Year after year, the government has been notably generous with subsidies and financial incentives. These supports are spread across various sectors. Key recipients include the energy and power sector, agriculture, and the export oriented industries. These financial interventions are undeniably a crucial component of the government's broader economic strategy. However, they impose a severe and constantly escalating burden on the national budget. Out of the entire national subsidy budget, approximately 35 to 40 per cent is allocated to just one area. This massive portion is used to offset the revenue shortfall of the Bangladesh Power Development Board (BPDB). This recurring annual deficit stems primarily from a significant pricing gap. On one hand, there is a high cost associated with purchasing electricity from Independent Power Plants (IPPs). These IPPs are commonly known as private power plants. On the other hand, the bulk and retail electricity prices charged to everyday consumers are kept artificially lower. This severe financial gap is further compounded by the heavy government subsidies required for imported Liquefied Natural Gas (LNG).
THE FINANCIAL TRAP OF CAPACITY CHARGES: A major driver behind this massive price disparity is the infamous "capacity charge". This specific charge accounts for an amount that is nearly equal to the total subsidy provided to the entire power and energy sector. The capacity charge essentially functions as a strict contractual penalty. It legally obligates the government to pay the private IPPs on a regular basis. The government must pay them even if their power generation capacity remains fully or partially idle for any reason. In Bangladesh, the mounting financial burden of these capacity charges is a direct result of keeping these IPPs offline and idle. This happens because the domestic demand for electricity falls significantly short of the plants' total installed capacity. This situation highlights a severe supply-demand mismatch in the country. Quite simply, the nation has developed far more electricity generation capacity than it actually requires for everyday consumption. This overcapacity represents a fundamental and damaging structural flaw within the nation's energy sector. Official statistics indicate a concerning reality. On average, around 50 per cent of the country's power generation capacity simply sits unused due to low economic demand for electricity. Paradoxically, everyday consumers still frequently experience power supply shortfalls and load-shedding. However, these power outages do not occur from a lack of physical infrastructure or generation capability. Instead, they happen because the BPDB is in profound financial distress. This critical lack of funds leaves the BPDB unable to pay its financial dues to the IPPs on time.
THE DANGERS OF IMPORT DEPENDENCY: In addition to the severe supply-demand mismatch, Bangladesh's power sector is crippled by a second fundamental structural problem. There is an overwhelming and dangerous reliance on imported fossil fuels. Currently, the country depends heavily on external, foreign sources to generate power. Primarily, these sources include imported Liquefied Natural Gas (LNG), coal, and furnace oil. Together, these imported fuels sustain approximately 65 per cent of the country's total power generation. This excessive dependency has severely compromised the nation's broader energy security. It leaves the domestic economy at the absolute mercy of highly volatile and unpredictable international markets. In the context of Bangladesh, this external dependence triggers several cascading economic impacts. The power sector is now heavily dependent on complex global supply chains. As a result, geopolitical conflicts have a severe, immediate, and highly localised impact on the country. Conflicts such as the Russia-Ukraine war or rising tensions in the Middle East act as major disruptions. These unexpected global events can cause international fuel prices to skyrocket almost overnight. When this happens, it becomes financially unviable for the government to procure the expensive energy necessary to keep the national grid running. This is exactly the crisis that Bangladesh has been experiencing in recent days.
ECONOMIC FALLOUT AND THE DOLLAR CRISIS: This heavy reliance on foreign fuel creates broader economic problems. Purchasing massive quantities of fuel from the international market requires a constant, heavy outflow of foreign currency. This outflow mostly consists of precious US dollars. This dynamic puts immense and relentless pressure on Bangladesh's foreign exchange reserves. At a certain point, this continuous financial drain accelerates the depreciation of the local taka against the US dollar. Ultimately, this drives up domestic inflation and increases the cost of living for ordinary citizens. This import dependency has another damaging dimension. It aggressively compounds the already severe issue of capacity charges. Sometimes, US dollar shortages or extremely high global prices prevent the government from importing enough fuel. When this occurs, power plants are literally forced to shut down their operations. Consequently, the government finds itself trapped in a worst-case scenario. The general public suffers immensely from severe load-shedding and disruptions to daily life. Yet, the government remains legally obligated to pay billions in capacity charges to Independent Power Plants (IPPs). These plants are sitting completely idle simply due to a lack of imported fuel. Bangladesh originally operated as a gas-dependent power system. Turning to expensive international imports was largely necessitated by a domestic crisis. The country experienced a rapid depletion of its own domestic natural gas reserves. There has been a historical lack of adequate exploration for new local gas fields. This failure, coupled with a very slow transition towards renewable energy sources, has created a trap. It has essentially locked the country into this expensive and highly risky import-driven model. This remains the very crux of the second structural problem within Bangladesh's power sector.
RENEWABLE ENERGY: THE ULTIMATE MACROECONOMIC SHIELD: The profound structural vulnerabilities of Bangladesh's power sector demand immediate attention. The crippling capacity charges and the excessive reliance on imported fossil fuels require a radical departure from the current policy stance. The traditional approach has been to absorb these massive inefficiencies through continuously escalating government subsidies. This approach is fundamentally unsustainable. It is unsustainable both fiscally for the government and economically for the nation. To secure its long-term energy future and stabilise the national budget, Bangladesh must act fast. The country must urgently accelerate its transition to renewable energy sources. This transition is not merely an environmental imperative to fight climate change. Rather, it is a central macroeconomic strategy. It is uniquely capable of resolving the twin crises of generation overcapacity and fuel import dependency. Simultaneously, it fundamentally restructures how electricity is financed and consumed across the nation. Accelerating the deployment of renewable energy directly challenges the root cause of the country's foreign exchange drain. Every single megawatt of electricity generated from domestic solar or wind resources brings financial relief. It directly offsets the pressing need to purchase expensive, dollar-denominated Liquefied Natural Gas (LNG) and furnace oil on the volatile international market. By aggressively deploying renewable energy technology, Bangladesh can create a natural macroeconomic hedge. This strategy will protect the economy against future global supply chain disruptions and unexpected geopolitical shocks. As the share of renewables in the national energy mix grows, the government's financial burden naturally eases. The desperate need to heavily subsidize imported LNG begins to shrink. Similarly, the costly buying-selling gap of electricity, used to shield consumers from sudden price spikes, diminishes proportionally. This vital energy transition allows the state to reallocate its budgetary resources. Billions of taka are currently being squandered in endless fuel and electricity subsidies. These funds can instead be directed towards productive investments in grid modernisation and crucial social infrastructure.
PHASING OUT IDLE PLANTS AND EMPOWERING THE GRID: Furthermore, a strategic move towards renewables offers a definitive and clear exit strategy. It provides an escape route from the paralysing financial trap of capacity charges. The current energy model relies heavily on rigid, long-term contracts with fossil-fuel IPPs. These contracts guarantee massive payments regardless of whether power is actually dispatched to the grid. Many of these oil-fired plants are aging, highly inefficient, and incredibly expensive to run. As they reach the end of their operational lifecycles, the government must take a firm stance. It must absolutely stop extending their operational contracts. Moreover, all future power procurement must be anchored in modern, transparent practices. This includes competitive bidding for utility-scale renewable projects and Corporate Power Purchase Agreements (CPPAs). Renewable energy operates with near-zero marginal costs. Most importantly, it requires absolutely no imported fuel to generate power. Therefore, it inherently bypasses the "double jeopardy" scenario. The country will no longer have to pay for idle plants during global fuel shortages. A modernised national grid powered by renewables fundamentally shifts the entire economic model.
INDUSTRIAL SOLARISATION FOR EXPORT COMPETITIVENESS: To execute this vital transition rapidly and effectively, the strategy must be broad. It must be done without overwhelming state finances. Therefore, the focus must extend well beyond large, utility-scale projects. The government must embrace distributed generation, specifically targeting the aggressive solarisation of the industrial sector. Expanding rooftop solar installations via robust, business-friendly net-metering policies presents a truly transformative opportunity. There are major energy consumers across the country. They are particularly concentrated within the export-oriented ready-made garment (RMG) and textile sectors. If these massive industries are properly incentivised to generate their own power, the benefits are immediate. It instantly and significantly reduces the peak demand burden placed on the Bangladesh Power Development Board (BPDB). This widespread industrial solarisation serves a crucial dual purpose. First, it substantially shrinks the central grid's revenue shortfall and its associated, costly subsidy requirements. Second, it simultaneously allows these critical export industries to decarbonise their complex supply chains. This green transition ensures their continued competitiveness on the global stage. It helps them meet stringent, upcoming international trade mandates. A prime example of this is the European Union's incoming Carbon Border Adjustment Mechanism (CBAM).
A FISCAL WAKE-UP CALL FOR THE NEXT BUDGET: As the government formulates its national budget proposal for the next fiscal year, a reality check is absolutely essential. At the very outset of planning, policymakers have to recognise the severe reality of the situation. The existing structural problems associated with the power and energy sector in Bangladesh have become paralysing. These deep flaws have made the sector entirely dependent on precious budgetary resources. This dependency creates a huge opportunity cost, holding back other areas of national development. The government also needs to explicitly recognise a hard truth. The era of fossil-fuel dependence and subsidised overcapacity has reached its absolute fiscal limits. The country simply must not afford the luxury of maintaining overcapacity. This inefficient system continuously sucks the economic lifeblood out of the nation. Moving forward, it would be extremely wise for the government to change course. It must take aggressive, decisive measures to mobilise green financing. This financial mobilisation is necessary to finally unlock the nation's immense renewable energy potential. Ultimately, embracing renewable energy and sweeping industrial solarisation is not just another policy option. It is perhaps the only viable option left for the government to effectively dismantle the structural flaws of the past. Only by taking this bold step can Bangladesh ensure a secure, cost-effective, and entirely self-reliant energy architecture for the future.
Monower Mostafa is an energy and power analyst. monower@gmail.com