The energy crisis born of the ongoing US-Israel war on Iran has revealed a critical reality: Bangladesh has never been adequately prepared to deal with such external shocks. In any economy, disruptions caused by these shocks are inevitable. The key question, however, is how prepared a government is to manage them—how much it has learnt from previous crises and whether it has taken sufficient precautionary measures to face future disruptions.

In Bangladesh, all governments have followed a similar pattern when dealing with an economic shock. Policymakers tend to adopt short-term measures to tackle the immediate impact, but once it subsides, they don’t pursue long-term, sustainable policies. As a result, when new shocks arise, the country’s limited capacity to respond effectively becomes exposed, highlighting deep-rooted economic vulnerabilities.

The burden of this failure ultimately falls on ordinary citizens. The combined impact of the Covid pandemic and the Russia-Ukraine War exposed the country’s excessive dependency on imported fossil fuels. Did the government successfully implement any long-term strategy to address the energy crisis during that period? The answer is no. The shock triggered by the war pushed inflation in Bangladesh into double digits. Foreign exchange reserves declined sharply, and the domestic currency depreciated. Despite these warning signals, the government failed to diversify its sources of imported energy and did not accelerate the transition to renewables.

Had Bangladesh undergone a significant renewable energy transition—similar to Pakistan, for example, which significantly achieved a 46 percent share of renewables in its electricity generation mix as of September 2025—it would have been better positioned to handle the impact of the current Middle East tensions. So far, renewables have accounted for only 5.38 percent of the country’s total energy mix.

Energy is widely recognised as one of the most critical resources in the global economy and is likely to become a defining factor in the coming years. Therefore, Bangladesh must prioritise a long-term strategy to accelerate the transition to renewable energy. Sadly, there are several barriers to this transition, and among them, the financing gap remains the most significant.

A number of structural challenges continue to discourage investment in renewables. Currency instability, frequent regulatory and policy changes, off-taker risk, weak project pipelines, technology and performance risks, lower sovereign credit rating, a cumbersome loan disbursement process, land acquisition challenges, and a lack of reliable guarantees dissuade foreign investors from committing long-term capital into the renewable energy sector. Meanwhile, local investors are not interested in investing in utility-scale renewables projects due to the lengthy land acquisition process, short-term lending horizons offered by local banks, and the removal of the “implementation agreement” clause, similar to a sovereign guarantee.

A 2025 assessment by the Institute for Energy Economics and Financial Analysis (IEEFA) revealed that Bangladesh would require up to $980 million annually to meet its renewable energy goal of 2030, which 20 percent renewables in its power generation mix. In the following decade, the country will need up to $1.46 billion a year to meet its 2041 goal—30 percent renewables in power generation. This means it must increase its existing annual investment flow of $238 million by four to six times in the next 5-15 years. Public finance cannot meet these funding requirements on its own, necessitating large-scale private investment. The country also faces a lack of strong bankable projects due to the absence of feasibility studies and unresolved issues around land or rooftop access.

Though the Bangladesh Bank has expanded its green financing scheme to Tk 1,000 crore, the loan ceiling of Tk 30 crore remains far below the capital requirements of utility-scale projects such as a 10MW solar park. Small-scale renewables projects in rural areas face even greater challenges as financial institutions often perceive small-scale projects as risky and demand high collateral.

The lack of supportive incentives for domestic companies further reflects a gap in policy foresight. When procurement entities prepare tender documents, they often believe that adding more conditions increases credibility. Consequently, they impose requirements that local companies find difficult to meet. For example, in a 10MW project, the tender security requirement may be around Tk 2 crore. How many companies in Bangladesh are capable of providing such a large tender deposit? Obtaining a Bank Guarantee (BG) facility may also cost Tk 2-3 crore. If such a large amount of capital becomes tied up in a single security deposit, a company’s other business operations may come to a halt. As a result, many companies are compelled to seek foreign partners as securing such a large fund locally is difficult. Although authorities often claim that they have established strict procurement systems, these systems do not necessarily benefit local companies.

To address these challenges, Bangladesh must urgently reform the existing financing scheme for renewable energy projects. The government should expand the Bangladesh Bank’s refinancing schemes by collaborating with development partners to mobilise additional funds and strengthen financing capacity. Financing procedures need to be simplified and made more accessible.

Additionally, the government should introduce low-cost, dedicated financing schemes for small-scale renewables projects such as rooftop solar and solar irrigation. It can also offer a credit risk guarantee scheme and a dedicated green finance facility with scope for pre-finance to accelerate the flow of funds for small-scale renewable energy projects. Finally, the government should introduce a feed-in tariff policy to facilitate both domestic and foreign investment in renewable energy technologies.