Bangladesh’s growing dependence on imported fossil fuels has sharply increased exposure to global energy market volatility, driving up electricity generation costs and straining public finances, according to a new report by the Institute for Energy Economics and Financial Analysis (IEEFA).
The report, “Fostering Bangladesh’s Energy Transition”, published on May 6, says the country’s primary energy imports rose from 47.7% to 62.5% over the past four years. During the same period, average power generation costs increased by 83%.
Energy analysts warn that unless Bangladesh rapidly expands renewable energy and improves efficiency in the power sector, it could face prolonged fiscal stress driven by rising fuel imports, capacity payments and subsidies.
Despite repeated policy commitments, renewable energy—including hydropower—currently accounts for only 2.3% of Bangladesh’s grid-based electricity generation, far below the global average of about 33.8%.
The report says heavy reliance on imported coal, oil and liquefied natural gas (LNG) leaves Bangladesh highly vulnerable to supply disruptions, geopolitical shocks and international price fluctuations. It adds that renewable energy could act as a natural hedge against fossil fuel price volatility while strengthening long-term energy security.
“The solutions to Bangladesh’s persistent energy problems lie closer to home, particularly in scaling up domestic renewable energy and limiting excessive fossil fuel-based capacity additions,” said Shafiqul Alam, lead energy analyst at IEEFA.
While depreciation of the Bangladeshi taka against the US dollar and elevated global fuel prices significantly increased generation costs after FY2020-21, the report says these factors alone do not explain the continued rise in electricity costs.
A major driver, it notes, is capacity payments made to underutilised private power plants. In FY2024-25, private oil-fired plants received average capacity payments of around Tk9.5 per kilowatt-hour (kWh), while coal-fired plants received about Tk5.9 per kWh.
“These payments substantially increased the overall cost of generation,” the report says.
The study also highlights major inefficiencies linked to plant utilisation. Power plants operating at less than 25% load factor generated electricity at approximately Tk16.85 per kWh, compared to around Tk6 per kWh for plants operating at nearly 75% load factor.
Bangladesh’s reliance on oil-fired generation remains unusually high compared with regional peers. Oil-based power accounts for around 10.7% of the electricity mix, compared with just 0.02% in India, 0.6% in Pakistan and 0.06% in Vietnam.
The report also warns that declining domestic gas production is forcing Bangladesh to import larger volumes of expensive LNG. Based on current import trends and global LNG prices of around US$20 per million British thermal units (MMBtu), the country could require subsidies of nearly US$1.07 billion between April and June 2026 alone to support LNG imports for power generation. The estimate excludes regasification and terminal costs.
Analysts say continued dependence on LNG could significantly deepen fiscal pressure if global prices rise again due to geopolitical instability.
To reduce long-term reliance on imported fossil fuels, the report recommends stronger regional energy cooperation under the Bangladesh-Bhutan-India-Nepal (BBIN) framework. It suggests that importing around 6,000 megawatts of hydropower from Nepal and Bhutan during the high-demand March–September period after 2030 could reduce annual gas consumption by up to 257 billion cubic feet (Bcf).
The report also calls for accelerated deployment of distributed renewable energy, particularly rooftop solar. It estimates that installing 100MW of rooftop solar capacity could save more than 30 times the value of current import duties over the project lifecycle by reducing furnace oil imports. It therefore recommends duty waivers for distributed renewable energy equipment.
In addition, the report stresses the need to keep open-access charges low for renewable energy projects under Corporate Power Purchase Agreements (CPPAs). It says such measures would help export-oriented industries—especially the apparel sector—meet international environmental, social and governance (ESG) requirements.
Although utilities have raised concerns about revenue losses from private renewable projects, the report notes that industrial electricity consumption still grew by 4.8% in FY2024-25.
Bangladesh Power Development Board (BPDB) recorded a revenue shortfall of approximately Tk55,660 crore (US$4.53 billion) during the fiscal year.
Dr Iqbal Hassan of Bangladesh University of Engineering and Technology (BUET) said Bangladesh can no longer rely on short-term fossil fuel solutions to ensure energy security.
He said reducing system losses, improving efficiency and investing in renewable energy and regional power trade would be essential to stabilize electricity costs and reduce subsidy pressure over the long term.
Analysts warn that without realistic policy implementation and structural reforms, Bangladesh’s dependence on imported fossil fuels is likely to continue undermining both energy security and macroeconomic stability.
