Bangladesh's growing reliance on imported energy and structural inefficiencies in power generation have kept electricity costs elevated, even as global fuel prices declined, according to a new analysis.
The country's primary energy import dependence rose from 47.7 per cent to 62.5 per cent in four years, exposing it to volatile international fossil fuel markets and contributing to an 83 per cent increase in power generation costs, according to "Fostering Bangladesh's energy transition", a new report by the Institute for Energy Economics and Financial Analysis (IEEFA).
* Import dependence rose to 62.5pc in 4 years
* Power generation costs increased by 83pc
* High capacity payments and low plant utilisation drive inefficiencies
* LNG imports expected to add significant subsidy burden
* Renewable energy share remains low at 2.3pc
While a surge in coal prices by 290 per cent between FY2020-21 and FY2022-23, along with currency depreciation, drove earlier cost increases, prices did not ease in FY2024-25 despite a 59.7 per cent fall in coal prices and relatively low oil prices.
"The average capacity payments of approximately Tk 9.5/kilowatt hour (kWh) (USD0.077/kWh) and Tk 5.9/kWh (USD0.048/kWh) paid to private oil- and coal-fired plants, respectively, in FY2024-25 raised overall generation costs," said Shafiqul Alam, lead energy analyst.
He added that inefficiencies in plant utilisation further inflated costs. "Gas supply shortage increased cost-plants with load factor under 25 per cent generated power at Tk 16.85/kWh (USD0.137/kWh) while plants operating at around 75 per cent load factor did so at a cost of BDT6/kWh (USD0.049/kWh)."
Declining domestic gas production has also forced Bangladesh to rely increasingly on imported liquefied natural gas, adding to subsidy pressures. Based on recent trends and current prices, the country may incur a subsidy of USD1.07 billion for LNG imports between April and June 2026.
At the same time, renewable energy remains marginal, accounting for only 2.3 per cent of grid-based power generation, limiting the country's ability to shield itself from global price volatility. High import duties on distributed renewable energy systems continue to constrain expansion.
The analysis suggests that scaling up rooftop solar could significantly reduce fuel import dependence over time, with savings far exceeding the initial duty costs.
"The solutions to Bangladesh's persistent problems lie closer to home, such as in expanding domestic renewable energy at scale while limiting fossil fuel-based plants to contain overcapacity," Alam said.
"Given the requirement of spinning reserve and grid balancing, the government may consider retaining part of the operational oil-fired plants in its ownership to avoid the hefty capacity payments once their contracts expire."
He also pointed to regional cooperation as a viable option to reduce gas demand.
Importing hydropower under the Bangladesh-Bhutan-India-Nepal framework during peak demand months could help cut annual gas consumption significantly in the long term.
On policy, the report stresses the importance of keeping open access costs for renewable energy projects low to encourage corporate participation and support decarbonisation efforts.
"Ultimately, the pathway to energy transition hinges on prudent policy decisions about implementing realistic targets on the ground supported by a favourable ecosystem, thereby minimising the country's continued reliance on imported fossil fuels and high subsidies," Alam said.
