Bangladesh, like other countries, is currently grappling with the geopolitics-led energy supply disruption, which the International Energy Agency has described as the biggest threat to energy security in the world’s history. On closer inspection, four years ago, the country experienced a comparable crisis, stemming from the Russia-Ukraine war. Yet, the country finds itself the least prepared to navigate the tumultuous situation that has drastically increased the prices of fossil fuels, with supply remaining curtailed.

The abrupt fossil fuel supply disruption, owing to the closure of the Strait of Hormuz and suspension of liquefied natural gas (LNG) supply from Qatar, has sent a shockwave through the international fossil fuel market, leading to a massive surge in oil and LNG prices. High import prices have already raised the energy sector’s subsidy burden, tempting the Bangladesh government to draw a loan of USD2 billion (BDT24,486 crore) from international agencies.

With renewable energy capable of partially insulating Bangladesh from the price volatility of fossil fuels in the international market, the country should swiftly expand its renewable energy capacity.

The fiscal burden is soaring

Bangladesh has radically transformed its power sector in the last decade and a half, without focusing on the urgency of accelerating renewable energy and enhancing energy security. As the country relies more heavily on imported fossil fuels than domestic energy resources, it is now experiencing perpetual vulnerability with a surging fiscal burden.

For instance, the Bangladesh Petroleum Corporation (BPC) reportedly approved 0.8 million tonnes of diesel purchase from the spot market at an average cost of BDT169.75/litre (USD1.38/litre) (calculated based on the prices of different suppliers). Since Bangladesh has kept the diesel price fixed at BDT100/litre (USD0.81/litre), the spot purchases will result in a revenue shortfall of BDT69.75/litre (USD0.57/litre). The monthly subsidy on account of diesel consumption of approximately 375,000 tonnes will soar to BDT31 billion (USD0.252 billion), excluding import duty and commissions of BPC and traders.

Likewise, Bangladesh’s spot purchases of nine LNG cargoes at an average price of about USD21.79/million British Thermal Units (MMBtu) (BDT 2,668/MMBtu) in March 2026 requires an average subsidy of BDT67.5/m3 (USD0.55/m3), excluding import duty, terminal and regasification fees (note: prices of LNG cargoes ranged from USD19.77/MMBtu to USD28.28/MMBtu [BDT2,420/MMBtu to BDT3,463/MMBtu]; IEEFA’s calculation shows that the weighted average tariff of gas in Bangladesh is approximately BDT23.82/m3 [USD0.19/m3]). Assuming an average monthly LNG consumption of 25 billion cubic feet, the subsidy burden will rise to BDT47.74 billion (USD0.39 billion).

While Bangladesh has sought USD2 billion (BDT24,486 crore) from multilateral agencies to ease fossil fuel imports, the amount will only meet the subsidy for LNG and diesel consumption for just over three months (based on current prices, three months’ subsidy for diesel and LNG are USD0.756 billion [BDT92.56 billion] and USD1.17 billion [BDT143.24 billion], respectively). The subsidy will also rise in the power sector due to the costly furnace oil and coal.

The prolonged Middle East crisis will, therefore, significantly strain the country’s energy and power sectors, compelling the government to resort to energy supply rationing. This may ultimately tempt the government to adjust tariffs of electricity and different fuels.

Renewable energy as a natural hedge

Once implemented, the tariffs of renewable energy projects remain fixed, providing a natural hedge against the price volatility of fossil fuels in the international market. As a country heavily reliant on imported primary energy, Bangladesh could take this opportunity to swiftly shield itself from the price spikes of fossil fuels.

Pakistan offers an example of rapidly scaling up solar energy, thereby insulating Pakistan from the price volatility of fossil fuels. Despite slow progress until 2022, its distributed solar capacity reached 34,000MW in 2025, reducing the demand for grid-based power by 11% in the same year compared to 2022. Pakistan’s year-on-year demand for LNG also fell by 15.4% in 2025, driven by higher solar power generation.

Bangladesh may draw lessons from this success story to design its renewable energy transition pathway based on relevance and its capacity.

Bangladesh should explore low-hanging fruits of distributed renewable energy

For more than a decade and a half, following the formulation of the country’s first renewable energy policy in 2008, policymakers in Bangladesh largely remained sceptical about the large-scale contribution of renewable energy in the country’s overall energy system. Among other things, land constraints continued to raise concerns. However, IEEFA’s recent discussions with people and solar energy service providers in several villages highlight the immense opportunities to deploy distributed solar systems across the country. In the last six to eight months, households and businesses in each village installed rooftop solar capacity of about five to eight kilowatts (kW). Villagers are even taking up rooftop solar projects with battery backup for mosques. A comparatively high frequency of load shedding in rural areas is encouraging people to consider rooftop solar systems.

Bangladesh reportedly has 87,230 such villages, which could spearhead a mini solar boom. Apart from households, these villages accommodate schools, colleges, and religious institutions. Solar-powered irrigation could also replace the diesel-run systems. As a rough estimate, an average distributed solar installation of 25kW per village could swiftly raise the combined capacity to about 2,180MW, which is more than the country’s reported installed renewable energy capacity of 1,696.8MW.

IEEFA notes that the individual service providers purchase solar panels and batteries from the country’s capital and install them in rural areas but lack sufficient technical capacity to follow the standard operating procedures. This excludes the qualified technicians deployed by different non-government organisations to execute solar irrigation projects in rural areas. Therefore, the Bangladesh government, with support from development agencies, technical universities, and the Sustainable and Renewable Energy Development Authority (SREDA), could consider designing appropriate training programmes for developing the capacity of rural technicians. Bangladesh should also ensure the availability of high-quality solar panels and accessories for the sustainability of projects.

The country should also motivate people to help spur distributed solar energy projects by offering import duty exemptions on solar accessories and battery storage systems. Thailand, for example, has extended personal and corporate tax exemptions to incentivise investment in renewable energy and energy efficiency.

Bangladesh should urgently draw lessons from its high degree of imported fossil fuel dependence relative to its low share of renewable energy, as this trend is shrinking its fiscal space and making its energy and power sectors unsustainable. It should now swiftly scale up renewable energy that has the potential to free up financial resources, that would otherwise go toward covering the growing fiscal burden.
Source: The Daily Star