Rooftop solar is now more economically beneficial for Bangladesh than ever before, which has suffered energy price spikes, supply disruptions and deteriorating fiscal conditions since Russia invaded Ukraine in 2022, according to a new report.
However, the limited rooftop solar capacity of 160.63 megawatts (MW), installed under net-metered and non-net-metered systems until 10 October 2023 in Bangladesh, has proved grossly inadequate, the report released by the Institute for Energy Economics and Financial Analysis (IEEFA) said on Monday.
While rooftop solar has struggled to gain traction in Bangladesh, a renewed focus and adding 2,000 megawatts (MW) can help the Bangladesh Power Development Board (BPDB) save up to Bangladeshi Tk 110.32 billion (US$1 billion) annually, the report highlighted.
Rooftop solar also appears to make more financial sense for industrial and commercial consumers. The levelized cost of energy (LCOE) from rooftop solar stands at Bangladeshi Taka (Tk) 5/kilowatt hour (kWh) (US$0.046/kWh) against the electricity tariffs of Tk9.9/kWh (US$0.09/kWh) and Tk10.55 (US$0.096/kWh) for industrial and commercial buildings, respectively, the report stated.
These tariffs are not only attractive to industrial and commercial buildings to install rooftop solar systems but also better than the rates that triggered 9.0 gigawatts (GW) of such capacity addition in Vietnam in 2020, as per the report.
Yet, the sector's slow progress shows industry and building owners' interest in taking up rooftop solar is scattershot. As frequent load-shedding and energy supply disruption stifle industrial production and economic activity, adding the 2,000MW of rooftop solar can provide some relief to the country, the report also stated. To incentivise the sector, the report calls on the government to waive prevailing import duties on solar panels and four accessories, ranging from 11.2 per cent to 58.6 per cent, at least for a limited period. It also recommends fixing the rooftop solar installation capacity to 100 per cent of the sanctioned load.
"Bangladesh must tap the low-hanging fruit of rooftop solar to stave off the energy sector challenges and reduce colossal imports of fossil fuels. The delay in steering the sector in the right direction could result in a missed opportunity," says the report's author, Shafiqul Alam, lead analyst - Bangladesh Energy, IEEFA.
"Further, as rooftop solar accessories are usually imported, the Bangladesh Bank (BB) and the National Board of Revenue (NBR) should declare rooftop solar a top priority and ease its Letter of Credit opening process. For a rapid expansion, the BB may give financial institutions an annual disbursement target on renewable energy, including rooftop solar," he said.
Based on IEEFA's interviews with select experts and stakeholders of the sector, the report recommends pulling six key levers to accelerate the widespread deployment of rooftop solar. These are raising awareness, streamlining finance, policy and regulatory intervention, quality assurance, business models for utilities and capacity development of key stakeholders.
"While investors want to quickly assimilate information on interest rates, net metering guidelines and policy changes, there is information asymmetry within the sector. Another key hindrance to the wider adoption of rooftop solar is the lack of capacity of stakeholders in terms of personnel, quality assurance and project appraisal," says Alam.
Therefore, the Sustainable and Renewable Energy Development Authority (SREDA) should design and conduct targeted capacity development and awareness programmes, as well as exposure visits to successful projects for stakeholders.
Although the solar helpdesk, hosted by SREDA, shares information on request, stakeholders feel a performance assessment of the helpdesk is essential to upgrade services based on need and relevance.
The report further highlighted that a credit risk guarantee scheme can minimise the perceived risks of financial institutions and increase fund flows to projects.
Similarly, a first-loss guarantee can address engineering, procurement and construction (EPC) companies' challenges linked to repayment from industries and building owners (off-takers).
"While the central bank's green refinancing scheme is the least-cost financing vehicle, all eligible rooftop solar projects will not receive the refinance due to its limited funds of Tk 4.0 billion ($36.4 million) and the competition with 69 other environment-friendly projects. Therefore, the central bank may pre-approve financing for rooftop solar based on an assessment at the initial stage to eliminate any uncertainty about availing of the low-cost scheme," says Alam.
The Infrastructure Development Company Limited also has a rooftop solar financing facility, but it will not meet the sector's demand. The report recommends that local financial institutions explore multilateral agencies, international climate finance, and the local bond market to enhance funds in the foreseeable future.
The report also highlights the important role utilities can play in expanding the deployment of rooftop solar. Both the utility- and third-party-owned business models can be a source of revenue for utilities, incentivising them to multiply their efforts in the rooftop solar sector.
"Different utilities can also combine the rooftop solar potential of respective zones and conclude on the national rooftop solar market size, providing the signal to financial institutions on aggregate investment the sector will require."
As interest in rooftop solar increases, the report recommends setting up enough testing labs and increasing market monitoring by the Bangladesh Standards and Testing Institute (BSTI). Further, SREDA can include a consumer feedback mechanism for EPC companies and solar equipment suppliers to ensure quality project implementation and initiate certification for service providers.
The IEEFA report also highlighted the crucial role of both market monitoring and testing in ensuring the quality of rooftop solar accessories. The report emphasises that as regulatory changes now mandate new buildings to incorporate rooftop solar for grid connection, the proliferation of small rooftop solar units is expected to surge significantly, raising concerns about potential poor-quality installations.
The report underscores the importance of consistent monitoring and quality checks, as without these measures, small units might be utilised solely for obtaining grid connections, ultimately becoming stranded assets with minimal or no energy generation.
This situation draws parallels with previous instances where the lack of monitoring resulted in rooftop solar units becoming stranded assets following directives for newly constructed urban houses to derive at least 3 per cent of their energy from renewables for new grid connections.
"Policymakers do not need to start afresh and reinvent the wheel. They should enhance the effectiveness of existing measures and incorporate successful schemes implemented elsewhere," the author added.
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