Sri Lanka first proposed a major power sector reform with the Electricity Reform Act in 2002, which will restructure the government-controlled Ceylon Electricity Board (CEB) into several independent state-owned companies to carry out three main activities in the electricity industry, namely generation, transmission and distribution (including supply) of electricity; and establish the Public Utilities Commission of Sri Lanka (PUCSL) as the power sector regulator. However, the Electricity Reform Act failed to get implemented eventually due to various oppositions, including the CEB.
The Electricity Act of 2009 finally allowed PUCSL to operate as the power sector regulator. Under the electricity bill, all power-related activities will be carried out under licence from the Public Utilities Commission. However, it did not legislate the restructuring of CEB. Instead, it introduced a single-buyer model, with CEB as the buying transmission entity. Projects that have a capacity above 25MW will require the government to own at least 50% shares. That said, it paved the way for private firms, cooperatives and local government bodies to compete with the CEB. At present, CEB and its subsidiary Lanka Electricity Company (L account for the majority of capacity and generation in Sri Lanka, with independent-power producers supplying a small amount of the rest.
The unbundling of the CEB is on the government's agenda, although there have been little details as to when and how this would be achieved. We do not expect Sri Lanka's power sector to see significant changes on the regulatory front over the short-to-medium term. Similarly, competition will remain limited in the downstream transmission, distribution and retail sales of electricity as these businesses are likely to remain under the purview of the CEB.
While change will be slow in Sri Lanka's power sector, we note that the government is making piecemeal efforts in the right direction. These include attempts to hike power tariffs to better match revenues with the current cost of electricity production.
The government often sets out key guidelines that guide its policy making and identifies key projects that it targets to bring online. In 2008 the Ministry of Power and Energy adopted the National Energy Policy and Strategies of Sri Lanka. This document is split into three sections:
- Energy Policy Elements: This part consists of the fundamental principles that guide the development and future direction of Sri Lanka's energy sector.
- Implementing Strategies: This section outlines the implementation framework to achieve each policy element.
- Specific Targets, Milestones And Institutional Responsibilities: The third section states the national targets, the planning and institutional responsibilities needed to implement the strategies.
Electricity and petroleum are the two main commercial energy supply sub sectors in Sri Lanka. Both these sub sectors, which are largely served by state-owned utilities, are presently undergoing a process of reform.
The Sri Lankan government plans to significantly increase the share of renewable energy in its electricity generation by the end of the next decade as a means to diversify the electricity mix away from hydropower and capitalise on indigenous energy sources. While there has been some uncertainty regarding the country’s energy agenda, specifically the aforementioned Least Cost Long Term Generation Expansion Plan 2018-2037, a renewable energy expansion was proposed by the CEB. Sri Lanka plans to add 1389MW of solar capacity, 1205MW of wind and 85MW of biomass capacity by 2037. They also aim for a 100% renewable energy (including hydropower) by 2050.
The government has strengthened the support offered to renewables developers. A feed-in-tariff scheme was first introduced in 2011, which attracted many domestic developers and investors, supported by local financing. As the sector developed, competitive bidding tenders were introduced, with the first for wind in 2015 and solar in 2016. In May 2017 it was announced that renewable energy auctions would be implemented to procure renewables capacity, for wind and solar power.
The government also introduced various schemes to support growth of the sector, including
- Net metering for rooftop solar, which was further amended in 2016 to allow for consumers to get paid by exporting excess electricity to the grid.
- Surya Bala Sangramaya program, which aimed at installing small-scale solar projects.
The PUCSL has purview over the electricity tariffs for sales to retail and industrial users, although the CEB buys electricity largely based on power purchase agreements that were agreed previously (tariff components within this agreement are often adjusted for inflation or currency changes). Over the past decade higher feedstock and fuel prices, alongside droughts that have weighed on hydropower generation, have continued to push up the cost of generation, but the government has been slow to raise rates to reflect these new realities. Power subsidies have often been used as a convenient measure to gain voter support, which make them even more difficult to reverse. It is unsurprising that the CEB's financial performance has been quite poor. The PUSCL has introduced a tariff reform in 2009 to address these issues, but implementation of tariff adjustments has experienced substantial delays till date.