The energy sector is a crucial pillar of any country’s economic growth. It powers industries, lights households and fuels mobility. Bangladesh’s economy has expanded rapidly since the 2010s, and an upward energy demand has fuelled this growth. The energy sector’s influence cascades through the economy, breathing life into businesses and illuminating homes. A nation’s ability to proficiently harness its energy resources often governs its prosperity. For Bangladesh, the energy sector has thus become inseparable from its economic affluence.

The dynamics of the country’s energy sector are complex. Difficulties lie in, for example, identifying optimal energy production and assessing the sustainability of different energy sources. Bangladesh’s energy sector faces a plethora of challenges. Issues such as power generation-related hiccups, transmission losses and dependence on foreign fossil fuels have hindered the sector’s ability to meet the surging energy demand. Moreover, energy sector institutions face many operational challenges.

Despite these difficulties, Bangladesh’s path to a more dependable and sustainable energy future remains very viable.

The energy landscape

A country’s development is linked to its energy use. Among other fuels, biomass, coal and oil are prominent. In 2021, 99% of the country’s energy portfolio involved fossil fuels, comprising natural gas, oil and coal. Natural gas meets 59% of Bangladesh’s energy needs. Natural gas is mostly domestically sourced (only 26% of natural gas is imported).

In 2021–2022, Bangladesh’s energy consumption was 57.2 metric ton oil equivalent (MTOE). Annual growth in energy usage is roughly 6%. Average energy consumption per person in Bangladesh was 346 kilogram oil equivalent (KGOE). In contrast, average electricity production per person was 608.76 kilowatt hours (kWh), less than that of neighbouring South Asian nations.

Bangladesh’s energy supply per capita has increased since 1990. Energy consumption by source shows an almost exclusive dependency on natural gas and less involvement in renewable energy. This remains a concern for the long-term sustainability of the country. Since its founding in 1971, Bangladesh has increased its energy consumption but has yet to diversify its energy sources.

Numerous activities in manufacturing operations are energy-intensive and depend almost exclusively on the power (electricity) supply. The accessibility and efficacy of energy resources have profound impacts on the performance of various sectors, from industries and commerce to residential living.

Bangladesh’s commercial energy consumption has risen over the years, which points to rising energy demand in the economy. Bangladesh’s economic growth correlates with its power sector growth – and is in line with the energy economics literature. The increase in Bangladesh’s gross domestic product (GDP) co-moves very closely with its primary energy consumption. Both indicators have increased manifold since the country’s independence in 1971. The causality may be dual for Bangladesh: higher energy consumption allows for greater economic output, which, in turn, increases disposable income.

Bangladesh’s economic growth correlates with its power sector growth – and is in line with the energy economics literature.

Challenges and opportunities

From 2010, Bangladeshi policy-makers started putting a special focus on the energy sector, in particular electricity power generation. The industry is working to attain big targets: 27,400 MW in 2030 and 51,000 MW in 2041. But challenges of sustainability remain in the energy future. Bangladesh faces the imminent risk of depleting its existing gas reserves. Importing natural gas has exposed Bangladesh to international price fluctuations – which will hit its balance of payments. This shock scenario could increase gas tariffs, which would upset industrial competitiveness, and raise power subsidies.

In Bangladesh, 44% of electricity power generation capacity is privately owned, 45% is publicly owned, 6% is under joint venture and 5% of capacity is imported. In other words, a lion’s share of the capacity belongs to private players, which may lead to a lack of accountability in Bangladesh’s power sector. Additionally, the energy produced from renewables remains negligible, at around 2% since the early 2000s. Since the mid-1980s, the share of renewables has declined, from a peak of 13% in 1989 to 2% in 2022.

Solar and wind power remain two of Bangladesh’s most promising renewable energy sources. The expansive coastline of Bangladesh is suitable for wind energy. The average wind speed in the nation’s coastal regions ranges from 5 to 8 metres per second (m/s). This is at the lower end of the spectrum that wind turbines prefer. According to the National Solar Energy Roadmap 2021–2041, Bangladesh has 20,000 km2 of arable land with a 30,000 MW potential wind power output using existing technologies and production processes.

To ensure sustainable energy, Bangladesh must utilise all forms of renewable energy. Policy-makers should ensure that renewable energy is accessible, and barriers to investment – such as taxes and levies on equipment – should be reduced or removed. The market incentives (including loans and subsidies) should be improved for renewable power. In particular, removing the 15% value-added tax (VAT) on all renewable energy equipment and raw materials would encourage renewables adoption in Bangladesh. A promising but generally overlooked source of renewable energy in the country is hydroelectricity. Hydroelectricity accounted for 6% of the country’s energy during the 1980s. This has declined to only 0.4%, with over 50% of the country’s hydroelectric capacity still unused.

An analysis in 2018, published in Energy Strategy Reviews, proposes a reconfiguration of energy mixes for Bangladesh – factoring in demand, cost and environmental impact. According to the study, bringing 25–35% of renewables into the energy mix would be a feasible scenario for Bangladesh. Increasing renewables in the country’s energy mix reduces the cost per kWh of electricity. As such, Bangladesh has an economic case for a shift towards renewable energy. Furthermore, renewable energy will reduce the country’s reliance on imports. This could help reduce the macroeconomy’s vulnerability to balance of payments challenges, preserving precious foreign currency reserves. A more strategic advantage of renewables is that it strengthens the nation’s energy security well into the future.

Macroeconomic and human impact

To expand its renewables, Bangladesh needs investments of over USD 70 billion by 2035. This is important because energy sustainability has implications at a macroeconomic level. The balance between growth, environment and energy security is revealed by coupling Bangladesh’s energy sustainability initiatives with neoclassical economic growth theories, such as the dynamic integrated climate-economy (DICE) model of Nobel Laureate William Nordhaus.

Energy efficiency helps a country attain human development, and thus grows the economy. It is no surprise that the well-known Human Development Index (HDI) and Energy Efficiency Index (EEI) practically overlap with each other for many countries. In other words, efficient energy is well linked with quality of life. Bangladeshi policy-makers should take note of this while working on the power sector.

Russian engineers pose for a click at a construction site of the Rooppur nuclear power plant located near the Padma (one of the largest rivers in the world, known to be the main tributary of the Ganges) in Pabna, western Bangladesh, 4 October 2023 | Photo by Mahmud Hossain Opu.

Remarks and recommendations

Energy consumption remains quintessential to modern life. Bangladesh – an emerging economy – has witnessed a surge in energy consumption coupled with tremendous economic development since gaining independence in 1971. Bangladesh needs to safeguard its energy sector to support this momentum. Strategic planning and energy diplomacy are crucial to solving these issues for Bangladesh to be an advanced economy within two decades.

Bangladesh requires smart preparations by policy-makers to continue its journey towards energy security and environmental sustainability. Innovative technologies, private sector engagement and equitable policy formulation will be the key. An emphasis on renewables will surely help in reaching the country’s energy targets. As such, the country’s planners, industry leaders and consumers must work together for an ‘energy bright future.’

 

Photo © Mahmud Hossain Opu

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Muhammad Shafiullah is an associate professor at BRAC University. He is an economist. He is an editor at Cogent Economics & Finance. He was an associate professor of economics at the University of Nottingham Malaysia and a senior economist at the Policy Research Institute, Dhaka. He specialises in the economics of finance, energy and the environment. He pursued his doctoral studies in economics at Griffith University, Australia.
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Tirtha Das is a Development Manager at the Information Center on Nuclear Energy, Dhaka, and an economics postgraduate at BRAC University. He is an engineer. He specialises in applied econometrics, energy economics and big data. He pursued his undergraduate studies in at Bangladesh University of Engineering and Technology (BUET), Dhaka.