• Energy Ministry awaiting Cabinet decision on memorandum submitted last week
• Concerns that revoking approvals might undermine investor confidence

The Energy Ministry is awaiting official communication of the Cabinet’s decision on the memorandum it submitted, which proposes to appoint a review committee to regularise the implementation of Renewable Energy (RE) projects received through the Expression of Interest (EOI) process.

The EOI process was initiated in 2021 under Cabinet approval and aimed to expedite RE projects to meet Sri Lanka’s energy demands sustainably. Over the past two years, several projects received approvals, with some advancing to final implementation stages. However, the ministry’s recent Cabinet memorandum seeks to overturn much of this progress.

Proposed measures 

Several weeks ago, the ministry proposed a set of measures in a Cabinet memorandum to address issues related to the implementation of RE projects. A key action included the revocation of previous Cabinet approvals that hindered the alignment of these projects with the Sri Lanka Electricity Act No.20 of 2009 (as amended). This move aims to ensure compliance with the legal framework set by the act. 

Additionally, the ministry recommended suspending the further processing of EOI projects under Sections 17 and 18 of the Sri Lanka Sustainable Energy Authority Act No.35 of 2007. This suspension is intended to ensure legal compliance and prevent deviations from the prescribed procedures.

The ministry also plans to develop technology-specific standards and Standardised Power Purchase Agreements (SPPAs) for RE projects above 10 MW. These measures are designed to promote the principles of non-negotiable, least-cost electricity production, ensuring a transparent and efficient process for future projects while aligning with national energy goals.

However, as reliably learnt by The Sunday Morning, the Cabinet has approved the Energy Ministry’s proposal to appoint an expert committee and to seek observations from the Ministry of Finance. 

The ministry has also sought legal advice regarding the regularisation of RE projects received through the EOI process. In a letter addressed to the Attorney General (AG) on 10 December 2024, the ministry requested legal guidance on the draft Cabinet memorandum, focusing on regularising the implementation of these projects.

The ministry has sought advice on the legality and procedural implications of revoking previously granted Cabinet approvals, considering the commitments already made by developers. 

Furthermore, it has requested guidance on creating a legally robust framework for implementing a technology-specific standardised tariff and SPPA for RE projects above 10 MW, ensuring compliance with the Sri Lanka Electricity Act and related statutes. 

The ministry also seeks measures to address potential claims from developers who have incurred expenses and secured preliminary approvals based on the EOI process, while ensuring alignment with the national electricity policy.

However, The Sunday Morning learns that the AG’s Department has warned of the possibility of legal action from investors if the ministry proceeds with revoking the previously granted Cabinet approvals and submits a standardised tariff for the projects.

Energy Ministry stance 

When contacted, Ministry of Energy Secretary Prof. Udayanga Hemapala stated: “Even if the ministry decides not to proceed with the standardised tariff, the projects must be completed by June.”

Projects were approved under the previous Electricity Act (Sri Lanka Electricity Act No.20 of 2009), and with the new Sri Lanka Electricity Act No.36 of 2024 coming into effect in June, any projects that have not completed their documentation process will be cancelled.

Prof. Hemapala acknowledged that legal cases would likely arise after June, as it would be impossible to complete projects in just a few months.

“What we are trying to do is bring these projects under legal provisions and give them legal validity. We will suggest a standardised tariff and investors can consider the tariff and proceed with the project,” the Secretary explained.

According to Section 11(2)(3) of the Sri Lanka Electricity Act No.36 of 2024, the minister, on the advice of the council, may, by order published in the gazette, specify the maximum capacity of RE technology-based power plants eligible for SPPAs with the National System Operator. 

However, the maximum capacity for such plants from a contiguous location using SPPAs on a cumulative basis shall not exceed 10 MW, a limit which may be further reduced by the minister once regulations for competitive procurement of new capacity are in place. Additionally, any electricity project located within Sri Lanka or its waters, involving electricity exports, shall require Cabinet approval.

The Secretary also emphasised that even if projects were submitted to the Public Utilities Commission of Sri Lanka (PUCSL), they would not be approved, as the projects did not comply with the existing law.

Legal fallout looms

Revoking Cabinet-approved projects poses a significant legal challenge. Developers and legal experts contend that such a move could lead to claims for damages under administrative and contract law principles.

“Revoking approvals undermines investor confidence and exposes the Government to costly litigation,” said a senior attorney familiar with energy sector disputes. “Developers who have made financial commitments based on Cabinet decisions have a strong legal foundation to demand compensation.”

The AG’s Department has reportedly raised similar concerns. In its response to the Energy Ministry’s request for legal advice, the AG warned of potential lawsuits if prior approvals were rescinded.

The ministry’s plan to introduce standardised tariffs for RE projects exceeding 10 MW has added another layer of complexity. The proposal aims to ensure uniformity and cost-efficiency in electricity procurement. However, critics argue that a standardised tariff fails to account for the diverse costs and challenges associated with different technologies and locations.

“This approach disregards the unique characteristics of each project,” said a developer involved in a large-scale solar project in the Northern Province. “Standardised tariffs might work for small projects, but for larger ones, they risk making investments unviable.”

The AG’s Department has also flagged the legal risks of altering tariffs for projects that have already secured provisional or final approvals.

Grid bottlenecks

The ministry’s justification for these policy changes includes addressing grid congestion caused by large-scale projects. Prominent among these are Adani Green Energy’s 484 MW wind power projects in Mannar and Pooneryn, a 700 MW solar project in Poonakary, and other mega-scale initiatives. These projects, approved without competitive bidding, have faced criticism over their lack of transparency and potential cost implications.

“These mega projects have locked up grid capacity, leaving smaller and more viable projects in limbo,” said a senior engineer at the Ceylon Electricity Board (CEB).

The ministry’s plan to standardise tariffs and revoke certain approvals is seen by some as an attempt to free up grid capacity. However, the approach has been criticised as reactionary and lacking strategic foresight.

For developers, the uncertainty surrounding policy revisions is deeply unsettling. Many have already invested heavily in feasibility studies, environmental clearances, and initial project approvals.

“The Government invited us to participate in the EOI process under one set of rules. Now it is moving the goalposts,” said a developer involved in a solar project in Hambantota. “This isn’t just bad governance; it’s a betrayal of trust.”

The stakes are particularly high for projects that are nearing final approval. Developers warn that abrupt changes to tariffs or legal frameworks could derail years of work and lead to significant financial losses.

The integration of RE projects into the national grid has long been a contentious issue. Many projects approved under the EOI process require significant infrastructure upgrades, including new substations and transmission lines.

For instance, the Oddamavadi solar project in Batticaloa requires a 132 kV transmission line and a collector substation at an estimated cost of $ 9 million, to be borne by the developer. Similar infrastructure demands exist for other projects, raising questions about the feasibility of integrating them within the current grid framework.

“The grid simply isn’t equipped to handle the scale of RE projects being proposed,” said a senior official at the PUCSL.

The controversy has fuelled broader concerns about the Government’s handling of RE policy, with critics accusing officials of prioritising political expediency over sound governance.

Despite the high stakes, key questions remain unanswered. The Energy Ministry has yet to communicate its proposed changes to the PUCSL, which is responsible for approving electricity tariffs and procurement processes.