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LightCastle Partners and Larive International, along with the Embassy of the Kingdom of Netherlands, recently organized a webinar titled, ‘Opportunities in the solar energy sector in Bangladesh’.
As part of the initiative of the Embassy of the Kingdom of the Netherlands to promote the expansion of possibilities for collaboration and investments with Bangladesh, Larive International, and LightCastle Bangladesh conducted a market landscaping assessment on the renewable energy sector of Bangladesh.
Through the study, it was established that the solar energy sector, among other renewable energy, holds the highest promise in the context of Bangladesh. Subsequently, the webinar was organized as part of the initiative where study findings along with insights on policies, demand-supply dynamics, growth prospects, and systemic bottlenecks were highlighted to foster a platform for discussions.
The overview of Bangladesh’s renewable energy market was presented during the first part of the session by Zahedul Amin, Co-Founder & Director, LightCastle Partners, which was followed by a discussion of the current obstacles facing both the public and private sectors in their efforts to expand the usage of solar energy.
Matthias Brienen, Director, Larive International, presented the key areas of collaboration between Dutch and Bangladeshi private sector players. The distinguished panelists listed below participated in the discussion:
Some of the key highlights from the webinar, including but not limited to the growth opportunities in the solar energy sector of Bangladesh, the systemic bottlenecks hindering growth, and the way forward, have been detailed as follows.
The power sector in Bangladesh has witnessed significant growth over the last 10 years. In the FY 2010-2011, the on-grid power generation stood at 7.3 GW which increased to 22,1 GW by the fiscal year 2021-2022, demonstrating a growth of +204%. One of the main factors influencing this rise has been the government’s strong push to ramp up solar PV usage.
The Government of Bangladesh (GoB) wants to reduce its reliance on imported fossil fuels by increasing the usage of renewable resources, notably solar energy. Moreover, Bangladesh enjoys an average of 70% of the year’s sunlight due to its ideal geographic location as a semi-tropical country. Solar radiation stands at 4.5 Kilowatt per meter square making solar energy a viable option for power generation.
By 2041, Bangladesh assured the Climate Vulnerable Conference, 40% of its electricity will come from renewable sources. As a result, according to the Mujib Sustainability Plan, there would be a 16 GW RE capacity in 2031 (a target of 30%), and a 40 GW RE capacity in 2041, a target of 40%.
The contribution of renewable sources to the entire energy mix is now quite low, at just 3.7%, despite several projects and bold pledges. The solar energy sector accounts for 75% of this 3.7%.
Recently, Bangladesh Bank (BB) introduced a refinancing program with the goal of fostering green entrepreneurship, under which the nation’s green business owners will be eligible for loans with an interest rate of only 5.0%.
Over the period of April to June 2022, about 2.3 million euros have been disbursed, the majority of which has been used to refinance green RMG manufacturers. Banks are required by condition to allocate 5% of their loan portfolio to green loans, however, this number has barely reached 4% so far.
Additionally, the Central Bank’s current lending cap, which can support the development of 1 to 2 MW of power generation, needs to be increased in order to facilitate bigger investments. Due to the continuous economic uncertainty caused by the conflict between Russia and Ukraine, importing solar PV modules and their components has also proven to be difficult.
Also, the government spends a large percentage of its budget on direct subsidies for energy and fossil fuels, whose costs have been growing rapidly in recent years. In 2019, Bangladesh received subsidies for fossil fuels worth around USD 1.7 billion. Existing subsidies continue to be in direct opposition to government policy that seeks to encourage the expansion of renewable energy.
Currently, significant generation can be witnessed in the rural region through the installation of solar home systems (SHS) and captive power generation on factory sites and rooftops. However, the sluggish growth of independent power plants (IPPs) and solar parks is mostly related to the challenges encountered while acquiring land for IPP and solar park construction.
Hence, despite the fact that many new solar industrial sites are being planned, their expansion has been very moderate. The rising number of green RMG factories—192 of which have received LEED certification via the USGBC so far, with 500 more on the way—has been one of the major contributors to renewable captive power generation.
Since RMG buyers are keener on placing higher volume orders from factories that operate in a green and sustainable manner, RMG producers are also eager to adopt green production methods which entail the installation of solar PV on factory sites.
Furthermore, green RMG factories receive a tax benefit of 2% for conducting operations in a sustainable manner. The adoption of the “Net Metering Policy” in 2018 has also further propagated the growth of captive power generation through solar energy.
Additionally, Mr. Munawar Misbah Moin, Managing Director at Rahimafrooz Renewable Energy, claimed that the rural population is acutely aware of the potential of solar as they have witnessed firsthand through the installation of Solar Home Systems (SHS) and solar irrigation pumps.
Therefore, solutions that can directly link renewable energy with their productive use are one of the prime areas for future growth alongside captive solar power generation.
The Netherlands, the third-largest solar PV installation country in the European Union (EU) behind Spain and Poland, offers tremendous development potential for Bangladesh’s solar energy sector. Identification of niche solutions by Dutch players and facilitation of these solutions can aid Bangladesh’s solar energy sector and harness further growth.
One such plausible intervention area for the Dutch is in the facilitation of the Opex model for RMG factories looking to go green. Currently, the Capex model of operation is mostly observed for captive power generation. EPCs in most cases perform full project development from importing solar equipment to the installation of solar panels on the factory rooftops.
However, the challenge remains for medium-level enterprises to avail finances for installation, as they often fail to provide a clear business case, thus failing to convince Financial Intuitions to provide loans.
Another area of possible intervention by the Dutch is in the facilitation of EV charging stations which can be solar in nature. The rural regions of the country hold good prospects to this end, as several interventions are currently ongoing in such areas.
Aside from the assistance that can be provided through Dutch interventions, banks need to come forward and develop technical capacity to assess green projects to better utilize the refinancing scheme launched by the Central Bank.
The process needs to become more seamless and fast-tracked to aid the growth of more IPPs. Additionally, the Renewable Energy Policy, which was initially ratified in 2008, is currently being revised by the Bangladeshi government.
Mr. Fazlul Haque, SREDA, added that the reformulated renewable energy policy will address eighteen specific areas encompassing licensing, carbon trading, research and development, financing, and others. Thus, the creation of a smooth synergy among the private players and financial institutions is likely to foster increased growth in the renewable energy sector of Bangladesh.
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