What’s Going On Here?
In early June 2024, the Sri Lankan parliament approved a landmark electricity law to overhaul the electricity sector. The bill passed with 103 votes in favour and 59 against, introducing significant reforms, including unbundling the Ceylon Electricity Board (CEB) and opening the grid to private-sector competition.
This move is part of a broader effort to ease the burden on public finances and increase the share of renewable energy in the grid to 70% by 2030: Energy Minister Kanchana Wijesekera has highlighted that achieving this target will require $12 billion in investments, which the government alone cannot provide.
What Does This Mean?
Broadly, the new electricity law represents a major restructuring of the power sector, separating the generation, transmission, and distribution functions of the CEB. This unbundling aims to enhance operational efficiency, foster competition, and attract much-needed private investment.
As the Ceylon Chamber of Commerce noted, this reform has been in the making since 2001, and its passage in parliament marks a courageous and transformative step forward.
However, there are concerns about the process for awarding renewable energy projects without competitive tenders, which the main opposition, Samagi Jana Balawegaya, argues could lead to inefficiencies and lack of transparency. Additionally, shifting certain powers to an advisory council appointed by the minister raises questions about the independence and effectiveness of the regulatory oversight by the Public Utilities Commission of Sri Lanka (PUCSL).
Why Should I Care?
For Sri Lankans, this reform could mean a more reliable electricity supply and potentially lower prices in the future due to increased efficiency and competition. However, expect some shocks in the short term. Higher tariffs might be a concern as the sector undergoes restructuring.
According to the Central Bank, the CEB has faced significant financial difficulties, with a loss of Rs272.9 billion in 2022, compared to Rs34.6 billion in 2021. Despite a 75% increase in tariffs in August 2022 and a further 66% rise in February 2023, its financial performance has remained challenging. The adjustments are part of a strategy to align prices with costs, but this has led to higher electricity bills for consumers, which has caused social unrest.
In terms of energy consumption, CEB’s struggles have impacted the expansion of the renewable sector. Non-payment of dues amounting to Rs37.3 billion for renewable energy purchases has hindered progress, though the government has taken steps to improve cash flows and manage liabilities better. The increasing reliance on hydropower and regular tariff revisions have moderated operational losses, but comprehensive restructuring remains essential for long-term financial stability and service improvements.
The Bigger Picture
The electricity reforms are part of a global shift towards sustainable energy systems. As countries worldwide embrace renewable energy to mitigate climate change, Sri Lanka wants renewables to feed 70% of the electricity demand by 2030, thus aligning with broader global goals – but not without investment.
Prof Rohan Samarajiva, and economist and Chairperson of LIRNEasia, penned an opinion piece in 2022 during the energy crisis following the debt default, arguing that the current market and technology conditions in Sri Lanka limit how much solar and wind power the electricity grid can handle. Upgrading the transmission network is essential to increasing renewable energy use. Solar panels generate electricity only when the sun shines, and wind power, while useful in the evenings, remains intermittent. Batteries are not yet cost-effective.
To balance real-time electricity supply and demand, we need a modernized grid capable of integrating intermittent renewable sources, and this requires significant investment and potentially connecting to the Indian grid. While feasibility studies and mobilizing investment are crucial, outcomes will take years, according to Prof Samarajiva.
But better late than never.
The proposed restructuring aims to stabilize CEB finances and ease its burden on the national budget. In 2022, long-term liabilities at the CEB fell from Rs541.2 billion to Rs346 billion due to the price revisions.
Transitioning to a more competitive and efficient electricity market is critical for achieving energy security and supporting economic recovery and growth.
The Ceylon Chamber of Commerce says it remains optimistic about the potential and benefits but emphasizes the need for a credible independent regulatory framework to ensure successful implementation. They have suggested that the advisory council focus on policy development while the regulator retains its oversight role to maintain accountability and transparency.
According to the Central Bank 2023 Annual Report, the Sri Lanka Sustainable Energy Authority (SLSEA) actively promotes sustainable energy development by advancing renewable energy, enhancing energy efficiency, and fostering conservation to reduce waste. Their initiatives in 2022 included energy management and conservation programmes, resource mapping, and policy advocacy. The agency is also revising the Renewable Energy Resource Development Plan for 2024-2029 to bolster energy security. The Training Hub for Renewable Energy Technologies in Sri Lanka (THREE Lanka) project, developed with European and Sri Lankan universities, was also in progress. Moreover, Sri Lanka has access to affordable, environmentally friendly renewable energy funding from the EU, World Bank, and Asian Development Bank (ADB), provided we have transparent processes, and the Central Bank encourages early access to these funds.