Bangladesh’s increasing dependence on imported primary energy has significantly raised electricity generation costs, leaving the country more vulnerable to global market fluctuations, according to a new study.
The report, “Fostering Bangladesh’s Energy Transition,” published by the Institute for Energy Economics and Financial Analysis (IEEFA), shows that the country’s reliance on imported energy rose sharply from 47.7 per cent to 62.5 per cent over a four-year period from FY2020-21 to FY2024-25.
This growing dependence has had a direct impact on costs. The report finds that overall power generation expenses increased by 83 per cent during the period, largely driven by volatility in global fossil fuel markets. A steep rise in coal prices - up by 290 per cent between FY21 and FY23 - along with high oil prices and depreciation of the local currency, contributed significantly to the surge.
Although coal prices dropped by nearly 60 per cent after FY23 and oil prices stabilised, electricity generation costs remained elevated in FY25.
Analysts attribute this to rising capacity payments made to private power producers. According to the report, average capacity payments reached around Tk9.5 per kilowatt-hour for oil-based plants and Tk5.9 per kilowatt-hour for coal-fired plants.
Gas supply shortages have added further pressure. Power plants operating at less than 25 per cent capacity have been producing electricity at significantly higher costs compared to those running at optimal levels. Meanwhile, declining domestic gas reserves have increased Bangladesh’s reliance on imported liquefied natural gas (LNG).
The report estimates that between April and June 2026, the country may need to spend over $1 billion in LNG subsidies, based on recent import trends and prevailing global prices.
Despite these challenges, renewable energy continues to account for only a small share - just 2.3 per cent - of Bangladesh’s total grid-based electricity generation, far below the global average of nearly 34 per cent.
The report highlights the potential of distributed renewable systems, noting that rooftop solar projects could generate long-term savings by reducing dependence on expensive fuel imports. It recommends removing import duties on such technologies to accelerate adoption.
Additionally, the study suggests that Bangladesh could benefit from regional energy cooperation under the Bangladesh-Bhutan-India-Nepal (BBIN) framework. Importing up to 6,000 megawatts of hydropower from Nepal and Bhutan during peak months could significantly reduce gas consumption in the coming decade.
The report also points out that industrial electricity use grew by 4.8 per cent in FY25, contradicting concerns that new power purchase agreements might reduce utility revenues. However, the Bangladesh Power Development Board recorded a substantial revenue shortfall of over Tk556 billion during the same fiscal year.
IEEFA analysts emphasised that Bangladesh’s long-term energy security will depend on strategic policy decisions, reduced reliance on imported fuels, and a stronger push towards sustainable energy solutions.
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