Despite ambitious renewable energy (RE) targets set by the Bangladesh government, a significant financing gap threatens to derail progress, according to a research report by the Bangladesh Institute of Bank Management (BIBM).
The study, Renewable Energy Financing in Bangladesh: Alignment with the National Policies, highlights the growing gap between the country’s renewable energy funding needs and the financing being provided by commercial banks and financial institutions.
As Bangladesh aims to increase its renewable energy share to 40% by 2040, the total funding requirement for achieving these targets has skyrocketed. In 2023 alone, the country needs TK 20,520 crore to meet the Clean/RE-40% target, with a financing gap of nearly Tk 19,778 crore. This gap is expected to worsen in the coming years, with the financing gap projected at Tk 20,729 crore for 2024.
The research indicates that commercial banks and financial institutions are falling far short of their renewable energy financing commitments, with their contribution to the target expected to remain between just 3.75% and 9.12% by 2041. Even with an optimistic 10% annual growth rate in renewable energy financing, it will still be insufficient to meet the full financing requirements for the country’s renewable energy goals.
A Call for Increased Private and Public Sector Investment
The findings underscore the need for significant investments from both the private sector and alternative funding sources, such as the Bangladesh central bank’s refinancing facilities. The report suggests that nearly 95% of the financing needs will need to be met between 2025-2030, with banks and financial institutions expected to contribute only a fraction of the necessary funds.
Dr. Shah Md. Ahsan Habib, Professor at BIBM, emphasised the urgency of improving financing mechanisms to meet these targets: “The transition to renewable energy in Bangladesh is crucial for energy security and climate stability, but it requires robust financial mechanisms and increased investment to ensure its success. We need more comprehensive policy support and innovative financing solutions to fill this gap.”
Rexona Yesmin, Assistant Professor at BIBM, noted the critical role of financial institutions in mobilizing resources for renewable energy projects: “Commercial banks must view renewable energy not just as a niche investment, but as an essential sector for sustainable growth and long-term profitability. With the right policies and risk management strategies, this can become a win-win for both the financial sector and the country.”
Challenges and Global Context
Bangladesh is not alone in facing these financing challenges. Globally, many developing nations struggle to secure the necessary investment for renewable energy transitions due to high upfront costs, perceived risks, and limited access to capital.
According to the International Renewable Energy Agency (IRENA), these barriers are significant obstacles to meeting global climate and energy targets. As the global focus shifts toward sustainability and energy security, Bangladesh’s ability to mobilize finance for its renewable energy sector will be critical not just for its energy future but also for its role in contributing to global climate goals.
Potential Solutions and Path Forward
The study suggests that Bangladesh could benefit from exploring new models of financing, such as green bonds, public-private partnerships (PPP), and international climate finance. The report also calls on financial institutions to adopt more risk-tolerant approaches to financing emerging renewable energy technologies.
