According to a joint report by the United Nation Development Program and the Asian Development Bank - Assessment of Sri Lanka’s Power Sector – 100 percent Electricity Generation through Renewable Energy by 2050, Sri Lanka is hoping to achieve 100 per cent renewable energy use by 2050 to meet its projected electricity needs. In an endeavour to use only renewable energy for electricity generation, there has been significant political willingness to adopt domestically produced renewable energy as the country’s primary source of energy. However, multibillion-dollar investments from both the public and private sectors are required in order to achieve the target. Though relevant stakeholders have demonstrated significant commitment, as evident in the recent agreements to set up Sri Lanka’s first waste-to-energy power plant in Kerawalapitiya, economic and practical realities are holding back the growth of the renewable energy sector such that it may be sensible not to fully abandon traditional sources of energy.
Sri Lanka has been one of the fastest growing economies in South Asia in recent years. Following a 30-year civil war, Sri Lanka has seen a sharp rise in energy use and demand over the past decade as it transitions from a predominantly rural agricultural economy to an urban economy.
At present, fossil fuels (including coal) account for approximately 55 per cent of Sri Lanka’s energy mix, with the remaining 45 per cent generated from a range of alternative sources, including solar, wind and hydro power. Sri Lanka depends heavily on imports of petroleum and coal for its energy requirements, accounting for a significant portion of Sri Lanka’s import expenditure. If unchecked, it is feared that this will set Sri Lanka on a course towards a major power crisis as early as in 2021.
Due to its continued dependence on fossil fuels, Sri Lanka’s long-term future has yet to be completely secured. However, demand for electricity is growing, and so access to affordable, reliable and sustainable energy is needed for Sri Lanka’s continued growth. Accordingly, Sri Lanka’s energy future must be secured by meeting energy demands through the development and adoption of domestically produced renewable sources of energy, thereby reducing the economic burden of its energy imports.
In April 2016, 171 countries, including Sri Lanka, convened at the United Nations headquarters in New York to sign the Paris Agreement on Climate Change.
Climate Vulnerable
Sri Lanka is also one of 43 countries in the Climate Vulnerable Forum, a global partnership of countries that are disproportionately affected by the consequences of global warming, and has pledged to generate 100 per cent of its energy from renewable sources as early as possible, and by 2050 at the latest.
The future of renewables in Sri Lanka is bright, given the significant strides made by various stakeholders towards using fully renewable energy for electricity generation. For example, in 2017, the government gave the green light to the development of a renewable energy project in Punarin, comprising a hybrid of wind (240 MW) and solar (800 MW).
In the same vein, the 2016 Suriya Bala Sangramaya program involves the installation of rooftop solar panels with the stated goal of attaining a total capacity of 200 MW by 2020. In addition, a syndicate of banks, including Sri Lanka’s Hatton National Bank, arranged a LKR 9.0 billion loan facility in 2018 for the construction of Western Power Company’s revolutionary 10 MW waste-to-energy power plant in Kerawalapitiya, Muthurajawela. Western Power Company, a subsidiary of the publicly traded Aitken Spence, has scheduled the power plant to be fully operational by 2020, after which it will use 700 tonnes of municipal solid waste daily.
While the Sri Lankan government’s long-term renewables aspirations are certainly heading in the right direction, it would be apposite to consider their practical implications. The 2050 journey is a marathon, not a sprint. Considering Sri Lanka’s present state, policy-makers should carefully consider how far and how fast Sri Lanka should switch to renewables. This would avoid setting Sri Lanka’s energy aspirations on a collision course with its economic development goals. Accordingly, the government is likely to find success by fine-tuning the most appropriate approach to take, bearing in mind the (i) suitability of fossil fuels for Sri Lanka’s short-term economic development; (ii) overstated environmental impact of coal; and (iii) cost of renewable energy sources.
Ensuring access to affordable, reliable and sustainable electricity requires intensifying investments in clean energy sources and adopting cost-effective technologies, as well as effective regulation of electricity consumption and energy waste. The Sri Lankan government’s approach has so far been to push for the rapid development of wind, solar, small-scale hydro and other renewables, but the renewables sector is still not expected to grow robustly in the coming years. For now, the sector is unavoidably hampered by the relatively high costs of installation and operation compared to traditional methods of power generation.
Further, in the next 20 years, success in attaining many of the 2050 goals will hinge on whether renewables can become a mainstay of the Sri Lankan energy mix. Given the large capital outlay and relative delay before they generate returns, renewable sector investments are inherently long-term. For such investments, assurance and protection of investments are necessary, and best done through long-term tariffs and the absence of ad hoc policy changes. At present, it is uncertain whether such measures will be implemented, leading to some uncertainty among investors.
The state has provided subsidies to enhance the appeal of renewable energy resources with the aim of diversifying the energy sector. However, these subsidies could balloon to the point of being no longer viable, at which point it would become prudent to rebalance the energy mix in favour of fossil fuels instead.
Additionally, before thermal energy is replaced entirely, a nuanced approach would be wise. Since LNG and natural gas have been known to be approximately as clean as renewables, it would be worthwhile exploring incorporating them into the energy mix, particularly given the natural gas discoveries in the Mannar Basin off the north-west coast of Sri Lanka. That leaves coal as a possible target for change, warranting a closer look.
Coal is inextricably linked to a nation’s economic progress. For developed countries, coal’s contribution to their economic progress has often been overlooked by anti-coal interests.
It is ironic that developed countries are now encouraging developing countries to abandon the very same coal-fired plants that have benefited developed countries for decades.
Several countries, including India, have expressed their displeasure at restrictive energy policies disguised as climate-change policies. Moreover, India has made clear that coal will remain a primary source of energy for India in the short to medium term, because its low price suits India’s economic development needs. By contrast, the costs of renewable energy are often hidden.
Final thoughts
A country’s energy sector is the backbone of its industrial competitiveness and the midwife of its economic growth. In this regard, Sri Lanka’s efforts to protect the environment while pursuing its economic goals are admirable. Ultimately, however, Sri Lanka’s successful attainment of its sustainable energy goals depends on how proactively it tackles the key challenges facing its energy sector.
In the final analysis, developing countries’ outright abandonment of fossil fuels is potentially premature and will hamper development. Rather, Sri Lanka needs major structural reforms and risk-tolerant investment capital in the renewable sector in order to attain its twin goals of reduced carbon emissions and the elimination of energy poverty.
These are long-term challenges. Coal is necessary to sustain the Sri Lankan economy, and keeping it would be a well-balanced and far-sighted move.
The writer, a partner at Reed Smith LLP based in Singapore advises on energy projects.