Commercial Banks here need to scale up their investment in solar and wind power projects if the country were to meet its renewable energy goal in its power mix by 2030, according to a recent study.
The study finds the country will require a staggering Tk 87,000 crore in investment in the next six years to achieve the renewable energy target stipulated in the climate prosperity plan.
However, the current trend is unpromising, as a little more than Tk 2,000 crores were invested in the last six years.
The study also shows that the country is on the verge of failing another of its renewable energy targets, 10 percent of its power mix by 2025, outlined in its 8th five-year plan (8FYP).
At least Tk 24,000 crore in immediate investment will be needed to achieve this unlikely goal.
The country’s current installed renewable energy capacity (solar, wind and hydro) stands at 893 MW or only 3.2% of the total installed capacity, far below the 8FYP’s 10% by 2025.
The study findings, “Rapid Transition to Renewables: Role of Domestic Financial Institutions,” were presented in a seminar in the capital yesterday organized by a non-profit research organization Centre for Environment and Participatory Research (CEPR), in collaboration with the Economic Reporters Forum (ERF) and climate group Coastal Livelihood and Environmental Action Network (CLEAN).
The study pointed out several challenges for banks to invest in independent renewable energy projects, including the absence of long-term power supply agreements, the lack of expertise of small and medium renewable energy entrepreneurs to formulate a bankable project, and the lack of incentives for small-scale solar installations.
However, the government recently granted a significant incentive to renewable energy investors by extending the tax exemption period from ten to fifteen years.
Renewable energy companies that begin commercial operations between July 2025 and June 2030 will be eligible for the extended tax benefits.
Power, energy and mineral resources adviser Muhammad Fouzul Kabir Khan said, land scarcity barring renewable energy expansion was a myth since there is huge potential for electricity generation using renewable sources using government lands and rooftop solar.
“The lack of commitment and financing prevented renewable energy expansion during the tenure of the past government. The earlier we all realise to ensure energy security there is no alternative to renewable energy expansion the better,” said Fouzul Kabir.
He added, independent power plants destroyed the power sector. The government has a plan of soon launching a merchant power policy ending the era of the government being the sole off-taker of all the electricity produced.
Policy think-tank Center for Policy Dialogue’s Research Director Khondaker Golam Moazzem urged authorities for adopting financing instruments which facilitates foreign direct investments and investments from multilateral development banks in the renewable energy sector.
He also urged for steps to help extend the bank’s loan payback period to 10 to 12 years from existing 6 years, which is too short a time for renewable energy investors.
City Bank’s Chief Economist and Country Business Manager Md Ashanur Rahman said his bank accounts for 15 percent of current lending in the power sector. He added, ‘renewable energy financing is still not considered by companies despite our committed effort to direct financing in that direction. Chief Executive of CLEAN Hasan Mehedi said, “By installing one megawatt of solar power, we can save the cost of importing around Tk 26.1 million worth of furnace oil annually.”
He added, it’s high time for national banks to align with new green financing policies. We can take steps towards utilizing rooftop solar power.
To scale up domestic bank’s investments, the study recommended establishing a renewable energy fund under Bangladesh Bank to provide concessional loans.
It also suggested revising the central bank’s green finance guidelines to allocate at least 25 percent of green financing toward renewable energy projects.
Moreover, the research also recommended reducing import taxes and offering subsidies on renewable energy equipment to reduce upfront costs for households and industries.
