Green Energy Financing in Bangladesh1

by Bikash Singha Sutradhar2 Assistant Director, Bangladesh Bank Head Office, Dhaka, Bangladesh Email: bikash.singha@gmail.com

1 Paper presented in IFAD-APRACA FinPower Regional GreenFinance Forum: Integrated Clean and Renewable Energy and Environmental Sustainability Components into Rural Financing.
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Views expressed in this paper are the authors own and do not necessarily reflect the views or policies of Bangladesh Bank.

Preface

Increasing the use of renewable energy is seen by many as a solution to the manifold problems for developing countries like Bangladesh. Though the initial cost of solar energy is pretty high (approximately USD 200 minimum, where as income of many rural household is less than a dollar a day), it can be offset by no or minimum variable cost and can be installed in the remotest areas including the char (river basin) lands, where people are deprived of most modern and many primary amenities including health and education. Integrated cow/poultry rearing and biogas plant can bring in a development movement by providing nutrition (milk and meat), fuel (biogas) and organic fertilizer (manure) from a single farm and can help reduce rural poverty. Increasing the use and access of renewable energy, especially in the households can help combat the power and energy crisis and help ensure adequate grid electricity and natural gas supply for the industrial usage. Renewable energy is also an adaptation and mitigation option as it is more carbon efficient and adoptable in many adverse geographical and environmental conditions and thus might help Bangladesh in negotiating with the developed world for providing better assistance to combat climate change, a problem where Bangladesh remains only at the receiving end. This paper sets forth to provide a brief overview of the renewable energy and its financing status in Bangladesh and the related issues including the policy strides, actors involved, success stories and the future prospects.

CONTENTS Preface Bangladesh: Introduction An Overview The Rural Financial System Renewable Energy Clean Energy and Energy Use Climate Change Issues and Policies Regarding Renewable Energy Initiatives by The Government Renewable Energy: A Chronological Advancement Renewable Energy Policy Budget (2009-10) Announcement and Energy Use Organizations Working on Renewable Energy Participation of Community and Other Stakeholders Solar Power Brings Hopes for Char People Solar-Powered Hospital Major Players In Renewable Energy Expansion Infrastructure and Development Research and Development Rural Financing Policies In Integrating Energy And Environmental Sustainability Related Policies Financing Mechanism of IDCOL Bangladesh Banks Refinance Scheme For Renewable Energy IDCOL Model: A Success Story On Solar Energy EDCL Model: A Success Story On Biogas Conclusion Bibliography

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Acronyms BB BERC BOI BPDB CC GHG CDM DESA FSA GDP GOB IA IPP LGED MOF MPEMR MRA NEP PSIDF PSMP RE REB RETs RFP SCB SEDA SRO UP Bangladesh Bank Bangladesh Energy Regulatory Commission Board of Investments Bangladesh Power Development Board Climate Change Green House Gas Clean Development Mechanism Dhaka Electric Supply Authority Fuel Supply Agreement Gross Domestic Product Government of Bangladesh Implementation Agreement Independent Power Producer Local Government Engineering Department Ministry of Finance Ministry of Power, Energy and Mineral Resources Microcredit Regulatory Authority National Energy Policy Private Sector Infrastructure Development Fund Power System Master Plan Renewable Energy Rural Electrification Board Renewable Energy Technologies Request for Proposal State-owned Commercial Banks Sustainable Energy Development Agency Statutory Regulatory Order Union Parishad

1. Bangladesh: Introduction 1.1 An Overview Bangladesh is situated between 20.30 - 26.38 degrees north latitude and 88.04 - 92.44 degrees east latitude. Placed between the Bay of Bengal and the Himalayas, Bangladesh is a South Asian country with a land area of 144,000 sq. kms. populated by around 150 million people. Dhaka, the capital city and also the most densely populated, is placed just in the middle of the country. Less than a couple of hours flight from Katmandu, the country is enriched with the beauty of nature and warmth of the simplicity of common people. The world's longest sea beach; Cox's Bazar, the Coral Island Saint Martins and the beautiful mangrove forest Sundarbans are waiting to welcome you all. Three quarters of Bangladesh population live in the rural areas The fact clearly suggests the importance of rural financing for the overall development of Bangladesh. Bangladesh's predominantly agricultural economy depends heavily on an erratic monsoonal cycle, with periodic flooding and drought. The country's main endowments include its vast human resource base, rich agricultural land, relatively abundant water, and substantial reserves of natural gas. Despite being one of the world's poorest and most densely populated countries, Bangladesh has made major strides to meet the food needs of its increasing population, mainly through increased domestic production. The agricultural land here is devoted mainly to rice and jute cultivation, although wheat and maize production has increased in recent years. Nonetheless, an estimated 10% to 15% of the population faces serious nutritional risk mainly due to lack of employment scopes, which again calls for increased financing in the rural areas of Bangladesh. Among the recent major developmental issues of Bangladesh, climate change is getting the highest priority as it is a cross-cutting issue. Poverty reduction through income generation is another important issue, especially for rural Bangladesh. Being a small country having a very large population, no Government in Bangladesh can ignore the food security issue. Access to finance is still a major issue for Bangladesh despite the fact that non-governmental organizations are playing a remarkable role in dealing with microcredit for the rural poor. Power is considered as a major factor of production. The people of Bangladesh have very limited access to energy mainly due to limited availability and network. Electricity and natural gas are the major sources of power in Bangladesh. But only around 20-25% of the population has access to electricity. During summer, the country faces a severe load shedding causing a great concern for the governments. Access to natural gas is much lower (less than 5%) and is confined in Dhaka and the eastern part of the country (Dhaka, Comilla, Chittagong, etc) with the recent addition of Rajshahi. Per capita consumption of commercial energy and electricity in Bangladesh is one of the lowest among the developing countries. In 1990, more than 73% of total final energy

consumption was met by different type of biomass fuels (e.g. agricultural residues, wood fuels, animal dung, etc. 1.2 The Rural Financial System Despite substantial bank branch expansion and emergence of microfinance institutions (MFIs), limited access to basic financial services still remains a deprivation suffered by large segments of the poorer rural and urban population in Bangladesh, more hurtful than other deprivations in restricting opportunities of freeing themselves from the poverty trap. Financial inclusion of the poorest, particularly their access to small-sized credit for incomegenerating self-employment activities (microcredit) is a major tool in Bangladesh for combating poverty. Microcredit was pioneered by Nobel Laureate Dr Yunus in the late nineteen seventies and by now extensively replicated worldwide. The coverage of financial services is still incomplete. In Bangladesh, rural finance consists of formal and informal financial institutions, small and large, that provide small-size financial services to the rural poor, as well as larger size financial services to agro-processing and other small and medium rural enterprises. Rural finance also covers a wide array of microfinance institutions (MFIs), ranging from indigenous rotating savings and credit associations and financial co-operatives to rural banks and agricultural development banks. Rural finance is a vital tool in poverty reduction and rural development.

Rural Financing

Formal

Informal

Commercial Banks Specialized Banks BRDB BSBL NGOs

Traditional money lenders Landlord Relatives Neighbors Shopkeepers

Figure-1: Rural Financial Structure of Bangladesh

Formal rural financial markets in Bangladesh comprise rural branches of nationalized commercial banks, a sizeable number of private banks, cooperative banks and societies and specialized banks such as the Bangladesh Krishi Bank and the Rajshahi Krishi Unnayan Bank. Government institutions and programmes such as the Bangladesh Rural Development Board (BRDB), Bangladesh Samabay Bank Limited (BSBL) are also playing a significant role.

However, the non-governmental organizations dealing with microcredit are still playing the most prominent role and many people in rural Bangladesh call the MFIs like BRAC, ASA or Proshika as banks. Currently 48 scheduled banks are operating in Bangladesh under the direct supervision of Bangladesh Bank (the central bank of Bangladesh) of which 38 are having either private or foreign ownerships. Apart from the State-owned commercial banks (Sonali Bank Ltd, Janata Bank Ltd, Agrani Bank Ltd) and the the specialized banks for agriculture- Bangladesh Krishi Bank and Rajshahi Krishi Unnayan Bank, the other banks have a very slim presence in the rural areas of Bangladesh. The Central Bank is pushing the banks for expanding their operations in the rural areas by imposing pro-rural rules but the responses are showing examples of regulatory dialect. For every three branches in the city areas, a bank must open a branch in rural the areas (in the union parishad). But the banks usually try to select such union parishad (UP) areas which are in the transition of urbanization with the typical business considerations. After the liberation of Bangladesh in 1971, many non-profit-oriented voluntary organizations came into place with the relief and reconstruction services. Later, these organizations made a strong place in the development arena of the country with multidimensional activities including health, education and awareness programmes, tagged with micro-credit aiming at income generation for the poor rural and urban households. Popularly termed as NGOs, many have made fame in the country and beyond boundary as well. Grameen Bank, BRAC, ASA, Proshika, Bureau Bangladesh, TMSS, RDRS are some of the prominent names. Recently the NGOs engaged in microcredit actives have been brought under Governmental regulation with the formation of the Microcredit Regulatory Authority (MRA). Recent trends show that the NGOs have a stronger presence in the rural areas thanks to their intensive monitoring and supervision with adequate number of staff. As of end June 2009, BRAC, the largest NGO in Bangladesh, provided loans to more than 6.4 million people, while the four State-owned commercial banks (who have more concentration in the rural areas than the privately owned banks) together could reach only around 5.5 million rural people. This fact clearly suggests the dominance of the microfinance NGOs in rural finance compared to the banks. Currently, the banks in many cases are working in synergy with the microcredit NGOs by mutual cooperation. Many banks feel comfortable in providing large amount credits to the MFIs who ultimately lend to the rural borrowers. Bangladesh Bank is also taking a liberal stand regarding bank-MFI cooperation and has allowed banks with limited rural branches to use NGO linkages for increasing rural finance. Microcredit is easier to access for the rural poor as it requires minimum or no documentation and does not require any collateral security. Most importantly, you need to go to the bank branch for availing credit however small the amount may be. In contrast, the NGO staff will come to your house to provide you loan and to collect the small weekly recoveries bringing much convenience to the rural people. However, concerns are growing centering the high effective interest rate of for micro-credit and the Government of Bangladesh, MRA as well as

Bangladesh Bank are trying to put the interest rated down and to increase the access to bank finance which has comparatively lower interest rates.

2. Renewable Energy 2.1 Clean Energy and Energy Use Worldwide, there is a major transition underway in the energy sector due to a decline in fossil fuel availability, the need to drastically cut global emissions for mitigating climate change and the need for energy security. Although investment costs in renewable energy are generally higher compared to fossil fuel alternatives, this option becomes economically viable when all externalities (e.g. environmental cost, health hazards etc.) and lower operating cost are taken into consideration. Of the over 1.5 billion people worldwide who do not have access to electricity, over 100 million reside in Bangladesh--approximately 70 percent of the country's population. The Government also acknowledged that the power deficit is the principal impediment to our overall development including industrialization. Currently our per capita power consumption is only 172 kwh as compared to 325 kwh in Sri Lanka, 408 kwh in Pakistan and 665 kwh in India. At present, our average power demand is about 5,000 MW, against which the existing power plants can only generate 3800 MW of electricity. The Government is taking appropriate steps to increase power generation assuming its demand to be 20,000 MW by 2021. In Bangladesh, the World Bank suggests 36% of the population are very poor and 53% are poor- most of these being in rural areas (World Bank, 1998). With lighting and access to communication technologies the potential for education becomes significantly improved. Electricity can enable cottage industries to become far more efficient and can enable many rural industries to develop beyond subsistence. Health can be greatly improved as the simple provision of a fridge in a community health centre enables vaccines and antibiotics to be kept at hand. Health is also improved if gas or a similar clean fuel replaces smoky wood and dung in cooking. The renewable resources of Bangladesh are adequate for wind and sunlight-based technologies as well as having significant untapped opportunities for providing biogas (from digesting animal manure), some hydro opportunities in the hills and some potential for tidal power in the delta islands of the south however the usages are still very limited. These renewable resources offer the opportunity for the country to leapfrog to the 21st century with renewable technologies rather than keeping to traditional development pathways. The application of this approach to the developing world in general is well recognized by UN agencies and other development organizations.

The major sources of renewable energy in Bangladesh are: 2.1.1 Solar Energy Solar photovoltaic (PV) systems are in use throughout the country with over 200,000 household-level installations having capacity of about 12 MW (June 2008). Scaling-up of solar PV systems assisted by the development partners are being implemented through the Rural Electrification Board (REB), Local Government Engineering Department (LGED), Bangladesh Power Development Board (BPDB) and other agencies implementing solar energy program. Renewable Energy Research Centre of the University of Dhaka has installed a model 1.1kW grid connected photovoltaic system. There is a strong potential for solar energy within the country. Solar Photovoltaic Applications Different solar photovoltaic applications are gaining acceptance as a technology for electricity generation in remote and rural areas of the country, including
Solar home systems Rural market electrification School electrification Health clinic /hospital electrification Cyclone shelter electrification Microenterprise (grocery shops, tailoring shops, clinics, restaurants, sawmills, rice mills, cellular phone services, barber shops) electrification ICT Training Centre electrification Water pumping Signaling Remote telecommunications Remote rainfall measuring station

2.1.2 Wind Energy Wind energy has also made some inroads but its potential is mainly limited to coastal areas, and offshore islands with strong wind regimes. These coastal settings afford good opportunities for wind-powered pumping and electricity generation. Presently there are 2 MW of installed wind turbines at Feni and Kutubdia. 2.1.3 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, municipal waste, sugarcane bagasse, etc. This technology can be disseminated on a larger scale for electricity generation. 2.1.4 Biogas

Biogas mainly from animal and municipal wastes may be one of the promising renewable energy resources for Bangladesh. Presently there are tens of thousands of households and village-level biogas plants in place throughout the country. It is a potential source to harness basic biogas technology for cooking, and rural and peri-urban electrification to provide electricity during periods of power shortfalls. 2.1.5 Hydro Microhydro and minihydro have limited potential in Bangladesh, with the exception of Chittagong and the Chittagong Hill tracts. Hydropower assessments have identified some possible sites from 10 kW to 5 MW but no appreciable capacity has yet been installed. There is one hydro power plant at Kaptai established in the 1960s with installed capacity of 230 MW. 2.2 Climate Change Bangladesh is considered as the country which is most vulnerable to the impacts and consequences of climate change in terms of the number of population supposed to be affected. According to a World Bank estimate, around 17% of the total landmass of Bangladesh is supposed to be lost by the year 2050 due to sea level rise- a great threat of a densely populated country having a population size larger than Russia, whose landmass is 120 times larger than Bangladesh. Many parts of the South-west part are already showing signs of permanent water logging and agriculture is seriously hampering due to salinity intrusion. Other adverse impacts from anthropogenic climate change will include floods, and cyclones and droughts. Tens of thousands of people affected by Cyclones Sidr (2007) and Aila (2009) in South-west Bangladesh are still striving to go back to normal life. With a population of 150 million, most of whom earn less than U.S. $1 a day, it has some of the poorest people in the world. The impacts of climate change will only exacerbate the problems already facing the population. Although Bangladesh emits less than 0.1% of global greenhouse gas emissions (compared to 24% for the United States), it is nevertheless taking steps to reduce its future emissions through the development of renewable energy and the use of (relatively clean) natural gas. Because Bangladesh has only been able to supply electricity to less than a quarter of its rural population, this means that most of the future energy infrastructure can be developed using renewable energy including solar energy, biogas and other relatively clean energy sources.

3. Issues and Policies Regarding Renewable Energy

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Providing power without intensifying the effects of climate change is a priority for the people of Bangladesh, who know all too well what rising seas and more frequent storms can do to the deltaic plane. The Government of Bangladesh has established a goal of providing electrical power to all its citizens. Renewable energy is a key component of the initiative, and Bangladesh. In many rural areas, people live too far from the main electrical grids to make connections reliable or affordable. Without access, these families are forced to rely on more expensiveand nonrenewableenergy options such as kerosene or batteries. Even with 400,000 new households gaining access to electricity every year, it could take another 40 years for all the people of Bangladesh to have access to electricity. 3.1 Initiatives by the Government The Government of Bangladesh (GOB) considers energy as one of the basic ingredients required to alleviate poverty and socio-economic development. GOB issued its Vision and Policy Statement in February 2000, to bring the entire country under electricity service by the year 2020 in phases, in line with the direction of the Article 16 of The Constitution of the Peoples Republic of Bangladesh, to remove the disparity in the standards of living between the urban and rural areas through rural electrification and development. The energy prospect is generally assessed on the basis of available commercial sources of energy i.e., fossil fuel like gas, coal, oil, etc. The Ministry of Power, Energy and Mineral Resource of Bangladesh is the sole authority administering all activities related to the energy including the rural and renewable energy. Although, the institutionalization of a Renewable Energy Development authority (REDA) was proposed in 2002, by the end of 2005, the Government of Bangladesh (GOB) decided to establish an alternative independent unit, the Sustainable Energy Development Authority for expediting the use of renewable energy and alternative sources of energy for power generation (Uddin 2006). Infrastructure Development Company Limited (IDCOL), a stateowned non-banking financial institution, that was established in 1997, administers the financing for the rural energy and renewable energy development projects (solar home system, biogas) with 15 participating national non-government organizations (IDCOL, 2007).

3.2 Renewable Energy: A Chronological Advancement

The Bangladesh Power Development Board (BPDB) installed the first solar photovoltaic installations in Bangladesh In 1981. A total of 55 solar powered signaling lights were installed on 11 towers of the East-West Power Interconnector in Aricha. The solar panels are still operating satisfactorily. In 1983, Bangladesh Inland Water Transport Authority (BIWTA) installed 125 solarpowered beacon lights in different parts of Bangladesh to identify the marine routes at night.

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In 1988, the Bangladesh Atomic Energy Commission (BAEC) carried out a Solar Photovoltaic Pilot project at Sandwip island, where a solar-powered beacon light was installed on top of a watch tower, solar-powered refrigerators in a veterinary hospital for storing life saving vaccines, and solar light and microphone in a local mosque. But all of these systems were destroyed by the 1991 cyclone.

On June 1997, the Rural Electrification Board (REB) has implemented the largest solar PV electrification project for rural households and commercial enterprises at a remote island in Narsingdi district with assistance from the French Government. This pilot project served about 900 households of the island community. The total installed capacity is 62 kWp, divided among three battery charging stations and stand-alone solar home systems. The PV systems are owned by REB and the users paid a monthly fee.

The Local Government Engineering Department (LGED) introduced and disseminated renewable energy in Bangladesh. Already a number of Solar Photovoltaic (SPV) installations are operating successfully in different parts of the country demonstrating innovative application of the technology for improving the quality of life in the off grid rural Bangladesh. In 2008, the Government of Bangladesh adopted a Renewable Energy Policy

3.3 Renewable Energy Policy With a view to promote renewable energy use in Bangladesh, the Government has declared a Renewable Energy Policy in 2008. A major drive in the REP is to establish an independent institution namely Sustainable Energy Development Agency (SEDA) under the Companies Act, 1994, as a focal point for sustainable energy development and promotion. As per the policy, sustainable energy comprises renewable energy and energy efficiency. SEDA Board will consist of representatives of stakeholders including business community, academics and/or representatives from Bangladesh Solar Energy Society, NGOs, financial institutions and implementing agencies. Earlier a draft renewable energy policy of Bangladesh was released in 2002. This draft policy provided modalities and procedures mechanism, tariff regulations, fiscal and other incentives for implementation of renewable energy technologies and guidelines for establishment of an independent renewable energy authority, namely Renewable Energy Development Authority (REDA) (MEMR, 2002). The Policy sets targets for developing renewable energy resources to meet five percent of the total power demand by 2015 and ten percent by 2020. The objectives of renewable energy policy are to: Harness the potential of renewable energy resources and dissemination of renewable energy technologies in rural, peri-urban and urban areas;
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Enable, encourage and facilitate both public and private sector investment in renewable energy projects; Develop sustainable energy supplies to substitute indigenous non-renewable energy supplies; Scale up contributions of renewable energy to electricity production; Scale up contributions of renewable energy both to electricity and to heat energy; Promote appropriate, efficient and environment friendly use of renewable energy; Train; facilitate the use of renewable energy at every level of energy usage. Create enabling environment and legal support to encourage the use of renewable energy. Promote development of local technology in the field of renewable energy. Promote clean energy for CDM; and

3.4 Budget (2009-10) Announcement and Energy Use The Budget outlined a long-term vision to solve the gas and power crisis at present and in future, and as part of it proposed an allocation of Tk 4,310 crore for the sector in the next fiscal year (FY). The allocation is 48 percent higher than that in the revised budget for the current FY. The Budget 2009-10 states that our development efforts are severely constrained by the dismal state of the energy and power sector. We were aware that there was a huge gap between demand and supply in this sector but we did not know that the snag is not only in the supply of gas and generation of power but also in the transmission of power as well. Not only is there a huge lag in the exploration of new gas fields, there has in fact, been serious neglect in taking up new work in known gas fields in order to augment gas supply as well. It was said that, Bangladesh is producing 20 MW of electricity by using renewable energy. The Government is encouraging the production of renewable energy by providing various financial incentives through both public and private channels. Besides, the Government has taken initiative to conduct a feasibility study for setting up small hydro-electricity projects. So far, the use of solar and bio-gas as mainly been tried in rural areas. The Government is taking initiatives to use this technology in population concentration areas in cities also.

3.5 Organizations Working on Renewable Energy 3.5.1 Governmental Organizations/Ministry

Bangladesh Energy Regulatory Commission, TCB Bhaban (3rd Floor) 1, Karwan Bazar, Dhaka-1215. Ministry of Power, Energy and Mineral Resources, 10th Floor, Biduyt Bhaban, 1, Abdul Gani Road, Dhaka-1000, Bangladesh.

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Sustainable Energy Unit (SEU), Bidhyut Bhaban(10th Floor), 1 Abdul Gani Road, Dhaka-1000, Bangladesh. Bangladesh Bank, Motijheel, Dhaka-1000

3.5.2 Research Organizations

Bangladesh Renewable Energy Society (BRES) Bangladesh Solar Energy Society Renewable Energy Research Centre, Energy Park, University of Dhaka. Center for Energy Studies, Bangladesh University of Engineering & Technology (BUET), Dhaka-1000, Bangladesh Institute of Appropriate Technologies, Bangladesh University of Engineering and Technology, Dhaka-1000, Bangladesh BIDS Unnayan Samunnoy

3.5.3 Non-Governmental Organizations/Companies3

Bangladesh Rural Integrated Development For Grub-Street Economy BRAC Foundation Centre For Mass Education in Science COAST Trust Enterprise Development Company Ltd Grameen Shakti IDCOL Integrated Development Foundation Padakhep Manbik Unnayan Kendra Palli Daridra Bimochan Foundation Rural Services Foundation Shubashati Srizony Bangladesh Thengamara Mahila Shabuj Shangha Upokulio Bidyuatayon O Mohila Unnayan Shamity

4. Participation of Community and Other Stakeholders 4.1 Solar power brings hopes for char people Hundreds of solar power units set up in the remote and hardly reachable char (river basin) villages in greater Rangpur on the Brahmaputra, Teesta and Dharla basins have ushered in a new era for uplifts and change in life style of the isolated people. Further steps from both

There might be other organizations in Bangladesh working on renewable energy but inadvertently are not

mentioned in the list.

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government and private sectors could accelerate setting up of more solar plants at lower costs in the char areas of Rangpur, Gaibandha, Lalmonirhat, Kurigram and Nilphamari in the river basins of the region. Besides, Grameen Shakti jointly with the PDB and the Dhaka Solar Power Project, set up over 150 solar power plants free for nearly 15,000 inhabitants of Dahogram- Angarpota under Patgram Upazila in Lalmonirhat district a couple of years ago.

Over 60,000 char and enclave people are presently using about 6,000 solar power units set up under the assistance of different NGOs in the char villages of greater Rangpur districts in recent years and the process continues. Reputed NGOs including BRAC, Grameen Shakti, RDRS, Protyashya, and many others have installed these solar-power units at a cost ranging between Taka 11,000 to Taka 45,000 each depending on power generation capacities on down payment basis. (The New Age, February 5, 2010) 4.2 Solar-Powered Hospital Kamarul is a small village in southwest Bangladesh. Here, among the palms and flooded fields covered with water hyacinths, Dr. Haran Chandra Vokta brought about a miracle of sorts. Haran built a small clinic - the only hospital in all of Bangladesh powered by energy from the sun. He said it is probably the only solar clinic in the entire world.

The hospital was financed 10 years ago by the UN Development Program. It cost the equivalent of about 10,000 euros ($15,000) at the time. It's a comparatively small investment with a big impact, since the roughly two dozen families living in Kamarul can finally be given medical care. The conditions in Bangladesh, which include rivers, water canals and flooded rice fields, make laying an electrical network almost impossible. 4.3 Major Players in Renewable Energy Expansion 4.3.1 Infrastructure Development Company Ltd (IDCOL) The Infrastructure Development Company Limited (IDCOL) was established on 14 May 1997 by the Government of Bangladesh (GOB). The company now stands as the market leader in private sector energy and infrastructure financing in Bangladesh. IDCOL promotes dissemination of solar home system (SHS) in the remote rural areas of Bangladesh through its Solar Energy Program with the financial support from the World Bank, Global Environment Facility (GEF), KfW, GTZ, Asian Development Bank and Islamic Development Bank. IDCOL started the program in January 2003 and its initial target was to finance 50,000 SHSs by the end of June 2008. The target was achieved in September 2005, 3 years ahead of schedule and US$ 2.0 million below estimated project cost. IDCOL then revised its target and decided to finance 200,000 SHSs by the end of 2009. This was also achieved by May 2009. Now IDCOLs target is to finance 1 million SHSs by the end of year

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2012. Up to December 2009, a total of 438,000 SHSs have already been installed under the program.

SHSs are sold (mostly through microcredit) by POs to the households and business entities in the off-grid areas of Bangladesh. IDCOL provides refinancing facility to the POs and also channels grants to reduce the SHS cost as well as support the institutional development of the POs. In addition, it provides technical, logistic, promotional and training assistance to the POs. 4.3.2 Grameen Shakti (GS) On June 1996, Grameen Shakti (GS) came into existence as a renewable energy company. The main program of GS is its Solar Photovoltaic Program. Under this program GS sells Solar Home System (SHS) in credit and cash. Grameen Shakti has already opened 50 unit offices through which Grameen Shakti will research on marketing policy. This network allows Grameen Shakti to quickly disseminate and commercialize any improvement in the technology. Since the systems are expensive for the rural people Grameen Shakti has introduced a soft financing system for the customers. GS has linked this technology to some income-generating activities as well. 4.4 Infrastructure and Development 4.4.1 Recent Development in the Energy Sector In the year 2008, there has been an additional power generation of 307 MW in the private sector. In 2009, 500 MW of additional power is supposed to be generated through 4 projects under public sector and 440 MW will be added from 11 projects under the private sector. It is hoped that by 2013, 2810 MW of power will be produced though 13 projects under public sector and another 1350 MW, under the private sector including Bibiyana. Besides, the Government is continuing dialogue with the neighboring countries to import power for mitigating the power crisis on a short-term basis. After a recent (February 2010) IndiaBangladesh meeting at the Secretary level, it was declared that the countries are jointly planning to establish a collaborative power plant at Khulna in Bangladesh. The electricity produced here will be shared by the two nations.

4.4.2 Renewable Energy Projects 250 kW Biomass Based Power Plant Project: IDCOL financed a 250 kW Biomass based power plant at Kapasia, Gazipur. IDCOL provided concessionary loans and grants to Dreams Power Private Limited (DPPL), the Project Sponsor, for setting up the plant. Total cost of this project is Tk. 2.50 crore. The plant uses locally available agricultural residues i.e. rice husk as fuel for power generation. Ankur

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Scientific Energy Technologies Pvt. Ltd, India is the equipment supplier of the project. Being located in an un electrified area, the plant is expected to supply environment friendly grid quality power to 300 households and commercial entities of that area. 400 KW Biomass Based Gasification Plant: IDCOLs is financing a 400-kW rice husk gasification-based power generation facility along with a precipitated silica plant at Chilarong, Thakurgaon sadar, Thakurgaon. IDCOL provided concessionary loans to Sustainable Energy & Agro-resource Limited (SEAL), the Project Sponsor, for setting up the plant. Total cost of this project is BDT 64.25 million. The plant will use locally available agricultural residues i.e. rice husk as fuel for power generation. Orbit, India is the turn key solution provider of the project. Once completed, the annual silica production capacity of the plant is expected to be 918 tonnes. Generated electricity from the Project will be supplied to the adjacent silica production plant with a captive consumption of 75kW. The project may also supply power to a nearby poultry hatchery (minimum requirement 300kW), thirty irrigation pumps (10kW each) and/or numerous rice mills in the area. This Project of generating electricity using gasification process will ensure efficient and environment friendly utilization of rice husk. Moreover, the Project will also produce a high value by-product such as precipitated silica. Precipitated silica is used in rubber, toothpaste and other chemical industries, and currently almost the entire local demand is met through imports. Therefore, apart from generating power from renewable sources, the Project is also expected to save the countrys hard earned foreign currency. Biogas Based Electricity Generation Plants IDCOL is financing setting up of three biogas-based electricity generation plants, one in Mymensingh and two in Gazipur, and one organic fertilizer plant in Gazipur by Paragon Agro Ltd. Electricity generated from these plants will be supplied to the adjacent poultry farms of Paragon Poultry Ltd. (PPL) at BDT 4 / kWh, while organic fertilizer will be sold in the market at BDT 15 per 1 Kg packet and BDT 400 per 40 Kg packet. Total project cost is BDT 149.40 million. Poultry waste supplied by Paragon Poultry Limited, a sister concern of Paragon Agro Limited, will be used as feed material in the biogas digesters for production of gas which after purification will be used to run three 100kW, and one 50kW biogas generators. The slurry produced as byproduct from the biogas digesters will be transported to the proposed organic fertilizer plant located at Sripur, Gazipur for composting purposes. Solar Irrigation Pump IDCOL-Grameen sgakti are financing a 11.2 KWp solar photovoltaic (PV) power plant to run a submersible solar water pump at Shapahar, Naogaon with a capacity of 250,000 liters per day at 35 meter head. A total of 64 solar PV modules with 175 Wp capacity each will be installed to provide the required power to run the pump. Total project cost has been estimated to be BDT 5.275

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million, it will be financed through term loan facility following project financing mechanism and a grant from GEF fund. Once completed, it is expected to provide irrigation facilities to land owned by a number of farmers in three seasons. The whole land area under the project will be utilized for paddy cultivation (3 crops) using buried pipe method. Solar Micro grid IDCOL board recently approved financing a 100-kW solar photovoltaic (PV) based micro-grid by PUROBI Green Energy Limited (PGEL) at Sandip island, Chittagong. A 40-kW diesel generator will be integrated into the proposed power plant in order to ensure adequate power supply during periods of low solar radiation. Total project cost is BDT 55.37 million and it will be financed through a mix of debt, equity and grant from KfW. PGEL is a consortium of four NGOs namely Bangladesh Rural Integrated Development Grub-Street Economy (BRIDGE), Integrated Development Foundation (IDF), Upokolio Bidyut and Mohila Unnoyon Samity (UBOMOUS) and Rural Energy and Development Initiative (REDI). Once completed, this Project is expected to supply electricity to adjacent 390 shops, 5 health centers and 5 schools.

National Domestic Biogas and Manure Program Infrastructure Development Company Limited (IDCOL) is implementing National Domestic Biogas and Manure Programme (NDBMP) with support from GoB, SNV- Netherlands Development Organization and Kfw. Under the project a total of 37,269 domestic sized biogas plants will be financed during the period 2006-2012. The overall objective of the NDBMP is to further develop and disseminate domestic biogas plants in rural areas with the ultimate goal to establish a sustainable and commercial biogas sector in Bangladesh. Gas produced through these plants is used for cooking purposes and lighting of rural households. In addition, the slurry, by-product of biogas plants, being a very good organic fertilizer is used to maintain soil fertility and increase crop production. The slurry is also used as fish feed. The programme is being implemented in all the districts of Bangladesh. IDCOL provides Taka 9,000 as investment subsidy to the biogas households who install biogas plants as per the specifications and standard set by IDCOL/SNV/Kfw. IDCOL is also providing refinance covering 80% of the LCPOs loan to households at 6% interest rate and 7 year tenor with 1 year grace period. Total project cost is estimated as EUR 23.61 million and will be borne by individual households, SNV, KfW and GOB.

4.5 Research and Development Feasibility study on R&D of Renewable Energy Solar, Wind, Micro-Mini Hydro) has been undertaken by the Institute of Fuel Research Development (IFRD), of Bangladesh Council of Scientific and Industrial Research (BCSIR).Under this program, wind speed data have been

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collected in the following sites: Saint Martin (offshore island), Teknaf and Dhaka.

Meghnaghat,

The maximum velocity obtained at St. Martins Island is 20 m/s and yearly average wind speed in 4.9 m/s. The maximum velocity obtained at Teknaf is 16 m/s and yearly average wind speed is 3.8 m/s. Available wind speeds in Saint Martins Island are also found potential for wind energy. However, risk factors regarding possible cyclones are also high in these areas.

4.5.1 Micro/Mini Hydro Prospect in Bangladesh Bangladesh is an extremely flat delta area built up by the three major rivers, the Ganges, Brahmaputra, and the Meghna. In contrast to this huge delta area the districts of Chittagong, Coxs Bazar, Bandarban, Rangamati, and Khagrachari, which are hilly. Some hilly areas also lie along the border of the Indian State of Tripura and the districts of Sylhet, Moulavi Bazar and Habiganj. A large portion of the country is less than 33 meters above mean sea level. Flat topography of Bangladesh does not permit building of large scale storage of power generation. However, there are certain locations within the country where small hydropower stations could be set up.

4.5.2 R & D Activities on Solar Energy in IFRD, BCSIR IFRD, BCSIR has been engaged in carrying out R & D on Solar thermal and have developed the following solar thermal technologies: reflector-type solar cooker, absorber- type solar cooker, cabinet-type solar dryer and solar water heater. IFRD has completed a project on the feasibility Study on R & D of Renewable Energy Technology (solar, wind, Micro-minihydro) project with a total cost of Tk. 17,387 million. Under this project, solar insulation data at different places such as St. Martins island, Banderban hilly area, Chittagong, Meghnaghat, Dhaka, etc. have been collected and processed in the solar laboratory. Solar PV system have also set up in the above places and studied its performance. It was found that solar insulation is higher in hilly areas than plain lands in Bangladesh.

5. Rural Financing Policies in Sustainability 5.1 Related Policies

Integrating Energy and Environmental

Per the Renewable Energy Policy 2008, a renewable energy financing facility is supposed to be established that is capable of accessing public, private, donor, carbon emission trading (CDM) and carbon funds and providing financing for renewable energy investments. In

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addition to commercial lending, a network of micro-credit support system will be established especially in rural and remote areas to provide financial support for renewable energy. In the era of deregulation, banks in Bangladesh are free to choose where they will invest and at what rate their funds since the risk of recovery lies with the banks themselves. Bangladesh Bank as the central bank uses 'moral suasion' i.e. motivates the banks for funding in the priority sectors. For example the central bank issued a circular (September 9, 2008) to make agricultural/rural (according to the current policy, agricultural and rural credit are considered together, however at least 60% of which has to be given for crop production) lending compulsory for the bank. According to the said circular, banks are supposed to set an annual target for agricultural/rural lending taking a significant portion of the bank's total loan portfolio at the beginning of each fiscal year. To facilitate the banks disbursement of adequate amount of agricultural/rural credit, Bangladesh Bank issued Agricultural/Rural Credit Policy and Program for FY 2009-10 in July 2010. In the said policy, banks with inadequate number of branches have been advised to disburse agricultural/rural credit by establishing linkages with NGOs/self-employment supporting groups if and when needed. Besides supplying credit to agriculture and supporting sectors, credit has to be made available for different self-employment or income generating activities on individual or group basis with a view to expediting growth momentum in the rural economy. In addition, banks are directed to give priority to relatively underdeveloped and neglected areas such as char (shoal), haor and coastal areas in disbursing agricultural credit. According to the Agricultural/Rural Credit Policy and Program, women entrepreneurs are supposed to get priority in agricultural/rural credit disbursement. 5.2 Financing Mechanism of IDCOL, the Market Leader 5.2.1 Infrastructure Development Company Ltd (IDCOL): To provide finance to the large infrastructures and venture capitals, the Government of Bangladesh established the Infrastructure Development Company Limited (IDCOL) in May 1997. The company was licensed by Bangladesh Bank as a non-bank financial institution (NBFI) on 5 January 1998. Since its inception, IDCOL is playing a major role in bridging the financing gap for developing medium and large-scale infrastructure and renewable energy projects in Bangladesh. The company now stands as the market leader in private sector energy and infrastructure financing in Bangladesh. IDCOL is managed by an eight-member independent Board of Directors composed of four senior government officials, three prominent entrepreneurs from the private sector and a full time Executive Director and Chief Executive Officer. 5.2.1 IDCOLs Lending Terms:

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While lending to investment projects, the lending terms on such loans shall be determined as follows: For medium and large infrastructure projects: Interest rate - a fixed rate equivalent to the weighted average yield on the Treasury bills and bonds of GOB of all maturity for the past six months plus a spread of 400 basis points, provided however, that the interest rate shall not be less than the Bangladesh Bank Rate plus a margin of 250 basis points. For the purposes of this clause, the term "Bangladesh Bank Rate" means the Rate published by Bangladesh Bank in accordance with Article 21 of the Bangladesh Bank Order, 1972; Final maturity will be a maximum of twelve (12) years including maximum three (3) years grace; and In case of syndicated lending, IDCOLs interest rate plus fees will not be higher or lower than that of other lenders offering similar loans. For projects implemented in rural areas that receive grants or subsidies from multilateral agencies and/or GOB: Interest rate up to 8% per annum; and Final maturity will be a maximum of ten (10) years including a grace period of maximum two (2) years. Bangladesh Banks Refinance Scheme for Renewable Energy

5.3

With a view to promoting green financing in the country, Bangladesh Bank, the central bank of Bangladesh has recently launched a refinance scheme namely Refinance Scheme for Solar Energy, Biogas and Effluent Treatment Plant (ETP). The refinance scheme has been initiated with BBs own fund of Taka 20 million for providing refinance to banks and financial institutions against their finance to solar energy, biogas and ETP. Under the scheme, banks will finance households both at rural and urban areas and industries in some specific areas at a maximum of 10% interest rate and get refinance from Bangladesh Bank at 5% (bank rate). Sector
Solar Panel Solar Photo Voltaic (PV) Assembling Plant Biogas Plant

Description
For Rural Areas For Urban Areas For existing farms Integrated cow rearing and biogas plant establishment. (four cows and bio-digester)

Loan Limit
BDT 70 Thousand BDT 175 Thousand Will be determined based on assembling capacity BDT 36 Thousand BDT 300 Thousand

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Effluent Treatment Plant (ETP) USD 1= BDT 70 (Approx)

Chemical or Biological

BDT 10 million

Maximum term of the loans for solar panel and biogas are 3 years and in such case the banks are allowed to engage company/NGO for finding customers, monitoring and recovery of the loans, while for PV assembling plant and ETP, the maximum loan term is 5 years and the loans are supposed to be dealt solely by the banks. The interested banks and financial institutions have to sign a participation agreement with BB to avail of the said refinance facility. The banks are liable to ensure the proper utilization of the said credit while BB will monitor on sample basis and will call back the refinanced amount with 5% penal interest in case BB finds that any refinance was availed with incorrect information. Update: 16 banks have signed participation agreement with Bangladesh Bank. Banks have started to finance. Recently The Trust Bank Limited financed in Integrated Cow Rearing and Biogas Plant Sector where Governor of Bangladesh Bank was present as chief guest.

5.4

IDCOL MODEL: A Success Story in Solar Energy

IDCOL started its solar energy program in January 2003 with the support from IDA and GEF. Initial installation target was 50,000 solar home systems (SHS) in off-grid areas within five and half years. Target was achieved in August 2005, 3 years ahead of completion date and US$ 2 million below estimated cost. Following this success, the World Bank, GTZ and KfW have extended support. Asian Development Bank is also expected to support the program. Following the success IDCOL revised its target to 1 million SHS by 2012. Installation of SHS up to May 2008 is 211,000 (11+ MW) from which more than 1 million users are getting electricity. IDCOL signed Emission Reduction Purchase Agreement (ERPA) with IBRD on December 19, 2007, to avail of the Community Development Carbon Fund. IDCOL is acting as bundling agency for the fund. This fund will be passed to the POs for further development of the program. IDCOL works through a collaborative effort of five partners:
IDCOL: A GoB-owned financial institution having project finance and project management expertise that works only for private sector development. Multilateral Agencies: Global experience in renewable energy projects, and financial resources NGOs/Micro NGOs/Micro-finance institutions: Operate at grass roots level and have expertise in microfinance activities

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Manufacturer/supplier: Dynamism in operation Professionals: Expertise in technology and rural development

IDCOL provides soft loans/refinance to POs on project finance basis and grants to POs to reduce SHS cost and capacity building. NGOs and MFIs identify areas/zones, select customers and install SHS extend micro-credit to customers, provide after sales service. Manufacturers/ suppliers sell SHS or its components to POs. Professionals participate in technical specification and social impact assessment of the program. Division wise installation of SHSs
Division Barisal Chittagong Dhaka Khulna Rajshahi Sylhet Total Number of SHSs Installed 64,734 86,195 99,655 58,107 59,280 53,222 421,193

Development Impact
Improves quality of life of rural households through access to electricity Provides clean lighting/energy Improves health of children, females and other household members No energy bills (recurring costs) for rural and less fortunate households Provides opportunities for developing local entrepreneurship, income generating activities through micro/small business as well as extended hours of business activities Establishes link with the outside world entertainment, news through use of television Promotes domestic industry and technology: batteries, solar lamps, charge controllers, wires etc. Creates jobs opportunities and skilled resources in rural and urban areas at three levels technical, staff employed by POs, self employed and employment by manufacturers of components Benefits students through extended hours of studies Reduces carbon emission (200,000 SHS will reduce 85,000 tCO2e per annum)

Success Factors
Sustainable partnership model. Apex entity managing finance, administration business of the program with various partners and other stakeholders. Collaborative effort harnessing strengths of all other partners Participation of customers, POs and IDCOL in procuring SHS Using expertise of the POs in expanding the use of SHS by using the microfinance tool Customers become owners between 12 to 24 months after full payment of microloans Technical and promotional support from IDCOL

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Necessary support from donor agencies Independent technical committees for approval of components Physical inspection by IDCOL, of systems installed by POs Ensuring after sales service to end users by POs Prompt resolution of operational problems Building a healthy competitive atmosphere among the POs Facilitating continuous availability of SHS components by suppliers Private sector participation Transparency in dealing with stakeholders

5.5

EDCL Model-A Success Story in Biogas

Currently the average daily milk consumption in Bangladesh is only 42ml per person per day against a WHO recommended intake of 250ml per day; despite the fact that the environment and climate of Bangladesh, especially the rural part is very suitable for household-based mini-dairy farm. Despite over half a century of government interventions, the dairy industry remains at a very nascent stage and concentrated in only a few districts.

The cow dung from such daily farms can also be good source of biogas which may be used for cooking in a very environmental friendly manner (most rural households are dependent on woods, branches and tree leaves for their cooking needs). The cow dung left out by the biogas plant can be used as compost or natural fertilizer in the agricultural fields. The milk and meat from the cow can meet the nutrition need of the country and still maintain the multiplication chain by producing one calf in every 14 months. Integrated dairy farm (cow rearing plus biogas) can also help reduce poverty by generating employment at the rural places by through creating direct labor and marketing opportunities. Extrapolating on the pilot mini-farm, a conservative estimate indicates that 4 million mini dairies with 4 cows each, has the potential to annually produce: Energy 4.8 billion cubic metres of gas

Organic fertilizer 117 million metric tons of high quality organic fertilizer 5 million tons of vermi-compost

Food security and nutrition 17 billion litres of milk 1 million metric tons of meat

Income generation and employment 12 million people, largely women, employed 26 million square metres of hide

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0.3 million tons of bones for export and/or internal use

This indicates a 35% increase in gas production, eighty times increase in fertilizer (manure) production, and tenfold increase in milk production compared to 2005 figures4. Overall, this initiative has the potential to lift half the population currently living below the poverty line out of poverty in less than a decade.

On the other hand, institutional financing is still very low in Bangladesh, especially in the rural areas. True that NGOs are operating quite considerably with their microcredit programs, they are not in a position for financing such large projects. Banks that are interested to finance in these areas have problems in identifying appropriate customers and recovery due to their lacking in staff force.

Although small and medium farmers may have some fixed assets, they do not have any surplus to engage commercially in livestock, fisheries or any non-farm enterprises in the rural areas. In addition, those who own small enterprises are unable to take advantage of emerging market potentials and expand because of the lack of access to capital.

Against this background, the Integrated Energy and Food Security Farming model of EDCL aims at providing solution to providing food security, renewable energy, income and employment and bridging the financial gap in the rural areas. The EDCL model: The EDCL model has been developed and refined over the past three years. The model involves working with commission agents who identify the borrowers and do the initial screening of their business. They also monitor the business throughout the entire financing period to ensure recovery. The agents are not employees of EDCL but work on a commission basis. The incentive structure for the agents is designed such that they are rewarded for successful loan recoveries. Agents also invest Tk 100,000 in EDCL to give them a financial stake in the company.

EDCL operates with very little overhead. The head office in Dhaka has only 5 full time staff. Each agent works as an independent profit and loss unit under the supervision of divisional coordinators.

EDCL has developed a successful model to select suitable candidates. Agents vet financial statements and business plans by observing the clients business activity, talking to customers, suppliers and neighbors. The data helps build a scoring system to identify potential clients. Clients also provide two guarantors for the loan.
4

Bangladesh Statistical Yearbook 2005, Bureau of Statistics

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Per the model, the fund is provided by the bank to the borrowers selected by EDCL. In return EDCL gets a commission of 1% upon disbursement. It is EDCL who provides technical support to the farms and also act as the recovery agent for the bank. Upon total recovery of the loam, EDCL again gets a commission of 1.5% from the bank. As the bank does involve very low operational cost as the monitoring and recovery are done by EDCL, it can provide bulk amount of loans through EDCL at a comparatively lower interest rate. FLOW Chart of EDCL Model:

Recent Development: Recently around Taka 24 lakh were disbursed among 8 borrowers at Manikgunj district by the Trust Bank Limited, a privately owned commercial bank who have recently signed participation agreement with Bangladesh Bank under Refinance Scheme for Solar Energy, Biogas and ETP. As per the scheme terms, the banks may get refinance at 5% interest rate against investment in the specified areas highest at 9% interest rate. In case a bank use an intermediary company/NGO, the interest rate may go up to 1% higher, ie. 10%, so that it can have the cushion to stay profitable even after paying off the intermediation cost. Keys to Success Low overheads: EDCL outsources most of its activities to commission based agents. This allows it to have a small staff for back-office activities and keep overheads extremely low. Maintaining this low overhead is a key to the success of this model. Experienced team: Since this is a business that depends on the ability and diligence of its agents, it is vital that the right agents be selected. At EDCL, agents are carefully selected and have an average of over 12 year of experience in providing financial services in rural areas.

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Local agents: Agents of EDCL operate in a small area. In most cases they are themselves local to the area allowing them to develop a personal relationship with the client. Like microcredit companies, personal relationships are important for in SME credit as well. This is essential in order to evaluate client creditworthiness in businesses where bookkeeping is not up to banking standards. Focused marketing: The business model was designed to cater to a segment of businesses that are underserved by other commercial SME programs. While serving the higher end of the market can be a lucrative temptation, that segment also has other strong competitors. Turning competitors into partners: Today EDCL faces very few competitors. Most banks do not operate in the space that EDCL targets. EDCL offers its marketing services to other banks and will sell financial products for other financial institutions. Financial institutions which see the benefits of outsourcing some services to EDCL will not compete in the same space and focus their own marketing efforts on the higher end of the SME market.

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6. Conclusion

Bangladesh, being a country highly susceptible to climate change and given the demandsupply gap of power and energy in the rural areas, has a huge scope to further expand renewable energy use in the country. With a high initial investment requirement compared to the income level of rural Bangladesh, financing needs is crucial for such expansion. The current financial structure in the rural Bangladesh is not fully satisfactory in terms of services and reaches. However, a public-private partnership plus GO-NGO collaboration can help utilize the best opportunities to improve access to renewable energy for the rural population and there by facilitating a better life for them through providing better scopes for income, education, health as well as communication.

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