• Local renewable energy developers not paid for over an year
• CEB obtained a loan to pay diesel energy suppliers, RE suppliers ignored
• Economic crisis shut down over 100 RE companies in the past year
• Need internationally bankable tariff module, equal rights to all parties
• Right time for a new tariff, delaying affects industry due to volatility in rupee

According to Renewable Energy Council National Chamber Chairman Lakmal Fernando, over 100 domestic Renewable Energy (RE) companies have closed down in Sri Lanka in the past 12 months due to the ongoing economic crisis faced by the country. 

In an interview with The Sunday Morning last week, he stressed that the outstanding debt owed by the Ceylon Electricity Board (CEB) to the developers was one of the major issues faced by the industry at present.  

Fernando lambasted the CEB for prioritising the settlement of arrears owed to diesel power plants for payments, while offering no relief for the domestic RE sector. 

“The CEB owes developers around Rs. 5 billion in arrears and it recently obtained a loan of around Rs. 25 billion to pay for West Coast [Yugadanavi diesel-powered plant], but not a single cent was paid to the developers. It should have at least allocated an amount for renewables as we have been supplying energy at the lowest cost to the grid when the cost of all other energy sources have increased dramatically over the past 12 months, including the prices of coal, which some experts claimed would be the lowest,” Fernando stressed.

He went on to say that in addition to the developers, a total of around 42,000 customers were facing difficulties due to the payment defaults of the CEB.

Following are excerpts from the interview:

What are the major challenges faced by the RE industry in Sri Lanka today and how do those challenges impact local investors?

As of now, local renewable energy developers have not been paid for the last 13 or 14 months. The outstanding amount is now approximately around Rs. 5 billion. There is no discussion right now in the CEB about settling such. As a result of non-payment, a large number of renewable energy companies have now closed down their operations. 

There were around 320 companies operating and around 150 have closed down because those developers couldn’t afford to pay the current interest rates. Also, high inflation has forced them to have their priorities in different places. Another reason is increased costs resulting from the rupee depreciation. All these factors led the companies to close down their operations and the rest are also struggling to survive. 

We are struggling to pay our employees right now. As a result, the industry is becoming more and more unaffordable. Businesses have lost their faith in the CEB. It is very seldom that large businesses move into renewable energy.

On the other hand, there are about 42,000 customers who have kept faith in the CEB and installed rooftop solar. They have not been paid for the last 12 months. They have made numerous requests asking the CEB to make it net accounting or net metering so that their bills can be changed, but the CEB is refusing this. This is very unfair. If customers don’t pay the bill, the CEB cuts us off. But when the CEB doesn’t pay us, what can we do?

For now, we are supplying a unit at around Rs. 19 to the grid. We are the cheapest, but they don’t pay us.

The CEB owes developers around Rs. 5 billion in arrears and it recently obtained a loan of around Rs. 25 billion to pay for West Coast [Yugadanavi diesel-powered plant], but not a single cent was paid to the developers. It should have at least allocated an amount for renewables as we have been supplying energy at the lowest cost to the grid when the cost of all other energy sources have increased dramatically over the past 12 months, including the prices of coal, which some experts claimed would be the lowest.

In such a backdrop, a major regional giant like Adani is moving into Sri Lanka’s RE business. What is your opinion on foreign investments?

For now, we have a focus of 9 GW for Sri Lanka. That is 4.5 GW of solar and 4.5 GW of wind. Sri Lanka can’t do this alone. Yes, we need foreign investments. We also need a more stabilised and focused way of doing the tariffs and other things that are relevant to the industry. This has been widely discussed over a very long period and all throughout, the local energy industry has been requesting for an internationally bankable tariff. 

Basically, 9 GW of renewables is approximately $ 8-9 billion in investment. Of course, we know the country’s status and we can’t even service our foreign debts – we have become a defaulted entity with a negative net worth so bankers won’t look at projects where the CEB comes in as a debtor. With this kind of situation, I’m glad that foreign investors are even considering Sri Lanka for investment. 

Equal rights must be given to all parties. If foreign parties A, B, or C are coming in and if they are given some kind of privilege, the same privilege must be given to Sri Lankan businessmen as well. In the energy trade, all local investors are paid in rupees. 

What will happen in the future when large investments come in? We need foreign investment, green funds, and private equity funds to come and invest in the power sector. For such investors to come into the country, we need an internationally bankable tariff for everyone, not just for one or two parties. That is my concern. In fact, the local market generalises everyone. What happens now is unsolicited, which cannot be accepted. There might be one unsolicited transaction, but it cannot be a precedent.

The first foreign investment we are talking about is a 500 MW project. At present, NCRE (Non-Conventional Renewable Energy) penetration is 1.6 GW, so 500 MW is one-third of what we have and one-twentieth of what we are planning by 2030. This is not bad, but why aren’t other local investors or any other party treated the same way? We have basically been supporting the Government/CEB to keep the energy prices at a low level. Only the NCRE suppliers have helped them, none of the diesel power plants did and will not do it either. When the dollar goes up, their rates go up. However, our tariffs have always been in rupees and do not fluctuate based on exchange rates.

There are many local individuals, entrepreneurs, and companies that are keen on continuing and adding more energy to the national grid. In order to do this successfully, we need the CEB to pay the debts and the Government to introduce a multi-buyer model to the utility together with energy wheeling. That will stabilise the energy sector by determining the right price through demand and supply. That is the only available lifeline. 

The Government noted last year that its main focus was attracting more foreign investments. When you say equal opportunities must be given, do you think that local developers have the ability to bring in much-needed dollar-funded projects to Sri Lanka? 

When you say dollars will come in with Adani, no dollars will actually come in. The Indian credit line is a textbook case. Under the Indian credit line, we were given $ 100 million, out of which $ 90 million goes to India. All products come from India. It is a sovereign debt to the country. 

When you apply that to Adani, which is a multinational company coming to Sri Lanka and doing business, there is no investment here. Basically everything will come from India. There is no currency inflow coming into Sri Lanka. Even if the labour component is fulfilled by Sri Lanka, that will not amount to more than 5% of the project. 

I’m not against it. What I’m saying is that we need the same privilege. What right does the Government have to penalise us? Like in foreign investments, our lands should be secured by the Government. Our officials are working day and night to secure lands for Adani. You can’t have two different ways of treating people. There have been many projects of over 10 MW but the lands were not secured by the Sri Lanka Sustainable Energy Authority (SLSEA).

Actually, Sri Lankan companies should be given more than 15% tariffs of whatever is offered to foreign companies. These are the local procurement standards. If the company is Sri Lankan, priority should be given to it. But what happens is the opposite; privileges are given to the foreigners, not to the Sri Lankans.

The CEB is developing a new tariff formula for RE. Do you think it is the right time to have a tariff fixed for renewables, especially considering mega projects such as Adani?

There is no right time for tariffs; every day is the right time. We must not delay. If you consider price volatility in the rupee, it went down to Rs. 313 and bounced back. Panic selling probably resulted in the currency going down and it came back to Rs. 341 last week. If we can get foreign investors to come for rupee-based tariffs, that would be the best. Since the CEB has become a defunct and non-paying giant, local bankers have lost the appetite to fund RE projects.

If you look at the balance sheets of John Keells Holdings and Aitken Spence PLC – the two largest companies – it amounts to about Rs. 300 billion. However, the CEB’s balance sheet this year will be over Rs. 700 billion. CEB revenue for 2022 was Rs. 375 billion. The issue is in who runs it. A business of this magnitude must be run by business professionals.

Tariff settings are taking longer to execute and by the time it comes out, all fundamentals will have changed. We have been advocating the Government/CEB to absorb more renewables during times the exchange rate was under Rs. 200. However, they blocked it at the time. If they had brought renewable energy for the pricing that was prevalent at that time, which was under Rs. 20, we would not be talking about a 350% price hike for electricity. That is the problem. 

Now they are talking about paying Rs. 45 or Rs. 55 for renewables, but in a few years’ time, when energy costs over Rs. 200 per kW,  they will once again think, ‘why didn’t we buy enough at that time for Rs. 55’. They keep bargaining and blocking projects. As a result, the integration of renewable energy has become limited.

Recently, the CEB General Manager said that about 2,700 MW of renewables could be brought in. Suddenly, 2,700 MW is on the table when previously they were saying they couldn’t do so. Without any major upgrading of the grid, how can this suddenly become possible? It was available throughout and they were blocking it, but now they are facilitating it. It’s good to have it sooner than later.

How can it be possible now when it was not possible a year ago? If it’s a mistake which made the Sri Lankan consumer pay Rs. 60 per unit, the people who made the mistake should be held accountable and punished. We are not speaking only of one individual. If an entity like the CEB makes a mistake, it affects about 23 million people. There is no accountability in the CEB.

The National Health Service in the UK is the largest public health service in the world, professionally run by professional healthcare managers. They are not doctors – maybe a few are doctors. They are basically health managers. However, Sri Lanka’s largest business is run by a set of engineers who can’t do their own solar energy system.

Let us assume that the rupee is going to further depreciate and hit Rs. 500 – the prices should be adjusted then. As long as we have a fossil fuel-biased grid, the prices will go up. The experts who said that coal power could be provided for Rs. 3 are now hiding. We predicted this six years ago. Neither the CEB nor the Ministry is undertaking the necessary adjustments in this highly turbulent economy.

Should the grid expansion cost be included in RE tariffs?

The grid is always the Government’s property. It was never our property. If it is a large project where there is no connection at all, the investor should take care of it. But most projects are concentrated on the grid. Grid expansion is inbuilt in some of the mega projects proposed for the areas where there is no grid connection.

What sort of RE project is more favourable for the Sri Lankan environment?

Rooftop solar is more favourable for Sri Lanka. It can be done without any usage of land and with minimum distraction to the environment. The overall impact on energy volatility is low. When it rains in one place, it does not rain in other parts of the country. We can have a distributed network of renewable energy by way of developing the domestic market such as rooftop solar. 

If we are capable of paying Rs. 120 for diesel, why can’t we pay for renewable energy? They are reluctant to pay the same price they pay for diesel for BESS (Battery Energy Storage System).

Sri Lanka recently signed a Memorandum of Understanding (MoU) for nuclear cooperation with Russia. Nuclear is a zero-emission clean energy source and it generates power through fission, which is the process of splitting uranium atoms to produce energy. Do you think nuclear energy can help meet our country’s demand?

We are already in a debt trap of $ 62 billion and there was a discussion held last weekend with some very eminent professors and intellectuals. They were speaking particularly about nuclear power and they said this was not suitable for the country and that we did not have a large enough space where we could have a nuclear power plant.

Nuclear is of a different magnitude altogether. They are talking about an investment in the range of $ 1.1-4 billion for a 55 MW plant. Let’s take it at the lowest. The CapEx alone is going to cost the consumers $ 6 cents per kWh. If it hits the maximum, it will cost around $ 2. This is a 50-year plant. 

Generally, the implementation cost is lower than the cost of removal. Right now, Russia has said they will take back the plant once it is retired, but they have already defaulted on many international conventions. If they can default on international conventions, what about us? If, after 50 years, they say that they don’t want the plant, what are we going to do?

Sri Lanka has done many things that it cannot do. Therefore, it has to be stopped at the right time. We are going to make a decision for the three generations that will come after us. This is the danger zone we are in. If this kind of decision is going to be made, it should be done with a referendum, since the next three generations have to be accounted for.