Bangladesh has embarked on an ambitious plan to generate up to 30% of its electricity from renewable sources by 2040.

The Institute of Energy Economics and Financial Analysis (IEEFA) has estimated that the country will need between $933m and $980m annually until 2030 to achieve the 20% target set for that year under Bangladesh's new Renewable Energy Policy.

After 2030, the country will require annual investments ranging from $1.37bn to $1.46bn up to the year 2040.

To secure the necessary funding, Bangladesh is advised to engage with Multilateral Development Banks, international climate finance institutions, and bilateral development financial institutions.

IEEFA lead energy analyst for Bangladesh Shafiqul Alam said: “Public finance alone is unlikely to meet these funding requirements, necessitating large-scale private investment.”

The establishment of a currency hedging fund could help mitigate currency risks associated with these investments.

However, recent policy shifts have caused investor apprehension. The suspension of 31 utility-scale renewable energy projects, which were initiated through non-competitive bidding by the previous government, has introduced contractual uncertainties.

The IEEFA report highlights the need for Bangladesh to ensure regulatory stability and restore investor guarantees to regain investor confidence.

The report also recommends reinstating the "project implementation clause" to alleviate concerns over payment uncertainties and suggests a funding mechanism for revenue assurance to renewable energy producers, which would mitigate counterparty risks.

Land acquisition challenges, off-taker risk, technology and performance risk, weak project pipelines and complicated loan disbursal processes have also limited the private sector investment.

Bangladesh's attractiveness to foreign investors is further challenged by its low sovereign credit ratings.

IEEFA sustainable finance consultant Labanya Prakash Jena said: "Moody’s downgraded Bangladesh’s credit rating to B2 in November 2024 from B1 earlier, based on the country’s lower-than-expected economic growth in the near term, political challenges, and banking sector risks.

"This has further deteriorated the country’s credit profile in the international financial market, making borrowing expensive.”

However, the government's recent reduction of customs duty on imported solar inverters has been acknowledged as a positive step.

The IEEFA urges further duty reductions on small-scale solar project components, including solar panels and related hardware, to stimulate investment in the sector.