Sri Lanka is poised to become a regional, and perhaps global, leader in renewable energy (RE) development, with the push to switch to a robust clean energy agenda coming in the wake of increasingly extreme weather patterns, which includes two years of severe drought that significantly reduced hydropower output. According to a May 2017 report published by the Asian Development Bank (ADB) and the UN Development Programme (UNDP), and approved by the Sri Lanka Sustainable Energy Authority (SLSEA), the country’s target of generating 100% of its power from renewable resources in the coming decades is feasible.
As a signatory to the COP21 UN Conference on Climate Change, hosted in Paris in 2015, and one of 43 countries disproportionately affected by climate change, Sri Lanka has shown the political will to move away from high-emission energy sources in recent years. Although sizeable infrastructure requirements and higher price points for RE projects and cleaner electricity generation could weigh on investor appetite, ongoing policy reforms emphasising private sector participation have left Sri Lanka well positioned to accelerate its green energy agenda in 2018.
In the past, hydropower accounted for the majority of electricity generation in the country; however, factors such as rapid population growth and economic development have fuelled its decline, from a share of 99.8% of total electricity generation in 1990 to around 35% of capacity in 2016.
Persistent droughts since 2016 have destabilised capacity, reducing the hydropower’s share of total generation to just 11% in late 2016, with the drought in 2017 – described by the UN as the worst to hit the country in 40 years – continuing to weigh heavily on production throughout the year.
It is therefore not surprising that thermal power plants have risen to dominate the electricity landscape, accounting for 53% of capacity in 2016, according to the Public Utilities Commission of Sri Lanka (PUCSL). However, frequent breakdowns at the country’s sole coal-fired power plant in Norochcholai have forced increases in already costly refined fuel imports to meet the shortfall, a situation that has weighed heavily on the balance sheet in recent years (see analysis).
Fortunately, the country holds substantial potential resources to develop into alternative forms of energy. According to the British Photovoltaic Association, Sri Lanka’s equatorial location ensures an abundant supply of solar radiation, with solar intensity averaging between 4 and 4.5 KWh per sq metre daily across two-thirds of the country. Monsoon seasons also bolster its wind power potential. According to a satellite mapping study conducted by the US National Renewable Energy Laboratory, the country has 20,740 MW of wind power potential.
Renewable electricity generation projects have become an important source of power in recent years, with the country surpassing earlier targets to generate 11% of its electricity via renewables by the end of 2014. The PUCSL reported that total RE generation outside of hydropower projects owned by the Ceylon Electricity Board (CEB) reached 477 MW, or 12% of total generation capacity in 2016, while renewable and CEB-owned hydropower projects combined accounted for a total of approximately 47%.
This is in line with the government’s commitment to meet 100% of domestic electricity generation needs via renewable resources by 2050, though precise targets vary depending on the agency (see overview).
Preparing for the Future
According to the ADB and UNDP report, as a developing country in the midst of a period of rapid macroeconomic expansion, the nation is expected to see domestic energy demand soar in the coming years, making the development and adoption of indigenous RE sources imperative. While noting that the plan to phase out non-renewable electricity generation by 2050 is ambitious and expensive, the report commended Sri Lanka for its list of nationally determined contributions (NDCs), which was re-submitted to the UN Framework Convention on Climate Change in April 2016.
Notable NDCs include plans to prioritise sustainable energy policies that will boost the contribution of non-conventional RE (NCRE) – including mini-hydro, solar, wind and biomass – to electricity generation to 50% by 2030 and to establish 514 MW of large-scale wind farms, replacing thermal power plants that generate the same amount of energy. Importantly for private investors, another NDC seeks to broaden solar-powered generation through increased private sector participation in new solar plants, with a commitment to develop 115 MW of capacity by 2025.
The country’s NDC list also includes plans to promote the use of biomass and waste to generate 104.6 MW of new power by 2025, as well as developing 176 MW of new mini- and micro-hydropower generation, with the authors noting that there is “significant political willingness in Sri Lanka to adopt indigenous, [RE] as its primary source of energy”.
Electricity authorities have historically sought the least expensive option for power generation, with the ADB and UNDP report noting that high power costs and cross subsidies have helped to keep coal-powered generation costs significantly lower than NCRE, although the authors argue that another primary reason for the low cost of coal is that its environmental cost is never considered; the unknown costs of carbon, soil and air-quality degradation, and “other externalities”, are likely to present a different cost-efficiency scenario.
Nonetheless, RE development remains significantly more expensive than coal-fired projects at current rates; the levelised cost of power generated from solar plants averages between LKR22 ($0.14) and LKR25 ($0.16) per KWh, compared to LKR9 ($0.06) to LKR15 ($0.10) per KWh for coal, according to the report. Capital investment costs for new RE projects are also considerable, with estimates for the total cost of eliminating non-renewable electricity generation by 2050 to be between $54bn and $56bn.
Private investors are therefore expected to play an important role in RE development. In September 2017 the government released the Vision 2025 medium-term development strategy, unveiling plans to formulate a clear policy on public-private partnerships (PPPs), which have been deployed successfully in the power sector for over 20 years (see overview).
Moreover, in January 2017 authorities moved to establish a dedicated PPP Unit operating under the Ministry of Finance to facilitate high-priority infrastructure projects; including new expressways, agricultural projects and knowledge services, highlighting how the PPP model is becoming a preferred financing mechanism over borrowing (see Transport chapter).
Notable upcoming private sector developments including a 1040-MW hybrid wind and solar project; a 375-MW, ADB-supported wind farm; as well as smaller-scale solar projects offer insights into the potential terms and conditions expected in future power purchase agreements (PPAs). The 1040-MW hybrid project, which was approved in May 2017 by the Ministry of Power and Renewable Energy (MPRE), comprises 240 MW of wind power and 800 MW of solar, and will be completed in three phases with capacity scheduled to come on-line in 2022 and 2025, with a final end date set for 2030. The SLSEA will manage the site, which is expected to reduce CO emissions by up to 1.05m tonnes and generate 1800 GWh of electricity. A call for tenders was put out in August 2017, though no new developments have been announced as of early 2018. Additionally, in October 2017 the ADB’s board of directors announced it had approved a $200m loan for a 100-MW wind project to be constructed on Mannar Island in the Northern Province. The project will be the first of its size in the country. The authorities also announced plans to develop a further 275 MW of private sector-supported wind generation at the Mannar Island site, as well as associated infrastructure, including cabling and access roads, an energy dispatch control centre and reactors to manage voltage levels.
On announcing the loan, the ADB reported that the project will also establish procedures enabling the CEB to act as a wind park developer, attracting private sector investment in future wind power generation. The park will offer stakeholders an important opportunity to develop cost benchmarks and conduct competitive bidding processes, both of which have delayed development of previous power projects. The CEB will contribute approximately $56.7m towards the project’s total cost of $256.7m, with the estimated completion date set for the end of 2021.
A tender for a 10-MW solar project offers insight into future potential PPAs with independent power producers. The CEB issued a tender for the Vavunathivu solar photovoltaic power project in July 2017, with plans to develop it under a build-own-operate basis. The CEB plans for a 20-year PPA with a ceiling price of LKR18.37 ($0.12) per KWh, slightly lower than the estimated cost in the ADB and UNDP report. Under the terms, the winning developer would also have to procure or lease land acquired for the project, secure all environmental clearances and government approvals, and cover interconnection costs. In October 2017 the CEB announced the tender deadline had been extended to mid-November, though no announcements had been made as of March 2018.
Small-scale project development could prove to be a more viable near-term option, as the CEB has emphasised decentralised solar power’s important role in meeting medium-term demand. Indeed, the PUCSL reported that 25 small power producer-owned renewable plants were commissioned in 2015 alone.
In line with this, the government launched an accelerated solar development programme in 2016, which aims to boost rooftop capacity from solar to 200 MW by 2020, while in April 2017 the CEB and the MPRE issued a call for tenders for 60 photovoltaic solar projects, each with 1 MW of electricity capacity. Contract awards had yet to be announced as of March 2018.