Rooftop solar power promises $1b savings a year

A 2,000-megawatt new rooftop solar capacity could help Bangladesh save between $476 million and $1 billion annually, according to a study of the Institute for Energy Economics and Financial Analysis (IEEFA).

"While the economic benefits of rooftop solar are clear, its slow progress shows the sector is held back by lack of awareness, low confidence, perceived risks, high import duties, and tight fiscal conditions," it said.

Currently, the installed rooftop solar capacity stands at 160.63 MW.

The study calculated the levelised cost of energy (LCOE) from 1 MW rooftop solar without a battery storage facility at Tk 5 ($0.046) per kilowatt-hour (kWh) against the electricity tariffs of Tk 9.9 ($0.09) and Tk 10.55 ($0.096) for industrial and commercial buildings, respectively.

The institute has considered a tariff of Tk 18.68 per kWh for furnace oil-based plants and Tk 39.4 for diesel-fired units. This could yield annual savings of $476 million for the former and $1 billion for the latter, according to Shafiqul Alam, the lead analyst of the study.

The IEEFA assumes that a rooftop solar will produce electricity for at least four hours a day.

Rooftop solar systems have the potential to lessen the pressure on the national grid when demand surges.

For instance, Bangladesh experienced more than 1,000MW of peak load-shedding daily in eight of the 15 months, from August 2022 to October 2023. This means a rooftop solar capacity of 2,000MW could have helped utilities reduce load-shedding or fossil fuel-based power generation.

It could have helped contribute to the economy by supporting industrial production, cutting down fossil fuel imports or easing some pressure on foreign currency reserves, the report said.

The LCOE confirms that industries and commercial buildings can drastically reduce electricity bills when the sun shines.

"Using rooftop solar during the peak hours of the day would be more beneficial for industries," the study said.

Ohio-based IEEFA said low-quality rooftop solar installations while obtaining new grid connections in the past negatively affected the confidence of building owners. As a result, the sector is still in a nascent stage.

Most stakeholders don't see the upfront cost of rooftop solar as a significant obstacle since the system cost continues to fall, it said.

The report said higher electricity tariffs are not only attractive to industrial and commercial buildings to install rooftop solar systems but also better than the rates that triggered 9 gigawatts of such capacity addition in Vietnam in 2020.

In Vietnam, the feed-in tariff was $0.0838 per kWh in 2020, triggering massive rooftop solar capacity addition, according to the study.

The existing tariffs in Bangladesh are better than that of Vietnam as local industries would be able to save more if they use solar systems.

As the power sector grapples with a hefty revenue shortfall, the tariffs will likely increase after the national elections in 2024.

A comparative analysis shows that industries and commercial buildings for sanctioned loads of up to 5 MWs in Bangladesh pay 7.4 percent and 14.56 percent more, respectively than Vietnam's feed-in tariff of 2020.

While these tariffs are favourable for industries and commercial buildings, another round of adjustment in tariffs will make rooftop solar even more attractive, the report added.

The government issued the first directive about rooftop solar in 2010, which mandated new buildings and industries install rooftop solar systems to secure grid connections. In 2018, it formulated net metering guidelines and revised them in 2019 to allow industries and buildings to connect to the grid via two-way metres.

The regulation made the selected category of buildings eligible to install solar capacity of up to 70 percent of their sanctioned loads, helping reduce electricity bills. The IEEFA recommended allowing it up to 100 percent.

In April 2020, Bangladesh Bank added rooftop solar with net metering in its green refinancing scheme to distribute low-cost funds. It also included rooftop solar in the sustainable finance taxonomy to encourage financial institutions to extend loans to boost the sector.

However, the government raised the overall import duty on solar inverters from 11 percent to 37 percent in 2021, and imposed another 1 percent duty on imported solar panels to incentivise local manufacturers.

Only a few companies in Bangladesh assemble solar modules and their main accessories need to be imported. "Inverters produced in the country are of inferior quality," the report said.

The quality of solar accessories also deters the uptake of rooftop solar projects.

Solar home systems implemented between 2003 and 2018 helped transform the lives of 2 crore off-grid people, spurring economic activity in rural areas. But of late, cheap and poor-quality accessories available in the market have affected the performance of solar home systems, the report observed.

It recommended reducing the import cost, saying that such duties make rooftop solar costly.

The study identified some other obstacles behind the slow progress of rooftop solar installation, including the awareness level of consumers, financiers' risk averseness, service providers' risks, lack of business models for utilities, fiscal conditions, and capacity level of major stakeholders.

The report said that the available refinance scheme of $36.4 million of the central bank and the finance facility of Infrastructure Development Company Ltd are not enough for a rapid expansion of the sector. A new combined capacity of 1,000MW rooftop systems presents a debt financing opportunity of $510 million.

Although the BB's green refinancing scheme is the least-cost financing vehicle, all eligible rooftop solar projects will not receive it since the fund is limited and they have to compete with 69 other environment-friendly projects.

In Bangladesh, the utility-scale solar projects enjoy a complete duty waiver. But the report said the sector needs waiver on prevailing import duties on solar panels and four accessories, ranging from 11.2 percent to 58.6 percent, at least for a limited period.

The IEEFA describes rooftop solar as low-hanging fruit for the country amid obstacles facing utility-scale renewable energy projects, including in the areas of acquiring large quantities of land and obtaining numerous government approvals.