Carbon credit should be considered a potential additional benefit rather than a guaranteed source of revenue

Confidence Power and Energy plans to invest around Tk 2,150 crore in two 200MW solar projects - 100MW each in Chattogram and Bagerhat. It also plans to jointly invest Tk 2,000 crore in a separate 200MW plant in Fatikchhari. The company is also planning to raise Tk 400 crore from the capital market to finance its solar expansion. Power and Energy page In-Charge Shahnaj Begum has talked with Imran Karim, Chairman of Confidence Power and Energy to know about the hurdles of an investor during investing in solar projects. As a private sector player, how he sees the issues and addresses challenges we share it with our valued readers. Below are the abstracts of the conversation:

Q1. What key differences do you see as an investor between rental and IPP projects? What factors attract investors to greenfield solar projects in Bangladesh?
From an investor's perspective, both rental and IPP (Independent Power Producer) projects present distinct advantages and challenges. The rental model can offer a more straightforward revenue stream, while the IPP model, though more complex, may provide greater long-term control and potentially higher returns. However, the key considerations for any solar investment remain consistent: project bankability, financial viability, the terms of the power purchase agreement (PPA), land availability, grid connectivity, and the overall investment environment.
For greenfield solar projects in Bangladesh to be attractive, investors require a stable and predictable policy landscape. This includes reliable payment mechanisms, often backed by a sovereign guarantee or a strong counterparty. Competitive project costs are also crucial, as is a firm assurance of grid connectivity. These factors are not just desirable; they are essential to attracting long-term, large-scale investment and ensuring the financial viability of the projects.

Q2. Is Bangladesh Bank’s green financing the right tool to support investors? Which conditions create difficulties, and how can the system be improved?
Green financing is undoubtedly an important tool with the potential to significantly support renewable energy investments. However, its real-world effectiveness hinges on whether the financing conditions are practically aligned with the specific needs and timelines of solar power projects.
To improve the system, the financing process should be simplified, and approval procedures need to be significantly faster to reduce project delays. Furthermore, loan conditions should reflect the long-term nature of solar investments, such as offering longer tenures and appropriate grace periods. Bangladesh Bank should also consider introducing more flexible and tailored financing arrangements to cater to both large-scale investors and smaller solar entrepreneurs, ensuring the tool is accessible and effective across the board.

Q3. What steps are needed to make carbon credits accessible to local investors? Is carbon credit an opportunity or a burden for Bangladesh? 
Carbon trading is a widely discussed issue and, in principle, presents a clear opportunity for renewable energy investors. However, the actual challenge lies in the practical and logistical hurdles of receiving financial returns from carbon credits.
Without an effective, transparent, and accessible trading or barter mechanism, converting carbon credits into actual cash revenue remains difficult and highly uncertain. Therefore, it would not be prudent for investors to incorporate substantial carbon credit revenue into their financial models while expecting significant, guaranteed payouts. Carbon credits should be viewed as a potential additional benefit rather than a guaranteed source of revenue. A transparent and functional carbon trading mechanism is a necessary prerequisite to make this opportunity commercially viable for local investors.

Q4. You signed a solar project a year ago but could not implement it. What caused the delay, and what lessons can other investors learn?
To give an accurate and comprehensive response, the delay would need to be examined by looking at several key areas: (a) policy and regulatory approval processes, (b) financing arrangements and the timeline for loan disbursement, (c) land acquisition and site preparation, and (d) grid connectivity and transmission infrastructure. All of these issues are critical when discussing project implementation challenges. However, the key lesson for other investors is that signing a solar project agreement does not necessarily guarantee its timely implementation. It is critical for investors to carefully assess all project-related requirements, risks, and potential bottlenecks before committing substantial capital.

Q5. What suggestions would you give investors and the government to make financing and bankability easier?
The answer to this question is closely linked to the considerations discussed in Question 1, as the overall investment environment, project bankability, financial viability, and reliable infrastructure are all interconnected.
For their part, investors should conduct thorough due diligence, carefully evaluating project costs, long-term financial sustainability, land availability, and confirmed grid connectivity before making any investment commitments.
On the government side, it is essential to establish predictable policies, streamline and expedite approval processes, ensure reliable power purchase arrangements, and invest in improving grid infrastructure to reduce investment risks. The first priority should be to establish a predictable and reliable framework that allows investors and financial institutions to assess the commercial viability of solar projects with greater confidence.

Q6. Should solar expansion be slowed until the grid is upgraded, or should both proceed together?
The government should make this decision based on comprehensive expert assessments rather than relying solely on the currently reported grid capacity. Although the available grid capacity for solar integration is reported to be around 5,000 MW, there is reason to question whether this figure accurately reflects the actual, real-time capacity of the national grid. Therefore, a detailed technical assessment of the grid's ability to integrate variable solar power is essential.

Another important consideration is the intermittent nature of solar generation, which produces power only during the daytime. This creates a challenge during the evening transition when demand patterns change, potentially leading to grid instability. Therefore, careful planning is required to determine whether adequate battery storage systems, capacitors, and other grid-supporting infrastructure are in place to manage voltage and current fluctuations. Rather than simply slowing down solar expansion, the government should pursue a parallel strategy of solar development and grid modernization, guided by proper technical assessments and expert recommendations.

Q7. Should small investors have direct access to green financing? What would be a practical household solar financing scheme?
The primary factor influencing household solar adoption is the cost of grid electricity. For example, Pakistan has seen significant residential solar adoption largely because of its relatively high grid tariffs. In Bangladesh, however, grid electricity is comparatively less expensive, which makes household solar adoption less financially attractive.

Another key consideration is the procurement cost of solar panels, inverters, and other equipment. Partner organizations can play a vital role here, as they act as equipment distributors and can help households access products at competitive prices. Individual households generally lack the bargaining power to negotiate lower prices directly with manufacturers.

However, if an individual investor or household can independently procure solar equipment at a lower cost than that offered by partner organizations, they should be allowed to present their justification and demonstrate how they intend to achieve those savings. Therefore, removing partner organizations entirely may not be the most practical solution. Instead, the financing system should allow for flexibility while ensuring competitive equipment prices, transparency, and adequate protection for small investors. A separate household solar financing scheme could also be considered, provided it ensures affordable financing and reliable access to quality equipment.