The Adani wind power project controversy reflects the government’s stance on competitive bidding and cost-effective renewable energy development. The project faced criticism for high costs, environmental concerns, and limited transparency, prompting the current administration to rescind the approval and commit to an international tender process, according to media reports that Adani Group then refuted.
This episode reflects the governance challenges Sri Lanka is grappling with even as it attempts to increase the renewable energy mix. In contrast, renewable energy continues to face challenges globally due to the limitations of global market-driven electricity systems – amplified by the second Trump administration – to balance investment, affordability, and sustainability. Renewables are no longer costly, yet fossil fuels continue to drive the global economy and electricity pricing is a problem for developed and developing countries. Generators tend to chase after higher profits, and voices for decommodifying electricity are on the rise.
At the time of writing this report on January 24, Adani’s wind power project was hanging in limbo. Local media reported that President Anura Kumara Dissanayake and his Cabinet have rescinded a decision made by the previous administration under former President Ranil Wickremesinghe. The earlier decision, taken in June 2023, had approved a proposal to award the development of 484MW wind power plants in Mannar and Pooneryn to Adani Green Energy SL Ltd.
From the start, the project faced opposition for various reasons.
Critics raised concerns over the agreed price of $0.0826 per kilowatt hour, which they deemed excessive compared to local bidders offering prices as low as $0.0488. Environmental groups, including the Wildlife and Nature Protection Society and Environmental Foundation, objected due to deficiencies in the Environmental Impact Assessment (EIA) and potential harm to Mannar, a critical habitat for migratory birds. The Bishop of Mannar and local community representatives also opposed the project, citing threats to local industries and livelihoods.
Throughout his campaign, President Dissanayake pledged to cancel the deal and introduce an international tender process to develop wind power projects. On December 30, the Cabinet formally decided to revoke the then-Minister of Power and Energy’s earlier decision in May 2024.
According to the DailyFT newspaper, Biodiversity scientist Rohan Pethiyagoda, who opposed the project, expressed approval of the decision, stating that it fulfilled a promise to address what he described as a conspiracy to defraud the public. He called for further action, including releasing all related files to the Bribery Commission and conducting a full investigation into the circumstances of the original approval. Pethiyagoda pointed out the significant cost discrepancy, suggesting that the 70% premium paid under the original agreement represented billions of dollars and warranted scrutiny.
Pethiyagoda commended the current administration’s transparency, noting that the Attorney General filed the decision in court without public spectacle. He characterized the move as a step forward in environmental and social justice.
The Cabinet also established new Project and Procurement Committees to provide recommendations regarding the project. However, the President’s commitment to holding international tenders could limit the scope of their recommendations. Pethiyagoda speculated that pressure to award the project to an Indian company might result in bids being restricted to Indian firms, thereby allowing Adani to compete within an open process.
However, Adani Group had refuted reports claiming the cancellation of its 484MW wind power projects in Mannar and Pooneryn as false and misleading. In a statement, an Adani Group spokesperson clarified that the Sri Lankan Cabinet’s decision on January 2, 2025, to reevaluate the tariff approved in May 2024 is part of a routine review process.
William Boyd’s Southern California Law Review article examines the global challenges associated with electricity markets, framing the Sri Lankan challenge in a broader context. Boyd critiques the commoditization of electricity, highlighting its failure to meet its stated goals, including lowering consumer prices, ensuring supply security, and scaling renewable energy deployment.
“There has long been an implicit assumption in much of the energy policy literature that because wind and solar are now the cheapest sources of electricity generation, investment will inevitably flow to these technologies relative to others. The argument goes that subsidies and supports have been and will continue to be necessary. Still, now that renewables have won the war on costs, markets are the best way to translate these cost advantages into deployment at scale.
“The rapid growth of renewables in general and solar energy in particular are often taken as evidence of this. (However), this assumption rests on a basic misconception about how capitalism works. Simply put, capital flows not to the lowest cost option but to the one with the highest expected profits. This is part of the reason why large fossil fuel companies continue to invest heavily in fossil fuels rather than renewables,” Boyd says.
Boyd argues that while market-driven electricity systems have improved efficiency and reduced wholesale costs, retail prices have increased due to generators’ exercise of market power, who leverage concentration on the supply side to maintain pricing power, even outside periods of scarcity. Contrary to proponents’ claims, deregulated electricity markets have remained non-contestable and concentrated, limiting competition and driving up consumer costs, Boyd argues.
The paper challenges the assumption that renewable energy, as a cheaper generation source, will naturally dominate electricity markets. Boyd emphasizes that capital investment flows toward projects with the highest expected profits, not necessarily the lowest costs. Access to affordable financing is crucial for renewable projects with high capital costs and minimal operating expenses. Governments have, therefore, introduced mechanisms like long-term contracts and contracts-for-differences to de-risk investments and encourage renewable energy development. Boyd cites examples from the UK, EU, and countries in Latin America, where public intervention has played a key role in promoting renewable energy deployment.
Boyd concludes that electricity markets, designed around fossil fuel generation, are no longer fit for purpose given the shift toward decarbonization. He identifies the dual challenge of increasing investment in renewable infrastructure while ensuring consumer access and affordability.
“Needless to say, the stakes in all of this are quite high. If we cannot fix electricity, we will surely fail in our effort to fix the climate. Part of that is an investment challenge. But part of it is a provisioning challenge. Fixing electricity, in other words, means that we also must solve the access and affordability problem at the same time that we dramatically increase investment in new assets and infrastructure. Rapid decarbonization via electrification will not happen unless we can ensure universal access to electricity at stable and affordable rates. Put another way, electricity policy is climate policy. But it is also social policy, and it is no longer possible or prudent to ignore the connections between the two, Boyd says.
Sri Lanka’s decision to stall the Adani wind power project and commit to a transparent, competitive bidding process reflects a broader recalibration of its energy policy. This recalibration prioritizes affordability, environmental integrity, and carefully balancing public interest with private investment. Recent developments in the renewable energy sector further underscore this commitment.
The joint venture solar power project in Sampur, Trincomalee, between Sri Lanka’s Ceylon Electricity Board (CEB) and India’s National Thermal Power Corporation (NTPC), represents a case in point. Initially negotiated at 7.00 US cents per kilowatt hour, the agreed purchase price was progressively reduced to 5.97 cents, signalling the government’s determination to secure cost-effective energy solutions while encouraging foreign investment. President Dissanayake emphasized the importance of ensuring affordability in these projects, noting that inviting investment without burdening the CEB with additional debt was a critical priority.
Similarly, the government is advancing a 100MW solar park in Siyambalanduwa, with plans to resolve delays in securing bankable land rights for the project. These efforts highlight the administration’s focus on removing bottlenecks to renewable energy development and its acknowledgement of financing challenges private developers face.
The administration’s pragmatic approach extends to integrating liquefied natural gas (LNG) as a transitional energy source. Energy Minister Kumara Jayakody announced plans to reactivate a suspended tender for an LNG terminal to reduce the reliance on costly liquid fuels for two combined cycle plants. While LNG is not the cheapest option, it is a relatively economical alternative to liquid fuels, providing a bridge to a future dominated by renewable energy. Minister Jayakody also noted the continued reluctance to expand coal power despite its low cost, as the country prioritizes a cleaner energy mix.
These initiatives align with William Boyd’s critique of commoditized electricity markets, which he argues often prioritizes short-term profits over long-term affordability, sustainability, and accessibility. Boyd’s assertion that renewable energy deployment depends on stable financing mechanisms resonates with Sri Lanka’s ongoing efforts to create investment-friendly policies. From transparent international tenders to addressing land rights for bankability, the government is working to lay the groundwork for equitable and sustainable energy development.
The Public Utilities Commission of Sri Lanka’s (PUCSL) decision to reduce electricity tariffs by 20% further underscores this shift toward prioritizing public welfare. By redistributing a projected surplus of 44 billion rupees back to consumers, the regulator has provided tangible relief to households while reinforcing its commitment to transparency and accountability in energy governance.
The CEB made a profit of Rs61.2 billion for the year ending December 2023, turning around from a hefty loss of Rs298 billion the previous year. All the profits were attributed to inclement weather filling up hydropower plants and the price adjustments.
CEB earnings could have gone south if not for the tariff revisions.
The utility sustained a Rs18.2 billion loss in the first eight months of 2023 owing to the delayed and limited tariff hike, which was inadequate to compensate for the significant increase in generation costs.
Generation costs rose 55% to Rs324 billion in the first eight months of 2023, up from Rs209.4 billion a year ago. Higher fuel and coal prices, depreciated currency, and rising interest rates increased costs.
By August 2023, the cost per unit at the selling point had increased to Rs45.71/kWh from Rs29.17 a year ago, and the CEB charged up to Rs89 from domestic consumers while lowering tariffs to support specific businesses. The government absorbed some of the liabilities of the books of the CEB, adding to the national debt. The CEB had unpaid obligations to the Ceylon Petroleum Corporation and Independent Power Producers of Rs212.3 billion in August 2023.
Beyond then, the revival engineered in the year came from painful tariff revisions, as consumers also bear the burden of sustaining an unproductive workforce within the CEB with vocal unions. In March 2024, the CEB announced a possible tariff reduction: short-term relief that could be meaningless without the overdue restructuring and reforms.
As Sri Lanka moves to expand its renewable energy capacity, these developments illustrate the complexities of balancing financial, social, and environmental priorities. The government’s renewed focus on competitive processes and attention to affordability and equitable access represents a significant step forward in addressing the challenges Boyd outlines. By aligning energy policy with broader social and environmental objectives, Sri Lanka sets a precedent for achieving rapid decarbonization without compromising public interest. Sri Lanka’s problem has less to do with the market or state control and more with poor governance and productivity.
According to the World Economic Forum, wind and solar power became the cheapest sources of electricity generation worldwide in 2020. However, their expansion remains limited, as seen in the case of Adani’s proposed wind power farm in Sri Lanka, which faces delays and challenges.
Electricity generation costs in Sri Lanka vary significantly across energy sources. According to available data, major hydropower remains the cheapest option at Rs2.45 per kWh, while other renewable sources, such as wind and solar, have higher costs when privately produced:
- Major Hydro: Rs2.45 per kWh
- Mini Hydro: Rs14.12 per kWh
- Wind (CEB): Rs9.75 per kWh
- Wind (Private Producers): Rs14.05 per kWh
- Solar (Private Producers): Rs19.56 per kWh
- Thermal Coal: Rs23.80 per kWh
- Solar Roof Top: Rs24.92 per kWh
- Thermal Furnace Oil: Rs82.80 per kWh
Despite wind and solar being competitive in cost, they have yet to dominate electricity markets, as Boyd’s paper shows. For Sri Lanka, access to affordable financing is essential. Renewable energy projects require high upfront capital investment but have minimal operating expenses. Mechanisms such as long-term contracts and contracts-for-differences are necessary to mitigate financial risks and attract investment. For renewables to thrive, Sri Lanka must implement policies that de-risk investment while ensuring affordability for consumers. Without strategic financial mechanisms, the transition to cleaner energy sources may remain slow despite their lower generation costs.