Bangladesh’s renewable ambitions aren't actually unrealistic

Bangladesh’s energy transition is now at a point where execution matters most. The country’s climate commitments, including the Mujib Climate Prosperity Plan (MCPP) 2022-2041 and the Integrated Energy and Power Master Plan (IEPMP) 2023, set ambitious targets for renewable energy (RE) capacity. MCPP has set renewable goals up to 40 percent by 2041. Bangladesh will need to invest between $23.9 and 53.7 billion to build the necessary capacity and meet these goals. The implementation of solar-based projects will require most of the expenditure—over 65.6 percent. For the rest, wind-based power projects will require 15.8 percent of the expenditure, while hydro power projects will require 18.4 percent. However, despite clear goals, financing remains slow and uneven.

Our country currently uses two primary domestic channels to finance RE. Bangladesh Bank (BB) has operated a refinancing scheme since 2009, helping commercial banks extend loans to renewable and other green projects. Loan tenures extend beyond eight years, and the fund size doubled from Tk 200 in the beginning to Tk 400 crore. BB is lending the money at interest rates from five percent to 12 percent.

The other domestic channel is the Infrastructure Development Company Limited’s (IDCOL’s) renewable energy financing scheme and programmes. IDCOL has so far implemented numerous refinancing schemes and coordinated programmes to diversify RE installations in solar micro and mini-grids, solar irrigation, biogas and biomass-based energy generation, and other commercial-scale RE projects.  There was a major reform in July 2022, which made solar and other green projects eligible for loans at a rate of five to six percent, with refinancing ceilings of TK 10 crore for rooftop solar and Tk 35 crore for large solar parks.

Besides these mechanisms, Bangladesh has begun experimenting with innovative financial instruments. For example, Tk 30 billion green sukuk issued by Beximco in 2021 to finance a 230 MW solar project demonstrated the potential of Sharia-compliant finance for large-scale renewable deployment. BB introduced a formal green bond framework in 2022. The framework provides clear eligibility criteria and a national taxonomy for green market activities. These steps represent an important foundation for a domestic green capital market, but the scale remains small compared to what is needed.

But the problem lies in the lack of awareness of entrepreneurs regarding available financing options. Some concerns persist over banks’ reluctance to provide long-term loans. On top of that, the loan disbursement process is slow. Many renewable projects fail not because they are technically unfeasible, but because financing structures do not adequately manage risk. Power producers face uncertainty over long-term costs. Additionally, lenders are concerned about exchange rate exposure. International investors also struggle to reconcile Bangladesh’s regulatory environment with global risk standards. These challenges discourage the private sector from investing in renewable energy.

In 2024, the amount disbursed in green finance was Tk 30,653.78 crore, accounting for 13.29 percent of total term loan disbursement.  In 2023, the amount was Tk 19,304.31. Despite the positive trend, these flows fall far short of the long-term financing needed to meet renewable energy goals. This gap highlights the importance of blended finance, where concessional public funds are combined with private capital through grants, equity, guarantees, and risk-sharing instruments. There are international programmes, such as the World Bank’s Scaling Solar and the Inter-American Development Bank’s sustainable energy initiative, which show how blended finance can lower tariffs, accelerate deployment, and integrate renewables into national grid models.

With blended finance, green bonds present an opportunity for Bangladesh to mobilise long-term capital. The domestic bond market, as well as international institutional investors, could play a transformative role if supported by appropriate policy frameworks. Sovereign green bonds could finance grid upgrades and large-scale renewable parks, while corporate green bonds could support independent power producers.

International experience offers useful lessons for Bangladesh, particularly from Vietnam and India. After introducing feed-in tariffs and fiscal incentives, Vietnam’s solar and wind capacity experienced a rapid transformation. By the end of 2023, combined solar and wind capacity reached about 21,664 MW, accounting for around 27 percent of total installed power capacity, up from virtually negligible levels just a few years earlier. Vietnam’s corporate tax regime offers preferential rates as low as 10 percent for up to 15 years for qualifying renewable and environmental energy projects, along with tax holidays and reductions in the first years of operation. The government also provides land-use and land-rent exemptions and import tax relief for renewable energy investments. Together, these measures sharply improved project profitability and attracted large volumes of private investment in a short period of time.

In India, diversified financing has helped drive rapid renewable transformation. By 2025, the country’s total installed renewable energy capacity reached around 254 GW, including about 133 GW of solar and 54 GW of wind. At the same time, India’s green finance market has expanded rapidly. In 2024, cumulative green and sustainability-linked debt issuance had grown to nearly $55.9 billion, with most of the funds flowing into clean energy projects.

Encouragingly, the tone from Bangladesh’s interim government on energy policy is signalling positive change. Instead of focusing almost entirely on building more capacity, there is a growing concern with financial discipline in the power sector, the performance of state-owned utilities, and the heavy fiscal burden created by inefficient contracts. There is also clearer recognition that renewable targets cannot be met through public spending alone.

Bangladesh’s renewable ambitions are therefore not unrealistic. But they will only materialise if the way projects are financed changes just as fundamentally as the technology itself. Blended finance, green bonds, and sukuk, stronger use of institutions like IDCOL, and deeper engagement with development partners can create projects that investors are willing to fund. If this momentum continues, the energy transition will no longer be just a climate commitment. It will become part of the country’s broader economic strategy, strengthening energy security, easing fiscal pressure, and supporting long-term growth. The decisions taken today on energy financing will therefore shape not only Bangladesh’s climate future, but also the competitiveness and resilience of its economy for decades to come.

Sudeepto Roy is research associate at the South Asian Network on Economic Modeling (SANEM). He can be reached at sudeeptoroy232@gmail.com

Views expressed in this article are the author's own. 

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