• Calls to eliminate price negotiations in favour of transparent bidding

The country’s Renewable Energy (RE) sector is teetering on the brink of chaos as investors scramble for prices that match the exorbitant figures of the 480 MW Adani wind power project in Mannar and Pooneryn.

Experts are sounding the alarm, claiming that the Government’s flawed approach has plunged the sector into volatility. They are calling for an immediate halt to price negotiations in favour of competitive bidding, accusing authorities of mismanaging the future of sustainable energy.

Currently, RE projects are processed through a haphazard mix of methods, including a first-come, first-served basis. Projects above 10 MW are subjected to negotiated prices, while those below 10 MW are stuck with feeding tariffs. To add to the confusion, some projects over 10 MW are priced through tenders.

Amidst this turmoil, experts are calling for competitive bidding as a lifeline. They argue that eliminating price negotiations in favour of transparent bidding could restore order, ensure fair pricing, and attract more investments. The current approach, they claim, is unsustainable and jeopardises the country’s RE future.

Issues with Adani project

Against such a backdrop, a senior Government official told The Sunday Morning that top brass in the Ministry of Power and Energy had blatantly handed Adani inflated prices, completely disregarding the Technical Evaluation Committee’s (TEC) recommendations. 

In February 2023, the Board of Investment (BOI) approved a $ 442 million project by Adani Green Energy, set to build wind power plants in Mannar and Pooneryn.

This project marks the first legal challenge faced by the Adani Group in Sri Lanka, with a Supreme Court petition questioning the procurement process and construction.

The petition names 67 respondents, including several Government bodies and officials, and raises concerns about the project’s Environmental Impact Assessment (EIA) and the awarding procedure, disputing the claim of it being a government-to-government deal.

A key issue is the negotiated tariff of $ 0.0826 per kilowatt hour (kWh) for 20 years, which the petition argues would cause financial losses and burden consumers. A TEC had recommended a rate of $ 0.05 per kWh, while independent experts noted that Adani sells power to the Indian State at less than $ 0.04 per kWh.

Factors affecting prices

Clarifying the current RE price situation, Sri Lanka Sustainable Energy Authority (SLSEA) Chairman Eng. Ranjith Sepala explained that RE projects were being processed through various methods, including a first-come, first-served basis.

“When we consider RE prices, for projects above 10 MW, a negotiated price is approved, but for projects below 10 MW, there is a feeding tariff. For other projects, there are negotiated prices, and for some projects, there are tender prices. For example, for the Siyambalanduwa project, which has a capacity of 100 MW, there is a different price. That is the largest project that has been awarded so far. However, all other projects are below 10 MW,” he said.

Discussing the Adani investment, Sepala stated: “Adani is a different project; it’s a massive investment of around 480 MW. Investors who ask for a higher price should justify why they should be given such a higher price. Some projects are site-specific, and for some projects, special equipment needs to be utilised; therefore, such projects are considered equipment-specific.”

“As an example, when comparing the prices of projects in the middle of the country and in the coastal area, the prices will be different. We should consider the investment since the project is near the coastal area. As a result, the operations and maintenance costs can be different, and the equipment that is used can also be different,” Sepala explained.

“If we take the bird factor into consideration, to avoid any damage to birds, the turbine of that wind farm will need to be stopped. We can’t stop that immediately; we will need to use a radar system. An Artificial Intelligence (AI)-based radar system should be utilised. Sometimes, this plant will have to stop when the wind power is at its maximum; therefore, that is a factor. 

“Another factor is that even if the plant generates energy, the Ceylon Electricity Board (CEB) might say it cannot purchase the energy generated at that hour, so we will have to consider the energy curtailment factor. All these factors will be considered when deciding the final price,” he added.

Furthermore, he highlighted that investment funding would be considered, whether the investor sought funds from a local bank or a foreign bank. The interest rates and financial credibility will also be considered.

“Sometimes, the decisions taken by the CEB cannot be applied as a blanket decision, as there are unique factors that should be considered when deciding prices in each and every RE investment. On certain occasions, we should consider whether the site is provided by us or developed by the investor. Sometimes, the CEB doesn’t include the costs it incurs for land preparation, which can slightly change the prices,” he said.

Projects awaiting implementation 

As of now, according to the CEB, among the projects awaiting implementation are the 500 MW wind projects in Mannar and Pooneryn, led by Adani Green Energy, with a target completion date of January 2025. Achieving this goal is contingent on obtaining Government approvals and securing Power Purchase Agreements (PPAs) by the end of September this year. Additionally, the same company will be responsible for constructing a crucial 400 kilovolt transmission line for the project.

Another 700+ MW ground-mounted solar project with battery storage in Poonakary is expected by March, pending necessary approvals for transmission lines. Approximately 134 MW of this capacity will directly link to the national grid, capable of providing up to 700 MW of electricity through energy storage.

In Siyambalanduwa, a 100 MW ground-mounted solar project with battery storage is in progress, led by the consortium of Lakdhanavi Ltd., WindForce PLC, and Blue Circle Ltd. Completion is anticipated by the end of 2025, concurrent with the construction of the required transmission line system.

Additionally, there is a 100 MW ground-mounted solar project in Batticaloa by Solar Forge, aiming for completion by 2025, subject to necessary approvals and the conclusion of transmission line construction by October 2023.

Lastly, a collaborative effort between the CEB and India’s NTPC Ltd. (formerly known as the National Thermal Power Corporation) is underway in Sampur, involving a 130 MW ground-mounted solar project. This project will unfold in two stages, with the first phase adding 50 MW to the national system in 2025, along with the necessary transmission line infrastructure. Financial investment for the project will be facilitated through credit facilities provided by the Asian Infrastructure Investment Bank (AIIB).

Lack of foreign investors

When contacted by The Sunday Morning, Power and Energy Ministry Secretary Dr. Sulakshana Jayawardena revealed that for most new projects where tenders had been issued, only local investors had submitted bids.

Dr. Jayawardena highlighted the situation: “For the 100 MW Siyambalanduwa project, 50 MW Mannar project, and another 165 MW of RE investment, only local investors have submitted bids. When we floated a tender for 100 MW of Siyambalanduwa, there were only two bids from local developers. None of the international bidders participated in this tender. For Mannar, we recently floated a tender for 50 MW, and we are about to open the financial proposals to see the quoted prices. There were only local bidders for that as well and no foreign bidders.”

He explained the impact of this development: “We have foreign reserves of around $ 6 billion. If we develop our RE capacities with local developers, you will see a drain on foreign reserves. Local developers raise finances from local banks, which, while suitable, still negatively impacts foreign reserves due to the need to purchase equipment. This leads to a drain on our foreign reserves.”

Dr. Jayawardena also mentioned that the new Electricity Act mandated a competitive bidding process: “Previously, we had options, but the new act has removed all those options. We will now follow a competitive bidding process for all proposals. 

“Currently, we are working on nine projects with the World Bank to prepare them for the tendering and procurement process. Even for the 165 MW project, all the investors are local, with no foreign investors. This is due to the country’s risk. We have to understand that we are not like India, Saudi Arabia, Japan, or any other country. Given the current economic situation, people do not want to take the risk and invest in Sri Lanka.”

Regarding the Adani investment, Dr. Jayawardena stated: “The Adani investment is for around 480 MW of capacity, with the power plant alone requiring an investment of more than $ 700 million.”