Bangladesh power sector’s $4.53b shortfall underscore transition imperative

Industries now face tariffs of up to $0.13/kWh following increases of as much as 17%.

Energy security and fiscal pressures are strengthening the economic case for Bangladesh's energy transition, according to an Institute for Energy Economics and Financial Analysis (IEEFA) analysis.

The country’s fossil fuel-based power system has placed sustained pressure on public finances through revenue shortfalls, import dependence, and contractual capacity payments.

Its power sector—accounting for about 7% of annual budget expenditure—reported a revenue shortfall of $4.53b in fiscal year (FY) 2024–2025, within a total national budget of $65.1b.

Electricity tariffs have also risen, with increases of up to 17% affecting industrial users.

Industries with sanctioned loads of up to five megawatts (MW) now pay between $0.094 per kilowatt-hour (kWh) and $0.13/kWh, compared with earlier ranges of $0.079/kWh to $0.11/kWh.

Higher tariffs have improved the competitiveness of rooftop and utility-scale solar systems, particularly during daytime operations and periods of load-shedding.

“Energy transition in Bangladesh should not be viewed solely as a greenhouse gas mitigation strategy,” IEEFA said, adding that it also comes with benefits such as “energy security, cost-competitiveness, and monetary savings.”

Bangladesh’s per capita emissions stood at 1.48 tonnes of carbon dioxide equivalent in 2022, compared with a global average of 6.48 tonnes.

Energy efficiency forms a key part of the transition strategy as it reduces energy demand, limits investment in new generation infrastructure, and lowers maintenance costs.

The fossil fuel power system has also created operational inefficiencies, with several gas-fired plants operating below capacity due to fuel constraints, whilst the government continues to make capacity payments under contractual agreements.

Fuel shortages have also delayed the commissioning of some projects, including the 800-MW Rupsha combined-cycle gas power plant.

The analysis highlights stranded asset risks and reduced utilisation of some gas-fired plants, whilst arguing that expanded solar generation could reduce reliance on costly oil-fired plants used to meet peak demand.

The report also identified solar power and battery energy storage systems as alternatives for peak demand management.

Solar generation can reduce reliance on oil-fired plants during daytime hours, whilst storage systems can supply electricity during evening peak periods at lower cost than furnace oil-based generation, which reached $0.22/kWh in FY2024–2025.

The energy transition could also create jobs in the renewable energy and energy efficiency sectors.

“They would require energy auditors, installers, and other technical experts. Moreover, financial institutions would need sustainable finance professionals to appraise loan applications for clean energy projects,” IEEFA said.

The analysis concludes that Bangladesh should accelerate its energy transition and assess outcomes based on net economic and social benefits rather than focusing on upfront costs or concerns over job losses.