Can Bangladesh cut its reliance on fossil fuel imports?

DHAKA - Bangladesh is embroiled in a dispute with Indian electricity company Adani Power as it struggles to pay the company outstanding bills of at least $650 million.

The country has halved its purchases from Adani's 1,600-megawatt (MW) Godda coal power plant, citing lower seasonal demand, and said it wants to renegotiate the price it pays Adani, which is higher than what other Indian power producers charge.

The move is the latest example of Bangladesh's attempts to free itself from costly, imported fossil fuels, after the new interim government headed by Nobel laureate Muhammad Yunus pledged to change the country's energy model.

His administration wants to pivot to renewable energy, which now generates a little more than 4% of Bangladesh's power, to reduce its energy dependence.

Why is energy so costly in Bangladesh?  

Over the last 15 years, Bangladesh rapidly added new fossil fuel-fired power plants with combined capacity that exceeds demand for electricity by more than 40%. 

Bangladesh lacks enough hydrocarbon reserves to power these plants, forcing it to import fuels like liquefied natural gas and coal. When global energy prices rose sharply following Russia’s invasion of Ukraine in 2022, the country could not afford to import enough energy to meet the outsized capacity. 

The government still has to pay the plants a "capacity charge,” even if they did not produce electricity, which has totalled BDT 1.05 trillion ($8.82 billion) in the last 14 years.  

The gap also led to power outages and contributed to a cost-of-living crunch. The previous government hiked electricity prices by 17.5% for consumers, 21% for industry and 20% for agricultural irrigation within the last year.

Inflation, dwindling foreign exchange reserves and high energy bills have prompted the interim government to seek $5 billion in aid from international lenders, which follows a $4.7 billion bailout from the International Monetary Fund last year.  

Experts say boosting the share of renewable energy would cut fuel imports and reduce Bangladesh's reliance on foreign sources. 

What are the challenges in moving towards cheaper, cleaner electricity?

Developing 2,000 MW of renewable energy could save the country $1 billion a year, while greater energy efficiency at gas-fired power plants could cut LNG imports by $460m a year, according to the Institute for Energy Economics and Financial Analysis.

Bangladesh could multiply its solar energy capacity by up to 30 times by 2041 and meet a significant portion of the power needs of industry and households, according to a 2020 national solar energy strategy document.

The country is in the process of updating its renewable energy policy and emission reduction plan. The fashion industry, Bangladesh’s biggest manufacturing sector, must cut its carbon footprint to meet demands from global buyers.    

The interim government has announced major tax breaks for renewable energy projects that start production in the next five years. Yunus is also in talks with countries like Germany and China to support the development of renewable projects.  

However, the government has said it would cancel 37 solar projects worth about $5 billion that had been approved by the previous government without competitive bidding. Those projects would add more than 2,500 MW of electricity to the grid in the next few years. A final decision has yet to be issued. 

Instead of cancelling the projects, the government could now revise the prices agreed on in the projects, said Helen Mashiyat Preoty, a research associate at the local think tank Centre for Policy Dialogue.  

Will renewable energy create jobs?

Unemployment in Bangladesh drove the student protests that eventually led to the previous government’s downfall, and meeting the demand for more jobs is a priority for Yunus’ administration.  

Raising renewable energy's share to 30% of the total energy mix could add up to 37,000 new jobs by 2030 - provided that enough people are trained as technicians, analysts, grid engineers, efficiency experts and more, according to a study by the Dhaka-based think tank Centre for Policy Dialogue.  

The growth of green jobs has been hampered by slow development of renewable energy. Issues like a shortage of available land for building solar parks and the high rate of taxes on imported solar equipment are blamed for the lag. 

Bangladesh lacks a clear policy for creating environmentally friendly jobs and training workers, including women and youth, said Sohanur Rahman, the executive coordinator of YouthNet for Climate Justice, a youth platform for just transition. 

Women's share in the manufacturing and operation of renewable power plants has been mostly limited to administrative jobs. But women's enrolment rates are increasing in programmes for engineering and other technical roles in the renewable sector.

This story was updated on Monday December 2, 2024 at 16:32 GMT after Bangladesh halved power buying from Adani Power.

(Reporting by Md. Tahmid Zami; Editing by Jack Graham and Ayla Jean Yackley.)