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Generation costs, forecast demand a drag on power tariffs cut decision
View(s):By Nathara Abeywickrema
The delay in reducing electricity tariffs is being attributed to the compound impact of a growing energy demand and years of underinvestment in low-cost power generation, a senior official said.
The additional demand of one billion electricity units projected for 2025, coupled with heavy reliance on expensive energy sources, has created significant financial and operational challenges, the official explained.
In response to concerns over the Ceylon Electricity Board’s inability to lower electricity tariffs for the next six months, an additional demand of one billion electricity units in 2025 and the lack of investment in low-cost power plants over the past five years are being cited.
Speaking to the Sunday Times, Pubudu Niroshan, director general of the Power Sector Reforms Secretariat of the Ministry of Energy, highlighted that the increased demand would largely have to be met through high-cost energy sources.
“The projected electricity requirement for 2025 stands at 17.5 billion units. However, hydro and coal power capacities, which are capped at 12 billion units due to inherent limitations, is at a maximum. The shortfall will need to be filled using a combination of renewable energy and fuel oil. Given the current pace of renewable energy development, around three billion units will have to be generated from fuel oil. Notably, generation costs account for two-thirds of the electricity bill,” he explained.
He stressed the importance of speeding up the deployment of competitive renewable energy solutions, such as wind and solar, while using LNG as a transitional fuel to reduce dependence on expensive energy sources.
Addressing the financial standing of the CEB, Mr Niroshan revealed that Rs. 112 billion had been used up by August 31, 2024, to service loan obligations. “Only Rs. 41 billion remains as the revenue difference for 2024, and this is being recovered through the ongoing tariff revision,” he noted.
He added that the key components considered in the tariff amendment are the cost of hydropower generation, transmission, and distribution.
The financial burden of servicing past loans has also significantly influenced the tariff reduction delay.
Mr Niroshan revealed that the ministry is expected to bear Rs. 268b in financial obligations in the first six months of 2025.
However, with projected revenue at Rs. 229b under current tariffs, a shortfall of Rs. 39 billion is anticipated. This has added further complexity to the decision-making process, with total loan repayments amounting to Rs. 333b for various commitments.
Mr Niroshan drew attention to how a systematic approach to identifying and implementing new renewable energy solutions is essential to addressing the challenges in reducing electricity rates sustainably. Investing in alternative energy sources such as solar, wind, etc. can help diversify the energy mix, reducing reliance on expensive fossil fuels and mitigating the impact of fluctuating energy rates.
By prioritising the development of renewable energy projects and speeding up their integration into the national grid, Sri Lanka can move toward a more stable and cost-effective energy system. Such efforts will not only contribute to long-term affordability for consumers but also ensure environmental sustainability and energy security for future generations.
Director of Corporate Communications at the Public Utilities Commission of Sri Lanka (PUCSL), Jayanath Herath, said that public consultations start from December 17 on the tariff revision proposal submitted by the CEB for January to June 2025.
While the CEB has proposed amendments to the tariffs, these proposals are not final and are subject to change. The PUCSL will review the feedback and suggestions from the consultation before making a final decision. The revised tariffs, which will be effective for the first half of 2025, are set to be announced on 17 January.
During a press conference held on Thursday, Chairman of CEB, Thilak Siyambalapitiya, mentioned that measures are being implemented to reduce electricity generation costs.
He said previous governments had attempted to import natural gas for energy production, but these efforts were disrupted due to various challenges. He emphasised resuming natural gas imports will take time. The transition to natural gas is expected to reduce fuel costs by over 50%.
Mr Niroshan underlined Sri Lanka’s commitment to harness its natural resources, particularly solar and wind energy, to address the energy crisis and transition to renewables. A national program aims to add 2,000 MW of solar capacity over five years, with a focus on rooftop solar PV and battery storage to lower generation costs.
Microgrids, community cooperatives, and smart grids will ensure solar benefits reach all consumers. Wind energy projects, especially in the Mannar-Poonaryn belt, will be procured competitively, and feasibility studies for hybrid energy systems and battery storage will be speeded up to attract investments.
Alongside this, 1,500 MW of LNG will serve as a transition fuel.
Key projects, including 100 MW in Siyambalanduwa and 50 MW in Mannar, will begin in the first quarter of 2025, with a 100 MW Silawatura wind project tendered by January 2025.
Energy sector analyst and chartered electrical engineer Nadheera Wijesinghe explained that Sri Lanka’s Electricity Act mandates a cost reflective tariff methodology, ensuring that electricity generation, transmission, and distribution costs are passed on to consumers, with the PUCSL regulating to prevent unreasonable expenses.
For tariff revisions, a six-month forecast and adjustments for previous deviations guide the process. The CEB initially proposed a 6.6% tariff reduction for January 2025, citing a surplus of Rs. 31 billion for 2024, but faced regulatory pushback from PUCSL, which insisted on strict adherence to methodology.
After extensive discussions, CEB revised its proposal to a 1.02% reduction, subject to public consultation and approval.
Challenges in aligning forecasts and adhering to procedures highlight institutional inefficiencies. Experts call for streamlined operations and progressive decision-making to benefit the public effectively.
The delay underscores the pressing need for structural reforms in Sri Lanka’s energy sector. Experts argue that years of underinvestment in low-cost power generation, coupled with rising operational and debt servicing costs, have left little room for manoeuver.
Accelerating competitive renewable energy projects and adopting sustainable energy strategies are seen as critical to addressing these challenges. As the PUCSL and CEB work through consultations and data reviews, consumers will continue to bear the financial impact of a system struggling to balance supply, demand, and costs.
The coming months will reveal whether the proposed amendments strike the right balance between financial sustainability for the energy sector and affordability for consumers.
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