Bangladesh looks to diversify its way out of an energy crunch

Bangladesh's energy security is once again under pressure. A widening gap between gas demand and supply, coupled with shortages of other fuels and limited backup in the power system, has led to power cuts and disrupted industries and households in recent months. The crisis has exposed the vulnerability of an energy system that has expanded significantly over the years but remains heavily dependent on a few key fuel sources. 

As Bangladesh prepares for a period of higher energy demand, the government's five-year plan puts domestic gas exploration, renewable energy, grid upgrades and financial reform at the centre of its energy strategy.

Bangladesh's energy sector is entering a period in which securing enough power will be as important as expanding generation capacity.

Over the past five decades, the country has made significant progress in electricity access and generation. Installed generation capacity rose from just 500 MW in 1971 to 29,593 MW by May 2026, while electricity access now covers more than the country's population. Yet the expansion has not eliminated the sector's underlying weaknesses.

In May this year, peak generation reached 17,201 MW against maximum demand of 17,611 MW. At the same time, industries continued to face load shedding, voltage instability and shortages of natural gas. For sectors such as garments, textiles and small and medium-sized enterprises, an unreliable energy supply can directly affect production.

The government's response is set out in the Five-Year Strategic Framework for Reform and Development, covering July 2026 to June 2031. The plan is designed to address the immediate weaknesses of the power and gas sectors while preparing the system for longer-term changes in the country's energy mix.

The strategy comes as Bangladesh targets upper-middle-income status and a $1 trillion economy by 2034. Long-term electricity demand is projected to reach 60,000 MW by 2050, making the question of how that demand will be met increasingly important.

The government is also stepping up its efforts to expand renewable and clean energy. It is targeting 4,000MW of electricity from rooftop solar within a year, as part of a broader plan to meet 20% of the country's electricity demand, or around 5,500MW, from renewable sources by 2030.

To encourage investment in rooftop solar, the government plans to purchase electricity generated by these systems at a fixed rate of Tk10.15 per unit, alongside tax incentives for solar equipment. With the average cost of generating a unit of rooftop solar electricity estimated at Tk6–7, the arrangement could provide investors with returns of up to 45%.

Beyond solar, the government is also looking to turn waste into a source of electricity, with plans to generate 42.5MW of power from waste in Dhaka by 2028.

Fixing the financial strain

One of the most difficult issues facing the power sector is financial.

The Bangladesh Power Development Board's annual losses increased from Tk5,468 crore in FY2014-15 to Tk50,565 crore in FY2024-25. At the same time, the country has accumulated significant generation capacity that cannot always be used efficiently, partly because of shortages of gas.

Some major power hubs, including those in Khulna and Meghnaghat, have been affected by inadequate gas supplies. This has created a mismatch between the capacity available on paper and the energy that can actually be generated when needed.

The government also faces annual capacity-payment obligations estimated at $1.5 billion-$1.8 billion to private power producers.

The five-year framework therefore goes beyond adding new plants. It calls for financial and structural reforms, including tariffs that better reflect costs, renegotiation of power contracts and measures to reduce unnecessary subsidies. Cross-border power agreements, including the arrangement with Adani Power, are also part of the wider review.

The objective is to make the sector financially more sustainable while ensuring that consumers and industries continue to receive reliable electricity.

A renewed push for domestic gas

Natural gas remains central to Bangladesh's industrial economy, but declining production from existing fields has made supply increasingly uncertain.

The new strategy responds with a large-scale exploration programme. The government plans to drill and rework 150 wells by 2030-31, seeking to increase domestic production and reduce dependence on imported gas.

The offshore sector is also being opened further to international investment. Petrobangla has invited international bids for 26 deep- and shallow-water blocks under the updated Bangladesh Offshore Model Production Sharing Contract 2026.

The approach reflects a broader attempt to address energy security from both sides: increase domestic production where possible while maintaining enough import infrastructure to cover the gap.

Pipeline constraints are another part of the problem. The framework identifies bottlenecks between Sylhet and Meghnaghat for attention, while plans are also under way to use gas from Bhola more effectively. A 400 MW power plant is planned there, while 60 million cubic feet per day of Bhola gas is expected to be transported to the Khulna power hub through LNG conversion and lighterage.

At the same time, Bangladesh is seeking greater redundancy in LNG imports. A new floating storage and regasification unit at Kutubjom in Maheshkhali is being pursued under a Bangladesh-China government-to-government arrangement. Additional FSRUs are planned for the southwestern region, with further terminals being considered around Payra, Mongla and Hiron Point.

The aim is to reduce the concentration of LNG infrastructure around Maheshkhali and make the import system less vulnerable to disruption.

Solar expansion, but with grid limitations

Renewable energy occupies a growing place in the government's energy plans.

Under the Renewable Energy Policy 2025, Bangladesh has set a target of meeting 20% of electricity demand from renewable sources by 2030, equivalent to roughly 5,500 MW, rising to 30% by 2040.

The five-year framework proposes an even more immediate expansion, with an objective of adding 10,000 MW of renewable capacity to the grid.

Rooftop solar is expected to account for a significant part of this effort. The government plans to install 4,000 MW of rooftop solar within a year across factories, government buildings, hospitals and educational institutions.

To encourage investment, a guaranteed feed-in tariff of Tk10.15 per unit has been proposed, compared with an estimated generation cost of Tk6-7 per unit. Investors are also being offered a five-year tax holiday and duty exemptions on imported solar panels, inverters and lithium-ion batteries.

The strategy also looks beyond rooftops. Underused public land, railway corridors and highway edges could be used for solar projects, while diesel-powered irrigation pumps are planned to be replaced with solar systems over five years. Solar microgrids are also expected to support full electrification in the Chittagong Hill Tracts.

Waste-to-energy and wind are included as additional sources. A 42.5 MW waste-to-energy project in Dhaka is targeted for completion by 2028, while coastal wind resources are estimated to have potential of up to 4,000 MW.

But the government recognises that adding renewable capacity without upgrading the grid could create another problem.

Because solar generation is intermittent and the transmission network remains constrained, large-scale grid-connected solar deployment is proposed to be limited to 3,000-4,000 MW. Utility-scale solar projects would also require battery energy storage equivalent to 20% of their capacity.

The framework therefore treats storage and grid modernisation as essential parts of the renewable transition rather than secondary infrastructure.

Preparing the grid for nuclear power

The changing energy mix will also require the power grid to handle larger sources of baseload generation.

The Rooppur Nuclear Power Plant is approaching completion, and the government is upgrading the transmission system to prepare for its integration. Planned measures include smart frequency controls and 765 kV double-circuit transmission lines.

The strategy also retains a role for coal, although in a more calibrated manner. Plans include developing four domestic coal mines and pursuing long-term government-to-government supply contracts. Additional units are being considered at existing sites such as Matarbari and Payra, while land already acquired by BPDB in Moheshkhali could accommodate further capacity.

Oil security is another component of the plan. The government has finalised a $1.0004 billion Islamic Development Bank loan for the expansion of Eastern Refinery Unit 2. The project is expected to raise domestic refining capacity to 4.5 million tonnes annually and reduce refined fuel imports, with projected foreign-exchange savings of $473 million a year.

Bringing the private sector into the energy market

The five-year strategy also seeks to change how energy markets operate.

A common regulatory framework is being developed to allow private companies to directly import, store and commercially distribute fuel oil. Public-private partnerships are also being considered for power transmission and distribution.

Within industry, the government plans to reduce reliance on captive generation. Around 4,000-5,000 MW of inefficient industrial captive gas generation is targeted for replacement with reliable grid connections through express feeders.

Demand management is another part of the equation. Auto-rickshaw charging is being shifted towards off-peak hours, particularly between 1am and 8am. Electric vehicles could also help absorb 3,000-4,000 MW of surplus off-peak generation capacity.

These measures suggest that energy security is being approached not only as a question of producing more electricity, but also of using existing capacity more efficiently.

Execution will determine the outcome

The five-year plan provides a broad framework for addressing Bangladesh's energy challenges, but its success will depend on execution.

The country remains exposed to international LNG price movements and disruptions to global supply chains, including potential shocks around the Strait of Hormuz. Foreign-exchange constraints could affect equipment imports and the repayment of financing linked to major projects.

There are also technical risks. Transmission bottlenecks could slow renewable integration, while delays in commissioning Rooppur could affect the planned transition in baseload generation. A more digitally connected grid will bring cybersecurity concerns alongside efficiency gains.

Domestic gas exploration carries its own uncertainty. Drilling 150 wells does not guarantee the level of additional production required, particularly where geological conditions or project performance fall short of expectations.

The challenge, ultimately, is to avoid solving one energy problem by creating another. More generation without financial discipline can deepen fiscal pressure. More solar without grid and storage investment can create stability problems. Greater LNG imports can improve supply while increasing exposure to global prices. New nuclear capacity can strengthen baseload supply but requires major grid upgrades and careful execution.

Bangladesh's 2026-31 energy strategy therefore represents an attempt to manage several competing priorities at once: restoring the financial health of the power sector, finding more domestic gas, diversifying imports, expanding renewables and preparing the grid for nuclear generation.

For an economy seeking sustained industrial growth, energy security will depend not on any single source, but on whether these parts of the strategy can be made to work together.