Increased incidence of extreme weather patterns and rising domestic demand have strained Sri Lanka’s national grid in recent years, forcing the government to increase costly fuel imports and implement rolling power cuts as a result of periodic shortages. In its most recent energy development strategy, released in 2017, the state-owned electricity company, the Ceylon Electricity Board (CEB), addressed the shortage crisis, highlighting plans to expand grid capacity from approximately 4065-MW at the end of 2016 to 4269 MW in 2018, with a long-term goal of lifting capacity to 10,783 MW by 2037.
However, implementation of these plans may prove to be more complicated than expected. They will require significant investment inflows across a broad spectrum of mini-, small- and large-scale projects. Furthermore, the CEB originally projected most new capacity would come from coal plants; however, a recent shift towards liquefied natural gas (LNG) as the preferred feedstock has left the future of several large-scale coal projects in doubt. At the same time, tendering processes for a handful of such projects have remained delayed for years.
The CEB is now moving to address the most serious near-term shortages with oil-fired plants, a costly option requiring significant fuel imports. However, this should give public and private stakeholders more time to implement large-scale gas-fired and renewable projects, both of which will be critical to meeting long-term domestic demand.
Hydro to Thermal
The energy landscape in the country has changed considerably in recent years, with a significant rise in distribution and consumption. According to the most recent data from the Ministry of Power and Renewable Energy, electricity generation quadrupled between 1992 and 2016, while access rose from around 50% in 1990 to 100% at the end of 2016. According to the Sri Lanka Sustainable Energy Authority, this was to meet growing demand, which rose by 51.6% between 2005 and 2014, from 623.7 thousands of tonnes of oil equivalent (toe) to 945.7 thousands of toe.
To meet demand in previous years, the country depended on water resources, made up of multiple, large river basins, rugged interior geography and abundant waterfalls. Large-scale hydropower development commenced in the 1920s, and the first hydropower plant at Laxapana Falls was commissioned in 1950. Today, the majority 17 out of 27 of stateowned CEB power plants are still hydro. The resource accounted for the largest share of electricity generation until the mid-1990s, when population growth and demand began to outstrip installed capacity. The percentage of electricity capacity generated via hydropower fell from a peak of 99.8% in 1990, to 35% at the end of 2016, according to World Bank data.
This drop, combined with rising consumption, led to a greater dependence on thermal power, which has come to dominate the landscape in recent years. The Public Utilities Commission of Sri Lanka (PUCSL) reported that CEB hydropower plants accounted for 1377 MW, or 35% of Sri Lanka’s generation mix, in 2016, against a combined 53% from thermal energy, comprising CEB-owned, coal-fired and oil-fired capacities of 855 MW and 564 MW, respectively, and independent power producers (IPPs) contributing 613 MW of thermal energy capacity.
Impediments to Output
However, both hydro and coal-fired power plants have become increasingly unreliable in recent years, causing severe generation constraints. The country’s sole coal plant, a 900-MW facility located in Norochcholai, had its first phase completed in 2011, but the 300-MW plant broke down five times within its first year of operations. The final phase of construction was commissioned in 2014; however, the facility continued to face chronic breakdowns in the years since, such as in April 2017 when an overheated boiler damaged a generator.
At the same time, the country saw a spate of severe drought that weighed heavily on hydropower output, with 2012, 2014, 2016 and 2017 all experiencing a lack of rainfall, and the UN reporting that the latter two years were the worst droughts in 40 years.
In October 2016 the CEB had to roll out a new series of daily power cuts, after a breakdown at all three Norochcholai units reduced Sri Lanka’s ability to meet peak demand by 48%. The crisis continued into 2017, with monthly fuel imports double their normal levels at the beginning of the year, as hydro’s share of the power mix fell to just 11%, according to international media. In January 2017 imports of diesel and fuel oil registered a sizeable month-on-month increase, of 260,750 and 260,000 barrels, respectively, and demand was projected to rise further over the course of the rest of the year. According to estimates at the time, demand growth for diesel was forecast at 7% for the full year, and 14% for fuel oil.
Power shortages and rising fuel imports are particularly problematic considering the country’s rising demand. The Ministry of National Policies and Economic Affairs (MNPEA), in its medium-term Public Investment Programme (PIP) that lists priority development projects for implementation between 2017 and 2020, notes that electricity requirements in Sri Lanka have grown at an average rate of 5% to 7% annually, and are expected to continue increasing as industrial and commercial growth accelerates. According to the MNPEA, the country must add between 150 MW and 200 MW of installed capacity annually to meet demand up to 2022.
In its latest Long-Term Generation Expansion Plan (LTGEP) – published in April 2017 and running from 2018 to 2037 – the CEB reports a base demand forecast with a compound annual growth rate of 6.8% between 2018 and 2020, rising from 2738 MW of peak demand to hit 3077 MW in 2020, before moderating to 5% between 2021 and 2030, ending at an estimated 4726 MW of peak demand.
Although peak demand is forecast to moderate in the following decades, CEB projections show that it should reach 7784 MW in 2042, nearly triple 2018 levels, while generation demand is forecast to triple over the same period, rising from 14,588 GWh in 2018 to hit 44,700 GWh in 2042.
In the LTGEP, the CEB unveiled plans to significantly augment generation capacity, reporting that coal and renewable power are set to play an important role in the future energy landscape. The strategy projects 500 MW of new capacity coming on-line in 2018, including 180 MW of renewable energy projects and 320 MW of oilfired plants, with a further 287 MW of renewable generation and 370 MW of gas-fired plants slated for commissioning in 2019. According to international media reports, the CEB’s plans will require an estimated budget of $14.6bn through to 2037.
Thermal projects are set to play the most important role in boosting generation capacity over the medium term, with the LTGEP looking to add 3885 MW of new capacity via new thermal projects between 2018 and 2025, including 705 MW of gas-fired capacity and three, 300-MW coal-fired power plants. A renewable capacity expansion of 1797 MW is planned for commissioning over the same period.
However, plans for coal plants run contrary to the PUCSL, which in August 2017 published a report emphasising LNG as a preferred fuel source. The document addressed the country’s near-, mid-, and long-term energy requirements and goals, while examining cost overruns and missed targets under previous LTGEPs (see analysis).
Project delays have constrained previous ambitious utilities infrastructure projects and could continue to pose a problem for future implementation. The PUCSL reported that 2100 MW of coal-fired power was forecast in 2006 to be commissioned by 2016; however, just 900 MW of was realised: some 520 MW of gas-fired capacity planned for development also failed to move forward in the same time period, meaning thermal generation fell 1720 MW below target.
The most recent LTGEP also took note of this issue, highlighting several planned coal-fired projects that had stalled in recent years: the Trincomalee power project, a 500-MW plant under development in partnership with the government of India; a second 600-to 1200-MW facility at Foul Point in Trincomalee, launched after the PUCSL cancelled the original 500-MW Trincomalee project; the Southern power project; and the 600-MW Mawella power development.
Private Sector Opportunities
Recent policy announcements indicate private sector participation will play a critical role in improved project implementation. Sri Lanka’s Vision 2025 medium-term economic development agenda, published in September 2017, identifies public-private partnerships (PPPs) as an important finance mechanism for energy projects, while the PIP calls for increased deployment of PPP frameworks for large-scale plants. PPPs have already been successfully deployed for large-scale projects, with IPPs accounting for 16% of total generation via thermal plants and small power producers accounting for an additional 12% via renewable projects in 2016, according to the PUCSL. According to most recent World Bank data, $354.9m of electricity PPPs reached financial close in 2012 alone. Attracting continued financing will be crucial to achieving targets; investment requirements for new generation projects at the CEB are forecast to rise from LKR20bn ($130.6m) in 2018 to LKR72.9bn ($476m) in 2020.
In the near term, the government has established plans to continue boosting oil-fired power generation to eliminate the severe electricity shortages. The LTGEP forecasts 320 MW of furnace oil-fired power plants will be commissioned in 2018 to meet demand until large-scale power projects are implemented. While this option remains the least attractive economically, it should keep Sri Lanka from experiencing a major near-term electricity crisis, setting the stage for steadier mid- and long-term capacity growth.
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