Those in power often express a strong commitment to renewable energy transition, but this commitment is not adequately reflected in the proposed budget for fiscal year 2026-27. The budget appears to disproportionately favour a few specific segments of the renewable energy sector, raising concerns about the inclusiveness and effectiveness of the country’s transition strategy.
The government has reduced import duty, regulatory duty, supplementary duty, and advance tax on essential solar power components to zero percent until June 30, 2031. While this initiative is commendable, the benefits are not being extended equally across the solar industry. If the objective is to develop an entire sector, all stakeholders should receive equitable support.
Under the proposed budget, these incentives primarily benefit solar power producers and companies operating under the Renewable Energy Service Company (RESCO) and CAPEX (Capital Expenditure) models, which use Power Purchase Agreements (PPAs) to install and finance solar power in Bangladesh. Large-scale industrial facilities, particularly those in the ready-made garments (RMG) sector, operate under these models, and they account for approximately 20-22 percent of the country’s electricity consumption. The Statutory Regulatory Order (SRO) framework—which dictates tax exemptions and mandatory installation policies for solar projects—issued by the National Board of Revenue immediately after the budget, favours only these companies. Thousands of importers, distributors, dealers, retailers, engineering, procurement, and construction firms, and self-financed solar users operating outside the RESCO and CAPEX frameworks have been excluded from these tax benefits. Collectively, these stakeholders contribute significantly to the expansion of solar energy across Bangladesh. Excluding such a large segment of the industry while offering preferential treatment to a limited group of beneficiaries will not facilitate a smooth and inclusive renewable energy transition.
Another major concern is that the proposed budget offers no incentives for solar irrigation, solar street lighting, or Battery Energy Storage Systems (BESS). This omission is particularly alarming given Bangladesh’s heavy reliance on approximately 17 lakh diesel-powered irrigation pumps. Every year, substantial amounts of foreign currency are spent on importing diesel fuel. Had the government provided adequate tax incentives and fiscal support to encourage farmers to adopt solar irrigation systems, it could have significantly reduced fuel imports, saved valuable foreign exchange, and strengthened the country’s foreign exchange reserves.
The current SRO allows up to six months for testing renewable energy components before approval. Such a lengthy process often delays project implementation and increases costs. Solar industry stakeholders have long demanded that testing procedures be completed within a much shorter timeframe. Unfortunately, neither the proposed budget nor the current SRO introduces any meaningful initiative to address this issue. Furthermore, existing regulations do not require testing for all imported solar components. Mandatory testing currently applies only to projects operating under the net-metering framework, creating inconsistencies in quality assurance and regulatory oversight.
Another long-standing challenge is the weight-based customs assessment system for imports of renewable energy equipment. This outdated approach increases import costs and inflates overall project expenditures. Industry stakeholders have repeatedly urged the government to replace the weight-based assessment system with the internationally recognised transaction-value method. However, no effective initiative has been taken to implement this reform.
The proposed budget also exempts imports of raw materials used in the production of lithium-ion batteries, sodium-ion batteries, lithium-ion battery packs, and related components from duties and taxes. Per the SRO, this will remain effective until June 30, 2028. While this measure aims to encourage domestic manufacturing, the three-year incentive period is unlikely to be sufficient for developing a globally competitive battery manufacturing industry at home. Establishing production facilities, developing technological capabilities, and achieving economies of scale require long-term policy certainty. Therefore, these incentives should be extended for at least 10 years.
There are also concerns regarding the financial mechanisms needed to support large-scale renewable energy investments. Although the government has introduced zero-tax facilities and tax rebates for solar power projects under the RESCO and CAPEX models, the budget does not allocate any additional resources to facilitate the expansion of such projects. Similarly, the budget remains silent on expanding Bangladesh Bank’s green financing programme. Bangladesh Bank has increased the size of its green financing scheme to Tk 1,000 crore, but the current loan ceiling of Tk 30 crore remains far below the financing requirements of utility-scale renewable energy projects such as a 10 MW solar park. Moreover, the central bank has instructed commercial banks to provide loans for renewable energy projects at a concessional interest rate of 5 percent.
In practice, however, many investors are unable to access financing at this interest rate. Even obtaining large-scale renewable energy financing from the government-owned Infrastructure Development Company Limited (IDCOL) remains a challenge. High collateral requirements, bank guarantees, and extensive documentation create significant barriers for many investors and companies. Furthermore, concerns persist regarding the transparency and fairness of IDCOL’s loan disbursement process, with a relatively small number of firms reportedly receiving the majority of financing support.
To achieve a successful and smooth renewable energy transition, Bangladesh must adopt a more inclusive and comprehensive policy framework. The government should extend the zero percent tax rate on solar power components to all solar industry stakeholders for at least the next five years. In addition, all relevant stakeholders should be eligible for a 5 percent tax rebate on payments made against solar electricity bills, along with full income tax rebate facilities.
The government should also introduce effective financial incentives to encourage farmers to replace diesel-powered irrigation pumps with solar-powered alternatives. Mandatory testing requirements should be extended to all imported solar components, and testing procedures should be completed within one month through a single-window service mechanism.
Finally, Bangladesh Bank’s green financing scheme should be expanded further, and stricter monitoring should be introduced to ensure that commercial banks provide renewable energy loans at the prescribed concessional interest rate. Simultaneously, IDCOL’s financing procedures must be simplified, made more transparent, and made accessible to a broader range of investors.
Md Razib is research associate at South Asian Network on Economic Modeling (Sanem). He can be reached at [email protected].
Views expressed in this article are the author's own.
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