Fixing merchant power tariff maths

By 2030, every garment leaving Bangladesh for Europe will need to prove it was made with clean energy. We are running out of time to build the infrastructure to make that possible. This is not an aspiration. It is a legal reality taking shape in Brussels, and how we respond will determine whether our export sector grows or contracts over the next decade.

The European Union Carbon Border Adjustment Mechanism, alongside the Corporate Sustainability Reporting Directive and the Ecodesign for Sustainable Products Regulation, legally obliges brands such as H&M, Inditex and Marks and Spencer to reduce Scope 2 and Scope 3 emissions across their supply chains. For Bangladeshi factories, this is no longer a preference. It is a market access requirement.

These mandatory sustainability rules have shifted the terms of trade. Brands sourcing from Bangladesh face legal requirements to disclose and cut the carbon footprint of their supply chains, including Scope 3 emissions from suppliers. For our factories, the ability to demonstrate renewable energy use is becoming a prerequisite for retaining long-term sourcing relationships, not merely a competitive advantage.

The Merchant Power Policy of Bangladesh was designed for this moment. It would allow private developers to build large-scale renewable projects and sell electricity directly to manufacturers through long-term corporate power purchase agreements. The policy is conceptually sound. The problem lies in implementation.

The tariff mathematics do not work. Distribution companies are proposing an Open Access Tariff of Tk 2 to 3 per kWh to recover legacy public subsidy obligations. The legitimate wheeling charge, reflecting the actual cost of using the grid, is Tk 0.31 per kWh. The current grid tariff for industrial consumers sits at Tk 9.75 per kWh during off-peak hours. Without a cost-reflective OAT, the total delivered cost of renewable electricity can exceed Tk 13 per kWh.

No rational factory owner will sign a 15-20 year power purchase agreement for electricity that costs more than the grid. Without committed off-takers, developers cannot demonstrate bankability to lenders. Without financing, no infrastructure is built. The merchant power policy remains on paper, and the transition never happens.

The regional comparison sharpens the urgency. Vietnam’s industrial renewable share stands at 30 percent to 35 percent, India’s at 22 percent to 25 percent and Pakistan’s above 53 percent. Bangladesh’s industrial renewable penetration is about 4 percent, the lowest among its direct competitors in apparel exports. India reached its position partly because states such as Karnataka and Tamil Nadu offered discounted or waived wheeling charges for renewable open access, treating the fiscal gap as a budgetary matter rather than a tariff problem.

The fix is straightforward. The Open Access Tariff should be limited to the legitimate cost of using the grid, which is Tk 0.31 per kWh. Public subsidy obligations are a genuine national responsibility, but they belong in fiscal policy, administered through government budgets, not embedded in private energy contracts. Decoupling the two would transform renewable electricity from an economically irrational choice into a viable one and restore the bankability that merchant power projects require to reach financial close by 2028.

Bangladesh built its garment sector through pragmatic, evidence-based policy calibration. The merchant power policy is the right instrument. Ensuring that tariff design matches its intent is the next step. Other nations are not waiting. Vietnam, India and Pakistan have already moved, and their export industries are benefiting. Bangladesh has repeatedly shown it can adapt when the rules of global trade shift. This moment calls for the same instinct.

The author is a former director of Bangladesh Garment Manufacturers and Exporters Association (BGMEA)