The Federation of Renewable Energy Developers (FRED) of Sri Lanka yesterday warned of a resurgence of the ‘diesel mafia’ raised serious concerns and alleged that it is gradually moving towards a natural death for the country’s solar sector.
They allege that recent measures, including a drastic reduction in feed-in tariffs and the imposition of stringent clauses in power purchase agreements (PPAs), will make the sector uninvestable.
At a press conference in Colombo, FRED Sri Lanka Chairman Thusitha Peiris stated that the Ceylon Electricity Board (CEB) has decided to reduce feed-in tariffs for solar power plants below 10MW by an unprecedented 25 percent.
He alleged that the feed-in tariff formula was manipulated, including distorted cost estimates and interest rates, to justify the low tariff. Furthermore, the committee is reported to have linked the profit margin to the Treasury bill rate.
“Why should we take on the complexities of starting and operating power plants when we can get comparable returns through investments in government securities?” Vidulanka PLC Founder and CEO Riyaz Sangani questioned.
The Cabinet is currently considering a proposal to approve this unviable tariff reduction, with a decision expected in the coming days.
Compounding the problem, the government last year introduced harmful clauses in Standardized Power Purchase Agreements (SPPAs). These include empowering the National System Control Centre (NSCS) to limit electricity generation without compensation or maximum limits, requiring a monthly energy output deposit in a custodial account, and requiring unconditional and irrevocable bonds to ensure timely commercial operation.
“The unlimited capping clause in the SPPA, which is not factored into the formula, will prevent banks from financing new projects,” Peiris warned, attributing the moves to the diesel mafia’s intention to crack down on the renewable energy sector.
Sangani highlighted the positive impact of solar power growth, citing the absence of emergency power purchases in the past three years and the improvement in water levels in reservoirs like Victoria.
“This benefits farmers by ensuring water availability for cultivation. However, the ‘diesel mafia’ may be trying to eliminate this industry through reduced tariffs and capping PPAs,” he said.
Prabath Wickramasinghe, former president of the Small Hydropower Developers Association, estimated that the CEB would lose Rs. 13-15 billion next year due to delayed SPPA approvals for approximately 300MW projects under the Rs. 10MW category. He also highlighted the uncertainty facing the rooftop solar industry, which has a stock of Rs 2 billion.
Peiris criticised the government’s handling of the nationwide power outage on February 9, suggesting that officials were providing misleading information.
He pointed to the CEB’s failure to invest in battery energy storage systems (BESS) as a contributing factor to supply and demand management challenges, especially on Sundays.
As an immediate solution, Peiris proposed a policy to establish a feed-in tariff for storage. “This will enable rooftop and ground-mounted solar power plants to operate at peak shaving by storing energy during the day and releasing it at peak demand in the evening,” he explained.
He believes the private sector can add 50 to 75 megawatts of battery storage to the national grid within 6 to 9 months, solving Sunday power supply problems without government investment. He also proposed an all-inclusive feed-in tariff of Rs 50 for larger projects.
Fred warned of a potential industry collapse if the government goes ahead with these policies. “The rooftop solar sector, which involves thousands of companies and connections, will face widespread insolvency, leading to service disruptions and future problems,” he warned, urging the government to reconsider tariffs and engage in a productive dialogue.
