprint and supply-chain requirements.

From a commercial perspective, the important point is the change in risk allocation. In a conventional IPP model, the government or a government-owned utility usually assumes the offtake obligation, often supported by sovereign or quasi-sovereign credit support. Under a merchant model, the government’s direct offtake exposure is reduced. At the same time, the framework appears to recognise that projects will still need to be bankable. It contemplates payment security, direct agreements, lender step-in and cure rights, termination payments, compensation for certain grid-related delivery failures and change-in-law protection. These features suggest that while the government is seeking to limit direct fiscal exposure, it also recognises that private renewable projects will not be financeable unless the contractual structure gives sufficient comfort to lenders.

There is also a clear policy push towards distributed solar. The Net Metering Guideline 2025 provides a more detailed framework for consumers to install renewable energy systems at their premises, use the electricity for self-consumption, export surplus power to the grid and receive billing credits or settlement payments. Importantly, it recognises both self-financed models and third-party OPEX models, which may help consumers avoid upfront capital expenditure. This is complemented by the National Rooftop Solar Programme Implementation Guideline, which seeks to scale rooftop solar across public-sector buildings. The proposed target of adding 2,000–3,000 MW of rooftop solar capacity is ambitious, but it shows that rooftop solar is now being treated as a material part of the renewable energy strategy rather than a small supplementary measure.

Another notable development is the Guidelines for Development of Renewable Energy Projects using Land Owned by Government Agencies under PPP Modality, 2026. This is important not only because land remains one of the key constraints for utility-scale solar projects in Bangladesh, but also because it represents a possible first move towards implementing power projects under the PPP Act 2015. Historically, private power projects were largely implemented under the Quick Enhancement of Electricity and Energy Supply (Special Provisions) Act, 2010. Following the repeal of that regime, the government has been seeking to procure power projects under the ordinary public procurement framework, namely the Public Procurement Act 2006 and the Public Procurement Rules 2008. A renewable power project structured under the PPP Act 2015 would therefore mark a significant departure from the traditional route for power project procurement.

The 2026 Guidelines seek to create a route for using land owned by government agencies for renewable energy projects under the PPP modality. Under the proposed structure, BPDB would act as the contracting authority, even where the relevant land is owned by another government agency. The land-owning agency may receive a lease fee, a minority equity stake in the project company or a combination of both, depending on the feasibility study. This may create a practical route for developing larger renewable projects without requiring private sponsors to acquire large parcels of land from the market.

The PPP Modality Guidelines also appear to reintroduce, in substance, the concept of an Implementation Agreement through the proposed Facilitation Agreement. Although the terminology has changed, the agreement seems intended to provide a formal mechanism for government facilitation and inter-agency co-ordination in relation to land, approvals, permits and grid-related support for renewable energy projects.

The Bangladesh Economic Zones Authority appears to be one of the first agencies taking this model forward. BEZA has reportedly been pursuing feasibility work and obtained in-principle approval for renewable projects on its own land. If successfully implemented, this may become the first power-sector PPP project under the PPP Act framework and could create a replicable model for other government agencies with unused or underutilised land.

The policy developments are not limited to generation. The Unified Head End System Guidelines 2026 indicate a growing focus on distribution modernisation and smart metering. At present, different distribution utilities use different smart meter systems, vendors, communication technologies and head-end platforms. This creates integration difficulties, fragmented data systems, cybersecurity concerns and potential vendor lock-in. A unified platform across utilities such as BPDB, DPDC, DESCO, BREB, NESCO and WZPDCL is therefore intended to support a more interoperable smart metering infrastructure across the distribution sector.

Taken together, these developments point towards a more structured renewable energy ecosystem. The government appears to be creating multiple routes for renewable power development, including utility-scale projects, merchant power projects, rooftop solar, public-sector solar, government-land PPP projects and smart-grid integration. The real test will be implementation. If these frameworks are applied consistently and in a bankable manner, they may open a new phase of renewable energy investment in Bangladesh.

Competitive Tendering and Project Bankability

The policy shift towards renewable energy is now being tested through competitive procurement. BPDB has recently floated a series of tenders for solar power projects, ranging from 10 MW projects to larger utility-scale projects. The initial market response was cautious. In some cases, tender documents were purchased, but proposals were not submitted within the original timeline, leading to repeated extensions.

This response reflects the wider transition taking place in the sector. Following the repeal of the Quick Enhancement of Electricity and Energy Supply (Special Provisions) Act, 2010, Bangladesh is moving away from negotiated procurement towards a more competitive model under the public procurement framework. This may support tariff discipline and transparency. However, it also places greater pressure on the tender documents themselves, because sponsors and lenders will price the project based on the contractual risk allocation rather than assuming that gaps can be addressed through later negotiation or government support.

This is particularly important because the contractual structure for new renewable tenders appears to differ from the traditional IPP model. Earlier private power projects were typically supported by a power purchase agreement with BPDB and a separate implementation agreement with the government. The implementation agreement was important because it provided government support and, in many cases, backstopped certain BPDB obligations. Under the new tender structure, the contract package appears to be more heavily centred on the tender documents and the contract issued with them.

There is therefore an important distinction between policy-level intention and contract-level protection. Recent policies refer to payment security, direct agreements, lender step-in rights, termination payments and other protections commonly associated with privately financed infrastructure. However, the actual tender documents may not always carry these concepts through in a complete or lender-friendly manner. Issues such as limited payment security, absence of clear government backstop support, restrictions on assignment for financing purposes, broad termination rights, limited termination compensation and less developed change-in-law or force majeure compensation mechanisms may raise concerns for sponsors and lenders. These are not merely drafting points. In a long-term power project, lenders will focus closely on whether debt can be recovered, whether investor capital is protected, and whether the project company has adequate remedies if the offtaker defaults.

This is particularly important for foreign financing. International lenders became familiar with the traditional PPA, implementation agreement, government guarantee and termination payment structure. With the revised tender documents, that familiarity cannot be assumed, particularly where the project company is expected to bear greater construction, interconnection, grid or payment risk.

The market nevertheless appears to be adjusting. Some of the earlier tenders have now progressed, with bids submitted and contracts awarded or signed in certain cases. This is a positive signal, but the more important test will be whether these projects reach financial close, and whether financing is available from international lenders or mainly from local lenders and sponsor balance sheets.

BPDB has also continued to float new tenders, and market interest may improve as bidders become more familiar with the revised documents and bidding requirements. The success of the new procurement model will therefore depend on more than low tariffs. Competitive procurement may reduce prices, but sustainable private investment will require a contractual framework that allocates risk clearly and gives sufficient comfort to sponsors and lenders. The next few rounds of tenders are likely to show whether Bangladesh can convert its renewable energy policy direction into a financeable project pipeline.

Taxation Incentives

The policy shift towards renewables is also reflected in the recent direction of tax incentives. The incentive framework for power generation projects has become increasingly differentiated, with more targeted framework for renewable energy-based projects and specific solar power arrangements.

SRO 208 provided income tax exemptions for private power-generation companies, excluding coal-based power companies. For projects commencing commercial production between 1 July 2024 and 30 June 2025, the exemption was available on a phased basis for ten years. SRO 247 then operated as a transitional and amending notification, preserving or clarifying the position for certain earlier projects and specific gas or LNG-based projects.

The position was further updated through SRO 400, which introduces a separate incentive regime for renewable energy-based power projects and power plants. The exemption applies to projects commencing commercial production between 1 July 2025 and 30 June 2030. Eligible projects receive a 15-year phased income tax exemption from the date of commercial production, comprising 100% exemption for the first ten years, 50% exemption for the following three years and 25% exemption for the next two years.

The framework has since been supplemented by SRO 211, effective from 1 July 2026. It provides an income tax exemption until 30 June 2035, for qualifying institutions generating and supplying renewable solar electricity through self-financed and self-managed solar power plants, subject to net metering approval and supply under a power purchase agreement. It also grants the institution using the electricity a tax rebate equal to 5% of the relevant solar electricity bill.

These are important developments for project sponsors and lenders. While the general private power incentive regime has become more limited and transitional, renewable energy projects have been given a longer and more specific exemption period, with separate targeted relief also introduced for qualifying solar power arrangements. The relief is likely to remain relevant for tariff assumptions, financial modelling and the overall economics of renewable power projects.

Electricity Tariff Adjustments and Subsidy Pressure

The new procurement and policy direction is also unfolding against a wider sector revenue and subsidy backdrop. Recent tariff adjustments at the wholesale, transmission and retail levels are aimed at improving cost recovery and reducing the government’s subsidy burden. These are sector-level tariff adjustments, rather than changes to the project-level tariff payable by an offtaker to a power producer under a PPA.

The adjustment appears to be calibrated rather than uniform. The lowest residential consumption slabs have been kept outside the increase, reflecting a continued attempt to protect lower-consumption households while improving overall cost recovery.

Even after the revision, the power sector is expected to continue requiring substantial government subsidy. The tariff increase may reduce part of the revenue gap, but it is unlikely to eliminate it entirely. Tariff rationalisation is therefore becoming an important part of the sector’s financial reform, although it remains only one element of the wider solution.

Payment Delays

Payment delays remain one of the key commercial issues affecting operating power projects in Bangladesh. Projects that have achieved commercial operations continue to invoice BPDB under their project agreements, but BPDB’s payment cycle remains delayed. This issue existed during the previous government’s tenure as well, although the delay period has, at different times, worsened significantly, ranging from a few months to more than a year depending on the priority and status of the project.

These delays directly affect project cash flow. Power projects are typically structured around predictable offtaker revenue, and prolonged payment delays can affect debt service, operating expenses and compliance with other contractual obligations. For sponsors and lenders, the issue is therefore not only delayed receivables, but also future risk pricing and confidence in sector payment discipline.

There has been some recent improvement in the payment cycle, although payments have not fully regularised. That improvement should be read with caution. In a number of cases, BPDB has reduced the amount payable by calculating outages and deducting liquidated damages for alleged failure to meet availability obligations. As a result, the net payable amount was reduced, which also shortened the visible delay period.

This has created a separate area of disagreement between BPDB and project companies. Several power companies have challenged the outage calculations and liquidated damages deductions, including through proceedings before the High Court Division. Interim orders obtained in some of these proceedings appear to restrain further recovery or deduction during the relevant interim period, although the treatment of amounts already deducted remains a live issue.

The practical result is that, for many operating projects, the payment issue has evolved from delayed receivables into a broader dispute over availability, outage treatment and BPDB’s ability to adjust liquidated damages against monthly invoices.

Renegotiation Pressure on Existing PPAs

Another development during the transition period was pressure on certain operating power projects to revisit tariff arrangements under already-signed PPAs. These discussions appear to have taken place outside the ordinary contractual adjustment mechanisms contained in the project documents. Although no major legal challenge appears to have been brought by the project companies on this issue, the development raised concerns among sponsors regarding contractual certainty and the stability of agreed tariff structures.

The issue has received less attention under the current government, and it remains unclear whether tariff renegotiation of existing projects will continue as a policy focus. For the sector, however, the point remains significant. Power projects are structured on the basis of long-term contractual revenue assumptions. Any attempt to reopen agreed tariffs, unless carried out under the express terms of the relevant project documents or by mutual agreement, may affect investor confidence and the assessment of future projects.

Disputes Under Existing PPAs

The financial pressure in the sector has also started to appear in disputes under existing project agreements. The most prominent example is the dispute between BPDB and Adani Power under the cross-border power purchase arrangement for supply of electricity from Adani’s coal-fired power plant in Jharkhand, India.

The dispute concerns outstanding payments and tariff components under the long-term PPA, including the coal price used for calculating generation costs. It is significant because it shows how payment obligations, fuel cost pass-through and long-term offtake commitments are now being more closely scrutinised.

A notable development was the intervention of the High Court Division in a public interest litigation concerning the legality and possible irregularities of the underlying arrangement. The court stayed the arbitration process until the committee formed to review the agreement submitted its report. This was unusual in the context of a signed PPA containing an international arbitration clause, as the contractual dispute resolution process was temporarily restrained through domestic court proceedings arising from a broader public interest challenge. The broader review process has since progressed, although the dispute resolution process appears to be moving slowly. Meanwhile, payments have become more regular and the underlying agreement remains in force.

For the wider power sector, the importance of the dispute goes beyond the immediate disagreement between BPDB and Adani Power. It highlights the increasing scrutiny of long-term power contracts and shows that disputes under existing PPAs may now involve not only contractual claims, but also public law challenges, committee reviews and questions of domestic court intervention.

Project Pipeline and LOI Cancellation Disputes

The revised procurement approach has also affected projects that were awarded but had not yet reached implementation. Many of these projects had received letters of intent under the Quick Enhancement of Electricity and Energy Supply (Special Provisions) Act, 2010, but had not proceeded to commercial operation.

As part of the recent reform process, a number of LOIs issued for power projects have been cancelled. This has created uncertainty for sponsors who may have carried out preparatory work, incurred costs or made financial commitments on the basis of those awards.

The legal position is now beginning to be tested. In an earlier matter, the High Court Division held that cancellation of an LOI by BPDB was illegal due to procedural irregularity, as the decision had not involved the highest decision-making authority. More recently, a major power company has filed a writ petition challenging the cancellation of its LOI, and the High Court Division has issued a Rule Nisi after the initial hearing.

The matter remains pending, and it is yet to be seen whether cancelled LOIs will receive any protection under the saving clause of the repeal legislation. For investors, the outcome will be important. It will indicate how the courts balance changes in procurement policy against legal certainty where sponsors had already acted on government-issued project awards.

Conclusion

Bangladesh’s power sector is therefore moving through a period of recalibration. The direction is clear: greater emphasis on renewable energy, competitive procurement, tariff rationalisation, payment discipline and more structured project development. However, the success of this transition will depend on implementation. Policy ambition will need to be matched by bankable project documents, consistent procurement practice, predictable payment behaviour and respect for contractual certainty. The next phase will show whether these reforms can create a more sustainable and investor-friendly power sector, while also addressing the fiscal and operational pressures that have shaped the sector in recent years.