On 23 September 2021, Sri Lanka informed the United Nations Framework Convention for Climate Change (UNFCCC) her Nationally Determined Contributions (NDCs). The country has set the target to achieve carbon neutrality by 2050 and produce 70 per cent of the country’s total energy requirement through renewable energy by 2030. To reach such a milestone, Sri Lanka requires to generate an additional 4,800 MW from renewable sources, specifically focussing on wind, solar, hydro, and biomass energy. Currently, Sri Lanka’s installed electricity generation capacity is approximately 4,400 MW and it may be impacted due to vintage, fuel prices and other issues. To fulfil NDCs the country is dependent on international support in terms of finance, technology, and capacity-building. Accordingly, Sri Lanka has entered into an agreement for ‘Renewable Energy Cooperation’ with India.

The cooperation with India includes capacity building of the concerned policy professionals, entrepreneurs and associated human resources. It involves solar and wind energy development including investment and construction collaboration. There are plans to jointly upgrade and develop the power transmission infrastructure and market access. Through initiatives such as the International Solar Alliance, of which Sri Lanka is a member, India is supporting solar power projects across the island, leveraging its expertise and financing capacity. Renewable energy parks are being proposed to harness the immense renewable energy potential of Sri Lanka to enable her to become not only self
-sufficient but also a net power exporter in near future.

Sri Lanka’s installed renewable energy capacity (Solar and Wind Source) as of recent figures, includes about 966 MW from solar power and 267 MW from wind energy, totaling 1233 MW which is approximately 28 per cent of total installed capacity. It is important to appreciate that these two sources of energy are not only renewable but have comparatively less gestation period. These projects can start producing electricity within 12 months from the time all permissions are obtained, and funding is in place. Compare it with the hydro power projects which invariably take 5-10 years to complete. So, an investment into these sources has better return on investments in terms of opportunity cost and economic value created across various sectors. Thus, it is evident that Sri Lanka must focus on developing Solar and Wind power projects on priority. It will not only help harness the energy potential bestowed by nature but also bring in energy self-sufficiency earliest. At the same time, it may be understood that development of large renewable projects in the prevailing economic state of Sri Lanka presents one of the most complex challenges to the leadership
of the day.

As Sri Lanka turns the page, a resurgence of hope and confidence takes hold, the energy growth needs to be accelerated. There is a need to ensure policy consistency, processes smoothening and facilitation to market forces to enhance investor confidence. Policy paradigm must confirm to sovereign realities where the shadow of economic distress of 2022 is still looming. The country continues to be rated as ‘highly speculative’ grade by major credit rating agencies of the world. It means investment in Sri Lanka carries a higher level of risk and investors should exercise caution. In such a scenario, the willing investors need to be accorded a positive response. It not only allows the stream of forex to continue flowing in but also encourages other prospective investors to evaluate opportunities and plan on investing in Sri Lanka. The aim now should be to make the policies even more facilitative.

It is a globally-acknowledged fact that investment within regional economies is most sustainable. It is seen that the people and corporates of neighbouring countries have always taken more risk than is adviced by the credit agencies. It may be due to shared values or proximity to each other or for strategic bonding that investment continues to flow between the friendly neighbours; irrespective of the rating pronouncements. Similar is the case in Sri Lanka where maximum and quickest support came from India in the aftermath of the economic crisis of 2022. It is the confidence and good relations between the two Governments which encourage corporates to look at investing in otherwise difficult to invest projects. At the same time there are always some detractors who may, due to lack of right inputs, view the entire scenario through another type of lens and try and question the process and priorities of the Government of the day. It is therefore important to identify stakeholders who can express solidarity with big infrastructure projects and stand firm in the face of adverse narrative, a usual reaction to fast-paced development in any thriving democracy.

In this context, it is worth mentioning the case of the Wind Power Project of Adani Green Energy Limited (AGEL) against which there has been much reaction lately. It is a fact that the project was duly approved by the Sri Lankan Cabinet Appointed Management Committee on Investments (CAMCI) under the ‘Fast tracking of Investments’ route. This route was adopted by the then Government of Sri Lanka to facilitate investment into various sectors, much before the Adani project came in. But, rumours have been floated that the project was given away on a platter and the entire process is being doubted by certain activists. At the same time opponents of the project have failed to quote specifics as to which statutory process of the Sri Lanka Government was not applied to the Adani project while being procured. Also, no tangible reasons have been offered to question the tariff structure except comparing it to geographies which have a different policy and project paradigm.

A lot of hearsay and tattle is being floated to create an inconsistent narrative. It may be appreciated that it requires bold decision making to invest substantial amounts in a project located in a country where global rating agencies are advising caution. People familiar with project financing would agree that it is not anyone’s personal money but funds from banks and financial institutions which are used to construct and run the project. Members of such syndicate of banks/financial institutions have their own board of directors and each one of them undertakes their own due diligence and convinces themselves whether or not to support the project if it is violative of local laws and processes. Thus, it may be appreciated that banks and financial institutions do not move even a dollar without detailed due diligence of the project, including the process followed for procurement. Where is the question then of favouritism and give-away on part of the then Government officials of Sri Lanka.

The corporates promoting long-term projects also deftly ensure to abide by the laws and statutory processes of the host country, lest their project is questioned by the successive government in a democratic environment. A quick analysis of project ibid indicates due care appears to have been taken by the Government authorities to follow the process as applicable to all such projects and no special favours seems to have been granted. The Adani wind project is the outcome of due process and not an arbitrary action.

In some countries, particularly those with developing or transitional economies, Environment Impact Assessment (EIA) is either not strictly enforced or are required only for projects of certain types and exceeding a certain scale. For instance, in India, smaller wind projects may not require an EIA, though large-scale wind projects typically do with few conditions. Sri Lanka has an elaborate environment clearance process. The Adani project has gone through the same.  It is for the authorities now to enforce it and check if the mitigation measures are implemented at the right time and at the right place. Renewable energy projects should never be delayed due to environmental clearances as these are ab-initio environment friendly. For future projects it may be prudent to set up an environment clearance monitoring mechanism to arrest delays and oversee right implementation of mitigation measures. The delays not only add to the total cost of a project but also deprive benefits of the project to the people, thereby denying the economic benefits supposed to accrue to people.

Any project has a risk profile, and experts undertake detailed analysis and prepare a risk mitigation plan. Each risk mitigation has a cost and time factor attached to it. For example, it could be paying higher insurance premium for a risk or hedging to protect repayment of debts in future or bilateral agreements to protect investment or assigning risks to third parties. The risk mitigation plan is always an essential part of project contract documents or concession agreements. The risk profile of any project directly impacts the cost of the project and the tariff therein. It may not be wise to compare projects from one country to another as there may be gross dissimilarities in the geography, legal structure and risk profile of each project in the respective country. National priorities should be the only guiding factor.

In Sri Lanka, there is a fair amount of transparency on price per unit granted to project company in any Solar or Wind Power Purchase Agreement (PPA). While there are published rates for smaller projects under standardised PPA, there are project specific details also uploaded on the site of Public Utilities Commission of Sri Lanka (PUCSL). The Ceylon Electricity Board (CEB) wind power project in Mannar was awarded at USD 0.1012 per unit while an Independent Power Producer (IPP) wind project is rated at USD 0.1112 per unit in same location. The rates given to AGEL project is USD 0.0826 per unit which is 25.7 per cent less than the IPP at Mannar. It is also in line with the global trend of reducing tariffs for Wind and Solar where PPA rates are continuously going South. With facts in sight the stakeholders must guard against false narratives.

The table below presents the relationship between credit rating and PPA rates in 2022.

 The current credit rating for Sri Lanka is below the South Africa credit rating and yet the PPA rates are cheaper in Sri Lanka. That indicates deft negotiations undertaken by the officials negotiating with the investor and promoters of power projects.

Long term infrastructure development is based on long standing concession agreements while power purchase agreement is at the core of such concession agreements. The duration of such agreements could be from 15 to 50 years. It is therefore essential that contracts are held sacred by successive Governments. It may or may not include the sovereign guarantees, but its implementation should be strictly within the terms agreed therein under the guiding principles and laws referred therein. Sri Lanka has well settled laws for investment-based projects and all reviews and relooks of agreements must adhere to the provisions of the contract as permitted under the law of the land. It may not be so difficult to rescind the well-executed contract, but it would definitely erode the investor’s confidence who may be considering moving into Sri Lanka. Great care needs to be exercised in all such cases, more so when the country is trying to come out of the economic crisis.

It is not easy to lead the country in the state when the sprouts of economic recovery are visible, but the system is far from appearing agile and upbeat. Where there is humungous energy to do good but equally or more lethargy due to trust deficit and widespread corruption. Worst there are ‘Energy-Crusaders’ who operate in guise of scholars, activists and well-wishers of the country. This unscrupulous lot often causes irreparable delay and damage to the development process and force the common man and small business to either remain deprived of or continue paying more for the electricity produced out of fossil fuels at many times higher rate as compared to the renewable energy price. Thus, it is imperative to identify the go-getters, the motivated, the honest and those who can identify the vested interest and can respond to crusaders with equal measure. Putting the right person to right task is the real challenge.  The leadership must rise to face the challenge and use the time-tested tools of deploying meritocracy, following transparency and displaying sincerity to achieve full economic recovery and progress. That surely appears to be a sustainable and practical way forward.