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What’s keeping Bangladesh from joining the renewable energy wave?

Update : 26 Feb 2023, 11:44 PM

Renewable energy refers to the use and development of natural energy sources, such as solar, wind, and hydro-electric power which can provide a more stable and reliable source of power, particularly in countries like Bangladesh that are prone to natural disasters such as cyclones and floods.

The use of renewable energy can also help tackle the climate crisis by reducing the country's dependence on imported fossil fuels leading to cost savings for both households and businesses and can also help to boost the economy by creating new jobs in the renewable energy sector. According to the submissions made to the United Nations at COP26 in Glasgow in 2021, Bangladesh has set itself an ambitious target of generating over 4,100MW of energy from renewable sources, which is to source the nation's 40% of electricity by the end of this decade, of which solar power alone is aimed to be generating 2300MW of electricity.

Investing in solar power will be the most sustainable and efficient solar solution to improve environmental impact and reduce electricity costs of businesses, be it small or large.  As such, Bangladesh is currently making significant efforts to promote the use of solar power to reduce its reliance on imported fossil fuels and to improve its socio-economic situation. 

Due to increasing interest from various investors, the Bangladesh Power Development Board (BPDB), SREDA, and Infrastructure Development Company (Idcol) are taking different measures to draw investment in renewable energy, particularly solar power to increase electricity generation of the country. Local conglomerates have set up solar power plants on unutilized lands of its subsidiary companies, whereby up to 3MW of electricity is generated.  This surplus electricity is thereafter distributed to the Bangladesh Rural Electrification Board through net meters and eventually supplied to the grid. 

However, even though the government's position on accepting proposals for solar investments by local and foreign companies seems lucrative, in reality Bangladesh has not been able to achieve its electricity generation of 10% target through solar power in 2021. The paramount reason for this being the unavailability of unused land.

Apart from large-scale, on-ground solar projects that include large solar power plants and solar parks, recent solar power expansion has also focused on rooftop solar photovoltaic systems. This is the most feasible way to curb the land crisis, since no land is required and the solar plants can be installed on rooftops of various households and industries, paving the way for both households and commercial and industrial business to enjoy uninterrupted electricity across the country as the primary source of energy. 

Recently, Build-Own-Operate-Transfer (BOOT) projects in the OPEX model are increasingly becoming popular whereby the power producer, who is also the constructor and the developer is building the plant, owning and operating the plant and selling the electricity to its customers and transferring the plant to the consumer after 20 years.

Foreign solar companies are now setting up businesses in Bangladesh in the same model, whereby the electricity is produced in the private sector, consumed by the consumer who has leased his rooftop to the company and the surplus electricity is not given to the national grid unlike the mega solar projects.

However, the practicalities being faced by such foreign investors/companies are that often the regulatory authorities do not understand the concept of providing electricity off-grid or not providing the surplus electricity to the government at all, making it difficult for such companies to avail the existing incentives provided by the government. The authorities have only now started getting acclimatized to private rooftop solar projects and as such there is still widespread mistaking of such projects as PPP projects or any other projects assisted by the government.

A major complaint by the foreign investor companies who are engaged in the implementation of solar plants is that the concerned regulators require more knowledge and understanding of the business  model of such companies and must have the knack for development to be able to fulfill the target set in COP26. 

If an entity wants to import parts independently to that of capital machineries, that is, the entity wants to import parts only in separate consignment to that of capital machineries, then the entity shall be required to have both an Industrial IRC as well as VAT registration and also be VAT compliant.

There are also incentives for importers who are registered as Solar Panel Manufacturing Plants by the Bangladesh Investment Development Authority (BIDA). Such importers can avail full exemption from import duty, VAT and SD on selected machineries and parts. The importers further need to ensure that the imported machinery and parts are solely used for the purpose of solar panel manufacturing.

Furthermore, the government has recently introduced refinancing schemes for solar projects whereby loans will be provided to green initiatives at a reduced interest rate. 

Although overcoming the practical barriers to business and development of the solar power sector may seem challenging at the moment, it is certainly possible given that solar power has the exquisite potential of bringing significant benefits in terms of cost reduction, energy efficiency and sustainability in the energy sector of Bangladesh.

Due to the simplicity and cost-saving nature of rooftop solar projects, more focus and incentives should be provided to businesses offering such projects that also cover reduced taxes for importation. 

As a country that is reliant on natural gas imports, coal and diesel for most of its energy, steadily switching to renewables is the ideal solution towards energy independence and as such doing all things needful in such a challenging time is the pertinent solution if Bangladesh wishes to ultimately reach its renewable energy goals by 2040.

Saqeb Mahbub, Barrister-at-Law, is a Partner at Mahbub & Company and Tasmiah Zaman, Barrister-at-Law, is an Associate at Mahbub & Company.

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