Bangladesh’s power sector at a crossroads

With the Middle East in turmoil, the new Bangladeshi government faces a critical moment in its power and energy landscape, given the rising demand, increasing financial liabilities and reform expectations converging all at once, according to Shafiqul Alam, IEEFA’s lead analyst for energy in Bangladesh.

Early indicators from January–February 2026 indicate that there has been a rebound in electricity consumption, suggesting Bangladesh will need to boost generation significantly during the upcoming summer season. This comes amid large payment arrears at the Bangladesh Power Development Board (BPDB), estimated at over BDT250bn ($2.05bn), which the new administration needs to tackle quickly to prevent any problem in the supply of power, Alam said.

Bangladesh remains highly vulnerable to volatile global energy prices given its heavy reliance on imports.  This becomes even more vital, particularly amid ongoing geopolitical tensions in the Middle East, which have resulted in oil prices going beyond $100 per barrel. IFFEA says that this makes it imperative for policymakers to promote more efficient energy use nationwide, encouraging households and industries to adopt energy-saving technologies and practices.

The new government also faces pressure from the International Monetary Fund (IMF) to control the power sector’s expanding subsidy bill under its $5.5bn (BDT668.7bn) loan programme. However, any increase in power costs could potentially undermine Bangladesh’s competitiveness in the global readymade garment markets. This is vital as the industry contributes almost 80% of the country’s export revenue.

The new government has committed to expanding the share of renewable energy in the overall power mix to 20% by the end of this decade, up from approximately 5% today. An acceleration in investment would be required to achieve this target. Alam argues that investment needs will be more than fourfold compared to recent levels, alongside robust participation from private and international entities.

Bangladesh invariably reports a spike in demand for power during the summer months owing to high temperatures. Last year was an exception, as cooler weather and abundant rainfall during the monsoon season kept demand low, while industrial activity decelerated amid economic issues.

This year, however, demand is already trending higher. Analysis by the IEEFA shows peak demand expanded by nearly 6.5% between mid-January and mid-February versus the same period last year. IEEFA expects this trend to continue.

To tackle the expected power deficit, Alam suggests, the government may be required to contemplate calibrated power rationing mechanisms that minimise disruption to industrial and commercial activity. Clearing BPDB’s outstanding dues will also be essential to make sure that power producers continue to supply uninterrupted power to consumers.

At the same time, the new government may also look at implementing energy efficiency measures more aggressively. The government can consider expanding public awareness campaigns, cutting import duties on efficient appliances and bringing in consumption benchmarks in public institutions, which could help arrest demand expansion.

Balancing subsidy reform 

The country’s power sector remains under severe financial strain. BPDB reported a revenue gap of BDT556bn ($4.55bn) in FY2024–25, primarily due to a per-unit loss of around BDT5/kWh ($0.041). The government absorbed a large portion of this through subsidies amounting to BDT386bn ($3.16bn).

Under its agreement with the IMF, Dhaka is expected to trim these subsidies by 2028. However, as per estimated, even a 50% cut would require electricity tariffs to increase by more than 25% at the bulk level, with knock-on effects for retail consumers.

This magnitude of rise in power costs could adversely impact the textile and garment sector. At present, Bangladeshi textile companies benefit from power tariffs that are slightly cheaper than those in other major garment producers like Vietnam. Preserving this cost advantage will be vital in maintaining export competitiveness.

According to Alam, focus on boosting efficiency in the system should be the main focus area for policymakers rather than relying solely on tariff hikes. They can work on cutting losses from gas leakage and theft, which is reported at over 70bn cubic feet per year. This measure can help reduce generation costs. At the same time, rerouting saved gas to underutilised power plants may also help reduce reliance on expensive generation options.

In addition, curtailing new fossil fuel capacity and boosting the adoption of renewable energy could ease long-term financial strains. Boosting regional power trade, including hydropower imports from Nepal, offers another way to diversify supply and manage costs.

Lack of new projects, however, led to a slowdown in investment in Bangladesh’s renewable energy sector in 2025. Previously, the renewable energy space pulled in investments of around $238mn every year, but getting to the 2030 target will require scaling this up more than four times.

To unlock this growth, the government will need to set up a very strong pipeline of bankable projects and dispose of longstanding issues troubling investors, including regulatory uncertainty and project execution risks. Also, talking to financiers and developers will be an important step in restoring momentum in the sector, Alam said.

If these structural issues are taken care of, the government will be on a strong footing to steer the power sector through a complex transition, balancing affordability, sustainability and energy security, supported by targeted funding in the upcoming June 2026 budget.