As renewables markets mature, renewables investors are looking to new markets for their next source of growth.

In this series of e-briefings, we summarise the opportunities and risks for international investors in the developing renewables markets of South East Asia. The renewables sector in South East Asia is nascent (with some notable exceptions). However, the commitments made by Asian countries at COP 21 indicate that renewables enjoys broad support throughout the region. 

Together with FM Associates and our other partners, we are pleased to outline for you some of the key issues involved in developing a renewables project in Bangladesh.

1. Market Readiness 

Bangladesh represents an early style market approach at the moment. A number of advancements need to be made before it is really viable however a number of developers and investors are assessing the market and we hope that this summary will assist in this exercise.

1.1 Overview 

The Bangladesh Government has established the Sustainable and Renewable Energy Development Authority (SREDA) to promote the country’s renewable energy sector. In order to strengthen international cooperation in this area, Bangladesh has become one of the initial members of the International Renewable Energy Agency (IRENA), the only inter-governmental agency working exclusively on renewable energy. 

A summary of the renewables potential across the various technologies follows: 

  • Biomass - Bangladesh has strong potential for biomass gasification based electricity. More common biomass resources available in the country are rice husk, crop residue, wood, jute stick, animal waste and municipal waste. This technology can be disseminated on a larger scale for electricity generation 
  • Solar - Bangladesh receives an average daily solar radiation in the range of 4-5 kWh/m. Encouraged by the availability of solar radiation, Bangladesh’s Power Division has initiated a program to generate solar-based electricity and there is strong potential for solar energy within the country, provided appropriate land can be found and developed for use (seasonal flooding in many areas remains a challenge). Bangladesh's solar home system is one of the fastest growing solar power dissemination programs in the world and currently, 3.5 million households use a solar home system 
  • Wind - Wind potential is limited to coastal areas and offshore islands with strong wind regimes. These coastal areas afford good opportunities for wind-powered pumping and electricity generation 
  • Hydropower - The only current hydropower plant was established at Kaptai with installed capacity of 230 MW. The Bangladesh Power Development Board (BPDB) has identified two other sites at Sangu (140 MW) and Matamuhuri (75 MW) for large hydropower plants. However, other hydro opportunities are likely to be limited 

1.2 Statutory Framework 

Bangladesh’s principal energy and renewables laws are: 

  • Sustainable & Renewable Energy Development Authority Act 2012, which was passed to establish SREDA and which promotes the development of renewable energy across Bangladesh 
  • Renewable Energy Policy of Bangladesh, 2008, which is a set of policies and programs set by the Bangladesh Government to reach national renewables goals 
  • Bangladesh Energy Regulatory Commission Act 2003, which establishes an independent regulatory commission for the energy sector 

1.3 Current Renewables Capacities 

Bangladesh’s current renewables capacity is: 

  • solar Home System (3.6 Million Nos) - 150 MW 
  • solar Irrigation (213 Nos) - 2 MW 
  • roof Top Solar System on Government/Private/Commercial Buildings – 3 MW 
  • roof Top Solar System for New Connection (By Consumers) – 11 MW
  • solar Mini Grid – 1 MW 
  • wind – 2 MW 
  • biomass based electricity – 1 MW 
  • biogas based electricity – 5 MW
  • hydro – 230 MW 

1.4 Targeted Renewables Capacities 

Under its renewable energy policies, Bangladesh’s targets for its renewables sector is: 

  • 0.8 GW, by 2015 
  • 2GW, by 2020 (10% of total capacity) 

According to SREDA, the targeted capacity, of which the significant majority will be roofing solar for each technology for each year up to (and including) 2021: 

  • Technology
  • 2015
  • 2016
  • 2017
  • 2018
  • 2019
  • 2020
  • 2021
  • Total
  • Solar
  • 222
  • 253
  • 421.75
  • 237
  • 195
  • 203
  • 208
  • 1739.8
  • Wind
  • 0
  • 20
  • 250
  • 350
  • 350
  • 200
  • 200
  • 1370
  • Biomass
  • 1
  • 16
  • 6
  • 6
  • 6
  • 6
  • 6
  • 47
  • Biogas
  • 1
  • 1
  • 1
  • 1
  • 1
  • 1
  • 1
  • 7
  • Hydro
  • 0
  • 2
  • 2
  • 0
  • 0
  • 0
  • 0
  • 4
  • Total (MW)
  • 224
  • 292
  • 680.75
  • 594
  • 552
  • 410
  • 415
  • 3167.8

2. Key Regulators 

The principal regulators in the Bangladesh power sector are: 

  • the Bangladesh Power Development Board (BPDB), which is responsible for most of the generation and distribution of electricity in urban areas, except Dhaka and the West Zone of the country 
  • the Power Grid Company of Bangladesh Ltd (PGCB), the sole power transmission organisation 
  • Bangladash Energy Regulatory Commission (BERC), which is an independent and regulatory commission for the energy sector 
  • SREDA, which promotes the country’s renewable energy sector 
  • Ministry of Power, Energy and Mineral Resources (MPEMR), which is responsible for all policies and matters relating to electricity generation, transmission and distribution from conventional and non-conventional energy sources 

3. Grid 

The BPDB and the PGCB sell electricity to customers. There is no merchant power market in Bangladesh accessible by private developers. PGCB is responsible for grid connections, upgrades, and the expansion and operation of Bangladesh’s national grid.

Bangladesh’s national grid has historically been unreliable. However, upgrades have recently been made and the grid is currently efficiently distributing electricity. Further, PGCB is undertaking various projects to upgrade the national grid system. 

BPDB is the single purchaser of electric power in Bangladesh and purchases all the electricity from the power producers at the rate agreed in a PPA. The BPDB then transmits electricity to end-users. The PGCB charges BPDB for using the national grid at an agreed rate. 

4. Support Mechanisms

4.1 Feed-in-Tariff 

Bangladesh has not yet introduced a Feed-in-Tariff scheme (FIT). However, BERC has finalised a draft law to introduce FITs. FIT regulations should soon be issued in a Gazette notification and become legally applicable, subject to the considerations of the relevant Governmental division. The Gazette notification is expected in late 2016. In any event, although not finalized, we understand that developers who can complete construction of a grid connected solar project by June 2017 will in fact be able to benefit from a FIT of US$0.017/kwh.

4.2 Power Purchase Agreements 

The form of Power Purchase Agreement (PPA) is generally well understood within the Bangladesh power sector and is bankable on a non-recourse basis by commercial banks. The Bangladesh Government is supportive of the renewables energy sector, and is encouraging all financial institutions to provide the necessary assistance to developers. 

The PPA may be paid in either US dollars or local currency (Bangladeshi Taka). Sometimes payments may be made partly in each currency. When PPA payments are made in Taka, the exchange rate of US dollars will either be specified in the PPA or will be subject to agreement by the parties.

According to the Bangladesh Energy Regulatory Commission Act: any dispute between the licensees (energy producing companies) and the consumer (Government) is referred to (BERC for settlement. BERC itself can conduct the arbitration process and make an award or appoint an arbitrator for settlement). 

Bangladesh Energy Regulatory Commission Act, Bangladesh must be specified as the governing law, jurisdiction and seat of arbitration in all PPAs. 

4.3 Other Support Mechanisms 

Renewables developers may be able to access support from the following: 

  • there are typically lower rates of interest charged by local commercial banks for renewables projects 
  • pursuant to a Policy Guideline for Green Policy of Bangladesh Banks, consumer loan programs from local commercial banks may be available 
  • financial support from SREDA for developing renewables technologies may be available 

5. Project Considerations 

5.1 Content Requirements 

There is no local content requirement or preference given to local service providers. 

5.2 Land Requirements 

Renewables projects must be developed on uncultivated land. As such, projects need to be developed on private land. The Power Division of MPEMR and SREDA can, in certain situations, provide guidance to developers to locate and acquire suitable land. Certain types of land, for example, those set aside for religious worship or as graveyards, cremation grounds, orphanages, hospitals or public libraries may not be used. There is no restriction on the Government providing leases over Government-owned land to an investor; however, this practice is not common in Bangladesh. 

In Bangladesh, privately owned land is mostly (but not always) registered. Developers need to ensure their project sites are properly registered with the relevant Registry Office. 

Under Bangladesh law, a foreign individual cannot purchase land in his/her own name. However, a foreign legal entity, established in Bangladesh and incorporated as a company with the Registrar of Joint Stock Companies and Firms (RJSC), may purchase land in its own name. If the entity is a branch office or liaison office of a foreign company in Bangladesh, it may not purchase immovable property unless authorised by Bangladesh’s Board of Investment. 

5.3 Consents and Permits 

Land in Bangladesh may be purchased through a sale deed, although it would be prudent for due diligence on the land to be conducted by the purchaser. 

In order to conduct a renewable energy business in Bangladesh, it is mandatory for a developer to obtain a license from BERC. 

5.4 Tax 

Tax exemptions are available for renewables developers. Under the Income Tax Act 1984, a ‘physical infrastructure facility’, which includes a renewables development, set up in Bangladesh between 1 July 2011 and 30 June 2019, is exempted from Bangladesh income tax for ten years in the following manner:   

  • Period of Exemption
  • Rate of Exemption
  • For the 1st and 2nd year
  • 100% of the income
  • For the 3rd year
  • 80% of the income
  • For the 4th year
  • 70% of the income
  • For the 5th year
  • 60% of the income
  • For the 6th year
  • 50% of the income
  • For the 7th year
  • 40% of the income
  • For the 8th year
  • 30% of the income
  • For the 9th year
  • 20% of the income
  • For the 10th year
  • 10% of the income

6. General Investment Considerations 

6.1 Foreign Ownership

According to the National Industrial Policy Act 2010, renewables companies are categorised as controlled entities in Bangladesh. This means they cannot be 100% foreign owned. The Government usually fixes the equity rate of local-foreign investors for any joint venture project in controlled industries. However, given the Government’s support of its renewables sector, we understand that the Government will be receptive to renewables projects that are wholly-foreign owned. 

6.2 Incorporating Companies 

The company registration procedure in Bangladesh is partially computerised. There are three distinct steps involved in setting up a Bangladeshi company: 

  • name clearance 
  • (if there are foreign shareholders), bank account opening and investment of paid-up capital (not less than USD50,000) 
  • company registration 

The incorporation process may be completed in three weeks, provided all the documentation is in order. 

6.3 Selling or Pledging Shares 

There are no general restrictions on selling or pledging shares in Bangladesh companies. 

6.4 Availability of Debt Finance 

The average interest rate on loans taken from the local banks is currently approximately 11.00-12.00 per cent. Foreign companies accredited by international credit rating agencies of the necessary standard might be able to obtain loans at discounted interest rates. 

Local banks are not allowed to lend in foreign currency. However, loans can be granted in foreign currency for Investment Promotion and Financial Facility (IPFF) projects with the prior consent of the Bangladesh Bank. 

According to the Bangladesh Bank’s “Policy Guidelines for Green Banking”, eco-friendly business activities and energy efficient industries will be given preferential funding by banks. 

Environmental infrastructure such as renewables projects and clean water supply projects are encouraged and financed by local banks. 

There is significant institutional support for Bangladesh’s renewables sector. This is summarised below: 

  • SREDA plays an active role in developing the renewables industry, including through the use of grants, subsidies and/or carbon/CDM funds for public and private sector investments. Additionally, SREDA provides funding for the development of standardised renewable energy configurations to meet common energy and power applications 
  • the Asian Development Bank (ADB) is active in Bangladesh’s renewable energy sector in the distributed solar space 
  • the Clean Development Mechanism (CDM) in Bangladesh is an important source of funding. In order for a developer to access the CDM
  • Bangladesh is endorsed by Climate Investment Funds (CIF). CIF is providing funding (USD 75 million) that will focus on grid-connected renewable energy 
  • under SREDA’s financial scheme, the Infrastructure Development Company 

Limited (IDCOL) is currently lending to renewable projects at an interest rate of between 6% - 10% 

  • the Bangladesh Infrastructure Finance Fund Limited (BIFFL), a Government owned non- banking financial institution, has a strong mandate to invest in the power and energy sector and renewables projects in particular

Eversheds would like to thank FM Associates, International Finance Corporation, Wind Prospect and Ernst and Young for their contribution towards the e-briefing