Power policy

Unlike other countries in South Asia, Sri Lanka is mostly 100% electrified. The country is committed to achieve carbon neutrality by 2050 in electricity generation under its updated NDC submission. Total installed power capacity was around 4,265 megawatts in 2020, 50% of which came from non-fossil fuels, including hydro, wind, solar and biomass. Of total demand, 36% was met by non-fossil fuel generation.

Sri Lanka’s power market is still a long way from liberalization. Ceylon Electricity Board (CEB), the dominant utility, is yet to be unbundled. CEB controls a large chunk of the generation and distribution market. It is also the only transmission licensee, which makes proceeding with reform of the power market difficult.

Besides CEB, Lanka Electricity Company (LECO) – owned by CEB ? is the only other participant in the power distribution sector. CEB sells power to LECO, which then resells to end-use customers. Commercial and industry customers cannot sign bilateral contracts with generators directly. Power is procured through power purchase agreements at a government-set volume and price.

Power prices and costs

In terms of electricity tariffs, there are time-based tariffs regulated for residential customers. Two types of tariff categories are provided – block tariffs and time of use (ToU) tariffs. The block tariff charges residences on an incremental basis based on monthly power consumption. Under the ToU tariff, electricity prices are charged at Rs.13(7 U.S. cents) per kWh during off peak hours (10:30pm – 5:30am), Rs.25 per kWh during day hours (5:30am – 6:30pm), and Rs.54 per kWh during peak hours (6:30pm – 10:30pm), all with a fixed charge of Rs. 540 per month. The Public Utilities Commission of Sri Lanka (PUCSL) has not announced any retail tariff revisions since 2014. CEB has not been able to make a convincing case for tariff revisions, transparently laying out its power procurement and power sales.

Power market

The Public Utilities Commission of Sri Lanka (PUCSL), the power industry regulator, publishes its activity plan each year, presenting the work it plans for the year and the corresponding budget, including detailed plans to improve productivity and convenience for electricity consumers, establishing affordable prices for consumers and sustainable financial stability for licensees, etc.

The power sector has recorded some impressive developments in bringing private investment into renewable energy expansion in recent years, including attractive feed-in tariff rates, solar net-metering and net accounting, and financing for solar rooftop expansion. Rooftop solar is a bright spark in the renewable energy sector. Rooftop solar connections rose 26% to 275 megawatts in 2020 from 217 megawatts a year earlier. The availability of a net metering scheme coupled with high tariffs have incentivized growth in solar installation capacity. Imports of equipment for renewable energy including solar panels and storage batteries, for example, are exempt from the national building tax (NBT), as well as the ports and airport levy (PAL).

The country hasn’t implemented any battery storage into the grid system but has an ambitious goal. Sri Lanka's grid is isolated – it has yet to establish connections with any of its neighbors – which also impacts future planning.

Off-grid generation is available in some locations, usually due to the unavailability of the national grid or as a matter of policy. Additionally, standby power supplies are also available in most industrial and commercial facilities. The government has not made any concession for mini grid projects but there are some activities in this area. For example, Asia Development Bank is rolling out some hybrid renewable projects in remote islands on a commercial basis.

Doing business and barriers

According to the World Bank, foreign direct investment in the power sector has declined in recent years due to policy uncertainties and the risk of currency depreciation. In terms of project development, the electricity act of Sri Lanka requires that the government should hold at least a 50% share or certain shares determined by the Treasury and Ministry of Finance, which could potentially set barriers for both domestic and international investors. A host of pilot projects described as "exotic technologies" are in the pipeline. They include large-scale battery storage, ocean energy, small wind power vertical-type systems and hybrid power systems combining solar, wind and batteries.

The Ceylon Electricity Board (CEB)’s short-term borrowings from state banks and total debt to the Ceylon Petroleum Corporation (CPC) and independent power producers (IPPs) increased to Rs. 223 billion by the end of 2019, from Rs. 142 billion by end 2018. Its long-term outstanding liabilities rose to Rs.421 billion by end 2019, from Rs. 392 billion by end of 2018.

EV market

Sri Lanka has joined Britain and France in announcing plans to ban internal combustion engine (ICE) car sales by 2040. Importation of three-wheelers powered by two-stroke petrol engines, as well as spare parts for such engines, has been banned since 2008.

According to the United Nations Environment Programme (UNEP), Sri Lanka has a high share of hybrid and electric vehicles. This is due to the strict and aggressive vehicles taxation scheme that provides substantial tax reductions for hybrids imported into the country since 2010 and for electric vehicles since 2015. This has resulted in about 80,000 hybrid vehicles and 2,400 fully electric vehicles in the country.

EV policy

Promoting EVs was firstly mentioned in Clean Air 2025 (2016-2025), with a focus on EVs for public transport and solar energy for EVs. The Clean Air 2025 Action Plan provides the road map for air quality management in Sri Lanka with detailed objectives, strategies, actions, timeframes, and key performance indicators for the development of energy efficient vehicles including hybrids and EVs. Among the proposed interventions, a budget of Rs.100 million and capital from the private sector will be used to promote solar energy for electric vehicles. An annual budget of Rs. 5 million will be used as financial assistance, support, and tax concessions for energy efficient technologies used in hybrids and EVs.

In 2017, Finance Minister Mangala Samaraweera announced plans to replace all state-owned vehicles with electric or hybrid models by 2025, a move that will be extended to private vehicles by 2040. The Sri Lankan government was also reported to have made a strategic decision to install more than 100 electric vehicle charging stations by 2020 to align with the country's plan to obtain a minimum 20% of its energy from renewable sources.

The government reduced the exercise duty on EVs from March 15, 2019. Additionally, Environment Minister Mahinda Amaraweera said a Cabinet plan to import environmentally friendly electric and solar-powered vehicles is in the works. A Cabinet paper proposes tax concessions for importing certain cars.

Buildings market

The government has yet to implement any substantive policy support in this sector and the low-carbon heat market remains at an early stage. The country doesn’t yet have a natural gas supply and so doesn’t have natural gas for heating for its building stock.

Buildings policy

However, the country does have energy efficiency requirements for buildings. The Sri Lanka Sustainable Energy Authority Act empowers the Sri Lanka Sustainable Energy Authority (SLSEA) to specify and enforce a code of practice for buildings on efficient energy utilization, including minimum energy efficiency of water heating equipment, minimum pipe insulation thickness for service hot water systems, and minimum A/C equipment performance standards.