Bangladesh Urged to Shift from Climate Loans to Grants
Md Jahidul Islam
Dhaka: Bangladesh requires an estimated $1.54 billion in annual investment to expand renewable energy through 2030, but current investment levels are falling significantly short, covering only around 13% of the country’s needs.
Meanwhile, nearly 90% of the climate financing received by the energy sector comes in the form of loans, raising concerns about the country’s growing debt burden.
According to a study by Change Initiative, Bangladesh is investing approximately $190 million annually in renewable energy, leaving an estimated yearly financing gap of $1.35 billion.
The study calls for increased grant-based financing, affordable local-currency loans and stronger support from multilateral development banks to accelerate the renewable energy transition without placing additional pressure on public finances.
The findings were presented at a national dialogue organised by Change Initiative at the Centre on Integrated Rural Development for Asia and the Pacific (CIRDAP) in Dhaka on Tuesday.
The study, titled “Navigating Debt Sustainability in the Energy Sector in Bangladesh: Channelling Multilateral Development Bank Finance into Renewable Energy through Public Finance Mechanisms,” highlights the need to restructure climate financing to make renewable energy investments more accessible and sustainable.
M Zakir Hossain Khan, co-founder and chief executive of Change Initiative, said Bangladesh’s dependence on imported fossil fuels had exposed its energy system to external economic shocks.
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He stressed that accelerating renewable energy development was essential to achieving energy sovereignty and strengthening control over the country’s energy future.
Khan said the government’s target of generating 10,000 megawatts of solar power required affordable financing, including grants, concessional funding and responsible investment. Such support would enable households and industries to adopt renewable energy without increasing pressure on public finances.
Shama Obaed Islam, state minister for foreign affairs, said Bangladesh needed an energy system that reduced reliance on imported fossil fuels while avoiding excessive borrowing.
She said the government aimed to generate 20% of its electricity from renewable sources by 2030 and increase the share to 30% by 2040. Achieving these targets would require transparency, coordinated investment and stronger climate diplomacy.
She also emphasised the importance of developing a unified national position at international climate negotiations, incorporating contributions from researchers, civil society, the private sector and young innovators.
Bangladesh receives $9 in loans for every $1 in grants
The study’s assessment of energy-sector climate financing between 2002 and 2023 revealed that Bangladesh received approximately $9 in loans for every $1 provided in grants.
This ratio is nearly six times higher than the average for the energy sectors of least developed countries, where loans accounted for $1.53 for every dollar received in grants.
A separate assessment of renewable energy investment between 2000 and 2025 found that 90.4% of financing came through debt, while grants accounted for just 7%.
The remaining 2.6% consisted of mezzanine financing, which combines elements of debt and equity.
Sultana Jesmen, a member of parliament in Bangladesh, said the imbalance between loans and grants in climate financing was increasing financial pressure on the country and its renewable energy entrepreneurs.
She called for more affordable financing to enable domestic businesses to participate in renewable energy development and remain financially viable. She also stressed that climate financing should address water insecurity and protect farmers’ livelihoods.
The report emphasises that Bangladesh needs not only increased investment but also more favourable financing arrangements. Grants could help cover project preparation costs, while development-bank guarantees could reduce lending risks and encourage financial institutions to invest in renewable energy projects.
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It also recommends loans in Bangladeshi taka to minimise foreign-exchange risks for businesses that generate revenue in local currency but borrow in foreign currencies.
Dr Fazle Rabbi Sadeque Ahmed, former deputy managing director of PKSF, said adaptation projects often deliver public benefits without generating direct financial returns, making grant-based financing particularly important.
He added that renewable energy development required affordable funding and access to appropriate technologies, with financing arrangements designed to strengthen long-term resilience without creating unsustainable debt.
Bangladesh Calls for Faster Fund Disbursement
The study estimates that five major multilateral development banks have a combined annual sovereign financing capacity of approximately $6.3 billion for Bangladesh.
However, renewable energy-related eligible commitments identified for 2024–2026 amounted to around $820 million, representing approximately 4% of the estimated three-year financing envelope.
The report cautions that commitments, planned financing and actual disbursements are measured differently, describing the comparison as an indicative estimate rather than a direct assessment of funds delivered.
Delays in accessing approved financing remain another major challenge.
Citing World Bank documents, the study notes that one renewable energy financing facility had disbursed only 12% of its approved funding five years after approval. Annual budget releases for the associated project were also delayed by four to five months.
To address these obstacles, the report recommends simplifying approval and financing procedures, particularly for smaller-scale initiatives such as rooftop solar installations and solar-powered irrigation systems.
Khondkar Morshed Millat, former director of Bangladesh Bank’s Sustainable Finance Department, proposed allocating at least 1.5% of total lending to renewable energy projects.
He also recommended gradually increasing the overall green finance target to 15–20% by 2030.
Millat stressed the need for stronger coordination among Bangladesh Bank, relevant ministries, BSCIC and financial institutions to ensure that available financing translates into actual investment.
Can New Facility Cut Bangladesh’s Energy Debt?
The study proposes establishing a Renewable Energy Sovereignty Facility (RESF) under the Bangladesh Climate Development Partnership by mid-2027 to improve access to renewable energy financing.
Under the proposed arrangement, Infrastructure Development Company Limited (IDCOL) would manage the facility, while PKSF would oversee support for community-based renewable energy projects.
The facility would combine grants, equity, guarantees and local-currency loans to finance decentralised renewable energy initiatives.
It also proposes limiting sovereign borrowing for public infrastructure, including grid connections and shared energy storage systems, to 10–15% of the facility’s total assets.
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According to the study’s least-debt financing scenario, the estimated $7.69 billion investment requirement for 2026–2030 could be met with substantially lower sovereign borrowing.
The report estimates that new government borrowing could decline from approximately $4.61 billion under conventional financing arrangements to just $770 million under the proposed model.
However, the study clarifies that these figures are model-based projections rather than confirmed financing commitments or achieved results. It also notes that government liabilities could arise from guarantees, depending on their terms.
To strengthen the facility’s non-debt financing component, the report recommends redirecting at least 5% of power and liquefied natural gas (LNG) subsidies from FY2027–28.
Based on the subsidy allocations examined in the study, this measure could generate approximately $190 million annually.
Bangladesh Urged to Act on Climate Pledges
Sheikh Faridul Islam, state minister for environment, forest and climate change, said government commitments needed to translate into practical measures.
He identified expanding rooftop solar, reducing dependence on imported fossil fuels and strengthening environmental protection as key priorities.
Ahead of COP31, he said Bangladesh should highlight the scale of climate-related loss and damage and work with other Global South countries to advance climate justice.
He also welcomed recommendations from researchers and experts, stressing that evidence-based proposals could help strengthen national policymaking and implementation.
The report further recommends providing green financing before projects begin, streamlining approval procedures and maintaining stable net-metering policies to encourage renewable energy investment.
Ahead of COP31, Change Initiative is urging greater international attention not only to the volume of climate finance but also to its affordability, accessibility and implications for public debt.
The organisation argues that Bangladesh’s renewable energy transition will depend on ensuring that affordable financing reaches projects, businesses and local communities while limiting the need for additional government borrowing.
