The key objectives of the reforms are to implement fully cost-reflective electricity tariffs, facilitate an enabling environment for market liberalization, and strengthen renewable energy investment activities in the country. These reforms are expected to improve the financial sustainability of the power sector and support Sri Lanka's transition towards a more efficient and environmentally sustainable electricity system.
The program is aligned with ADB's Strategy 2030, which prioritizes strengthening governance, institutional capacity, and environmental sustainability. It is also consistent with ADB's country partnership strategy for Sri Lanka, which focuses on supporting economic stabilization and structural reforms.
The power sector reforms in Sri Lanka present several opportunities for companies and organizations:
Renewable Energy Investments
The program aims to strengthen renewable energy investment activities in the country. This creates opportunities for renewable energy developers, technology providers, and service companies to participate in Sri Lanka's growing clean energy market.
Electricity Market Liberalization
The reforms will facilitate an enabling environment for market liberalization, potentially opening up the electricity sector to private sector participation and competition. This could attract independent power producers, energy trading firms, and other market players to the Sri Lankan electricity market.
Consulting and Advisory Services
The implementation of the power sector reforms will require extensive technical assistance and advisory services. Consulting firms with expertise in areas such as utility restructuring, tariff design, and regulatory frameworks can potentially contribute to the reform process.
Equipment and Infrastructure Upgrades
The unbundling of CEB and modernization of the power sector may necessitate investments in new generation, transmission, and distribution infrastructure. Equipment suppliers, engineering, and construction companies can benefit from these opportunities.
Energy Efficiency and Demand-Side Management
As Sri Lanka moves towards cost-reflective tariffs, there may be increased focus on energy efficiency and demand-side management initiatives. This could create openings for energy service companies, technology providers, and program implementers.
Overall, the ADB-supported power sector reforms in Sri Lanka present a significant opportunity for companies and organizations to engage in the country's transition towards a more sustainable and efficient electricity system.
Sri Lanka's power sector key challenges
Sri Lanka's power sector has a number of challenges to overcome:
- Incomplete implementation of power sector reforms. Reforms initiated in 2009 to unbundle the state-owned Ceylon Electricity Board (CEB) into separate generation, transmission and distribution entities have not been fully implemented. This has hindered competition and private sector participation in the sector.
- Delay in introducing cost-reflective electricity tariffs. Tariffs have not been adjusted to fully recover costs since 2015, leading to financial losses at CEB and accumulation of debt. The lack of cost-reflective tariffs has also discouraged private investment.
- High dependence on imported fossil fuels for power generation. Around 48% of Sri Lanka's electricity is generated from imported coal and oil. This exposes the sector to fuel price volatility and foreign exchange risks, especially during economic crises.
- Seasonal variation in hydropower generation. Hydropower accounts for a significant portion of Sri Lanka's generation mix. However, its output is highly dependent on rainfall and subject to seasonal variations, leading to supply shortages during dry periods.
- Slow progress in developing cost-effective renewable energy projects. Despite the country's vast solar and wind potential, the development of large-scale renewable energy projects has been slow. Lack of a competitive bidding framework and grid integration challenges have hindered renewable energy growth.
- Inadequate investment in generation, transmission and distribution infrastructure. Significant investment is required to expand and modernize the power system to meet growing electricity demand. However, CEB's financial difficulties and limited access to financing have constrained infrastructure development.
- Resistance to reforms from stakeholders like employee unions. Past attempts to restructure CEB have faced opposition from unions concerned about job security and changes to working conditions. Effective stakeholder management is critical for successful implementation of reforms.
Overall, the ADB-supported power sector reforms in Sri Lanka present a significant opportunity for companies and organizations to engage in the country's transition towards a more sustainable and efficient electricity system.
