ECONOMYNEXT – Sri Lanka will move to full competitive bidding for new power plants from June 2025 under an electricity law now in effect, officials said, as part of efforts to cut generation costs and sustainable reductions retail prices, officials said.
Under the new electricity law, the sector will be unbundled. Some changes to the law are planned by the current administration, but unbundling of the sector will go ahead, officials have said.
Competitive Costs
Lower cost generation is a key goal of the sector with the current administration having promised the public lower electricity prices over time.
“For that we have to go for basically competitive bidding,” Udayanga Hemapala told an energy sector forum organized by the Asian Development Bank office in Colombo.
“And I think most of you know after June 25 we cannot go for this G-to-G or EOI. We cannot go forward with all these things and we have to go only for the competitive bidding.”
There are around 40 projects for which Expressions of Interest (EOIs) were called during an economic crisis when costs were high due to Sri Lanka’s default and a global energy commodity price spike amid money printing by the US Federal Reserve and European Central Bank.
The US and ECB started monetary tightening in mid-2022 and fuel and coal prices have since eased.
There has been opposition to energy plants in Sri Lanka without competitive bidding. A controversial deal with India’s Adani, in a high wind potential area at a high price, was also claimed to be a ‘government to government’. It is now in court.
RELATED Sri Lanka legislators slam 49 renewables plants without tender, Adani deal
Feed-in-tariffs have also come under fire by some critics, for high costs, promoting corruption and lobbying.
Feed-in tariffs were halted for a period as they were illegal under the earlier law, with competitive bidding for smaller plants bringing low prices up to 2019, but they were then brought back amidst intense lobbying in 2020.
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The contracts executed in rupees, however, have brought benefits as the central bank printed money and busted the currency under flexible inflation targeting and other techniques including suppressing rate through floor rates.
Following the monetary excesses of the central bank, power developers are now seeking dollar denominated tariffs.
Standardized power purchase contracts were signed for mini-hydro and others 15 or 20 years.
The feed in tariffs brought in a number of mini-hydro operators, wind plants and some biomass plants including waste to energy.
Non-conventional Renewables
Sri Lanka now has 330 power plants in operation with a capacity of 775 MegaWatts, that contributed about 16 percent of energy in 2023, the last full year data that has been published, Ceylon Electricity Board Chairman Tilak Siymabalapitiya told the ADB seminar.
There are 210 mini hydro plants, 19 wind plants of which 18 were under the standardized contracts, he said.
Sri Lanka’s state-run Ceylon Electricity Board ran on 100 percent renewable until the 1980s, but was pushing for lower cost coal after major hydro’s ran out.
As the coal plants, and remaining large hydro were also opposed by environmentalists and political lobbies Sri Lanka ended up with high cost liquid fuel power, analysts say.
Sri Lanka offered net metering from 2008 and a buy back program from 2016.
Now there are 1,200 MW of rooftop solar.
Concerns have been raised at high prices paid for some rooftop solar. There was a surge after high prices for electricity for large domestic users, analysts say. (Sri Lanka to pay rooftop solar higher than Adani wind rate)
“Of course economics and the role of rooftop solar has to a large extent is misunderstood,” Siyambalapitiya said.
“And I hope that rooftop solar will also move to competitive bidding shortly using a different business model. Because finally the benefit of renewable energy has to pass on to customers as well. In the same way the investors are protected.”
Sri Lanka has to upgrade the grid with large investments to be able to absorb solar power, as the existing grid was not built for two-way power exchanges, leading to voltage surges for houses close to transformers and grid instability problems.
The problems could be solved by spending more money on grids and also home batteries.
Sri Lanka has a 70 percent renewable energy target by 2030 for which it is also needs grid scale batteries and a pump storage plants.
Some countries are now phasing out feed in tariffs, while some have suspended them or reduced the price paid amid grid instability and high costs. In Asia, Vietnam, which has a large coal base, has been a leader in buying renewable power through feed in tariffs including from large plants.
Read More: Vietnam proposes removing FiT for more competitive renewable energy prices
Vietnam has also introduced Direct Power Purchase Agreements between renewable plants and large customers and self-produced self-consumed power.
https://en.evn.com.vn/d/en-US/news/Communication-Materials-on-Decree-No-802024ND-CP-regulating-Direct-Power-Purchase-Agreement-DPPA-Mechanism-between-renewable-energy-generators-and-large-power-consumers-60-206-500506
Germany, a country which pioneered feed-in tariffs at a time when renewables were not commercially viable, used to add a renewable surcharge to the bill of customers. The surcharge was scrapped in 2022 as inflation hit 40-year highs in Germany.
German industry is also in trouble and has been moving out of the country into other European nations and Asia which have lower energy costs amid a phase out of coal power.
A decision to also scrap nuclear power plants which were already built worsened the problem. Front runners in the current election cycle are pushing to bring nuclear power back.
Germany still has coal plants to take up the slack when renewable generation reduces. It is also importing electricity from France which has 70 percent nuclear energy.
READ MORE German Coal Power Output at One-Year High Amid Low Wind Speeds
When coal power ends, subsidies to renewables will also end in Germany. Options proposed include paying capacity charges for dispatch. (Colombo/Feb08/2025)