What Bangladesh's new government must prioritise to tackle power and energy challenges

Having taken office at a critical juncture for the country, Bangladesh’s new government confronts pressing challenges. Among the immediate tasks it faces is addressing mounting demands in the power and energy sector that will require careful planning and fiscal prudence.

Power demand is expected to climb in the coming summer months, coinciding with the month of Ramadan and the ongoing period of peak irrigation activity. Moreover, as a highly import-dependent country, energy supply disruptions and price volatility could compound the situation. At the same time, the new government will need to address International Monetary Fund’s (IMF) concerns over the mounting subsidy burden in Bangladesh’s power and energy sectors, especially given the IMF’s loan facility of USD5.5 billion (BDT668.7 billion) extended to the country. However, ensuring that corrective measures do not lead to drastic increase in power tariffs will also be crucial, so as to not place the country’s export-oriented apparel industry at a competitive disadvantage in the global market.

It’s in this context that the new government must translate its election manifesto pledge, to raise renewable energy capacity from its current 5% to 20% by 2030, into concrete action, particularly by working towards attracting investors.

Managing summer power demand 

Bangladesh generally experiences a surge in peak power demand every summer due to rising temperatures. Last year, however, was an outlier, when the country saw a dip in peak power demand, resulting from lower temperatures in April 2025 compared to April 2024 and 62.9% more than normal precipitation in May 2025. Moreover, many industries had suspended operations because of financial challenges.

With early signs of an uptick in power demand in January–February 2026, Bangladesh is likely to require higher generation levels this summer. Analysis by the Institute for Energy, Economics and Financial Analysis (IEEFA) shows that peak power demand soared up to 6.5% between 19 January and 18 February 2026 compared to the same period in 2025. This trend is expected to intensify with the ongoing irrigation season coinciding with Ramadan, which began on 19 February 2026, and as temperatures rise further in March. 

Meanwhile, with the Bangladesh Power Development Board’s (BPDB) payment backlog for electricity purchase exceeding approximately BDT250 billion (USD2.05 billion), the new government will need to clear dues to avoid massive power supply disruptions. The government should consider formulating a power supply rationing plan without affecting industries and businesses to safeguard economic activity.

With increasing geopolitical tension that may result in surging fuel prices in the international market, the government should also work towards developing an ecosystem that encourages judicious energy use across the country. This could include motivating households, industries and businesses to adopt efficient appliances and working on bringing in behavioural changes among people. To that end, the Sustainable and Renewable Energy Development Authority (SREDA) should plan and execute national awareness-raising campaigns on energy efficiency and conservation. Additionally, rationalising high import duties on components of efficient appliances would help reduce upfront costs and make them affordable.

The government, supported by the Ministry of Power, Energy and Mineral Resources, should also work to implement SREDA-developed benchmark energy consumption standards for different appliances in public offices.

Dilemma over IMF’s pressure to raise power tariffs

Bangladesh Power Development Board (BPDB) incurred an aggregate revenue shortfall of BDT556 billion (USD4.55 billion) in fiscal year (FY) 2024-25, driven by a loss of about BDT5/kilowatt-hour (kWh) (USD0.041/kWh). The Bangladesh government covered the lion’s share of this loss, injecting subsidies worth BDT386 billion (USD3.16 billion). 

The IMF reportedly prescribed that Bangladesh reduce this hefty subsidy by 2028 as part of its evaluation of the USD4.7 billion (BDT571.47 billion) loan facility approved in January 2023 to support the country’s macroeconomic stability. In June 2025, IMF extended the loan to USD5.5 billion (BDT668.74 billion). 

So far, Bangladesh has received USD3.6 billion (BDT437.77 billion) in five tranches. The sixth was deferred pending the formation of an elected government, alongside a call to raise power tariffs to minimise subsidies. However, IEEFA’s ballpark estimate shows that cutting the current subsidy by even 50% will require BPDB to raise the average bulk electricity selling price for distribution utilities by more than 25% and adjust the retail price. This may adversely affect the country’s apparel sector. 

For instance, Bangladesh’s textile industry, with a sanctioned load of 5 megawatts (MW) operating for 12 hours a day, pays roughly BDT10.935/kWh (USD0.09/kWh), which is around 6.4% less than its Vietnamese counterpart. This is calculated based on the peak and off-peak power tariff and demand charge of Bangladeshi industries connected to a 33 kilovolt (kV) line and peak, off-peak and standard tariffs of Vietnamese Industries.

The new government will need to consider a rational adjustment for industry. This is especially relevant for the apparel industry, which accounts for more than 80% of the country’s export revenue. 

Moreover, instead of passing all costs on to the consumers, the Bangladesh government must focus on enhancing energy efficiency and reducing wastage. For instance, by limiting losses due to leakage and pilferage —referred to as unaccounted for gas — amounting to more than 70 billion cubic feet per annum, Bangladesh may slightly reduce capacity payments by redirecting part of this saved gas to independent power producers (IPPs) operating at lower capacity, thereby reducing power generation cost. 

Besides, the new government can refrain from adding new fossil-fuel plants and catalyse the uptake of cost-competitive renewable energy that will help limit costs by replacing expensive peaking power plants during the day. In the medium term, the government should explore the South Asian region’s vast hydro potential, such as in Nepal, building on its 40MW power trade agreement with the nation. Simultaneously, the country could explore the feasibility of exporting surplus power to Nepal during the winter season, when hydropower generation falls. 

Unless Bangladesh makes efforts to control power generation costs, price hikes alone will not significantly minimise the subsidy burden. 

Attracting renewable energy investment

New investments almost stagnated in Bangladesh’s renewable energy sector in 2025, stemming from a lack of new projects. Prior to this, the renewable energy sector had roughly attracted investment worth USD238 million (BDT29.1 billion) per annum. The new government’s intention to expand renewable energy capacity to 20% by 2030 should help accelerate the annual flow of investment by 4.1x compared to the previous trend. This will necessitate mobilising private and international capital at scale, for which a viable project pipeline is key. 

The new government must urgently engage with key renewable energy stakeholders, including investors and financiers, to identify and resolve barriers to investment. Unless these concerns are resolved, the renewable energy sector’s growth will likely remain sluggish due to a paucity of investments. Moreover, the country will fall short of its 2030 goal. 

Once the government overcomes these initial challenges, it will have scope to manoeuvre the energy and power sectors through well-devised plans, backed by funding allocations in the upcoming June 2026 budget.

This article was first published in The Daily Star.