Bangladesh Must Modernise Grid and Limit Capacity Additions for Orderly Energy Transition

Bangladesh has spent more than Bangladeshi Taka 1,040 billion (US$9.46 billion) in capacity payments to power producers over 14 years yet faces persistent power challenges, with total installed capacity of 25,339 MW against a peak demand of only 15,648 MW. IEEFA analysis recommends that the government focus on grid modernisation, competitive renewable energy procurement, and demand-side reform before adding further generation capacity.

As of September 2023, Bangladesh's power system capacity utilisation peaked at just 63.5% — including load shedding — reflecting a large surplus built up through a decade of capacity expansion funded by payments to independent power producers and rental plants. The highest recorded demand was 15,648 MW on 19 April 2023, representing 62% utilisation of the 25,339 MW installed base. A key structural problem is that the industrial sector uses only about 28% of national electricity output, preferring captive natural gas or diesel generation of an estimated 2,800 to 4,486 MW due to grid unreliability. Grid modernisation to win back industrial load would improve utilisation and reduce capacity payment costs.

Renewable energy costs have fallen sharply globally, with the levelised cost of utility-scale solar declining 89% from US$0.445 per kilowatt-hour in 2010 to US$0.049 per kWh in 2022. In Bangladesh the decline has been more modest — 47.8% between 2015 and 2022 — due to fragmented land ownership, high transmission costs, and the absence of competitive auctions. Land required for a 100 MW project — approximately 300 acres — typically involves many separate landowners, complicating acquisition. IEEFA recommends the government bear upfront transmission line costs and designate land from retired coal plants for new solar projects to reduce tariffs and improve project economics.

Bangladesh must pursue a gradual energy transition that builds on past experience. The country's six million solar home systems improved electricity access for 20 million rural people but became stranded assets once grid connections reached off-grid areas, as maintenance incentives collapsed and service providers left rural markets. Similarly, the rapid growth in renewable energy interest must be tempered by careful assessment of high solar tariffs relative to costs. A forthcoming review of the Integrated Energy and Power Master Plan should downgrade demand projections, given sluggish industrial sector growth, and prioritise demand-side management before new generation is commissioned.

Key figure — Bangladesh spent more than Bangladeshi Taka 1,040 billion (US$9.46 billion) on capacity payments to power producers over 14 years.