Sri Lanka’s energy sector is at a crossroads. The island nation has been struggling with power shortages, with an overreliance on imported fossil fuels, and the need to transition toward renewable energy. A recent island wide power shutdown proved the fragile nature of the energy sector that exists in the country. In this backdrop, the decision by India’s Adani Group to withdraw from its planned $442 million wind power project in Mannar and Pooneryn adds another layer of complexity to the situation. While this exit raises concerns about foreign investment, it also brings to fore questions on power scenarios especially with regard to renewable energy potential.
Adani’s Withdrawal and Its Impact
Adani Green Energy’s decision to withdraw from Sri Lanka’s wind power sector came after the government attempted to renegotiate tariff rates under the Power Purchase Agreement. The Sri Lankan government had sought to negotiate more favorable terms in the price of electricity. Experts believed, however, that the economicsof generating, transmitting and distributing electricity would make renegotiation not possible. This stepshines the light on balancing nationalinterest and foreign investment, especially in strategic sectors like the energy sector. The project itself ran into a snag when environmental and civic organizations filed petitions in the Supreme Court because of concerns regarding ecological devastation.
Current situation
Sri Lanka’s grid took a severe hit last month with a probable Sunday peakresulting in an island wide power outage. With regard to per unit pricing, as per Ceylon Electricity Board statistics, oil-fired electricity is priced as much as Rs. 115/kWh, while coal-fired energy is priced at Rs. 31/kWh in 2023. Further, incessant breakdown of Norochholoi power plant which requires Chinese engineers to be brought for repair cause more woes. It is also noteworthy that there are operational wind energy plants operated by CEB in the same area at Puttalam as the Adani Project, but no environmental damage has been associated with such already existing power plants.
Unleashing Renewable Energy Potential
Sri Lanka possessesenormous untapped potential in renewable energy, primarily in wind and solar energy. The coastal regions and offshore areas have the most favorable conditions for generating wind power, and the tropical nature of the country guarantees constant sunlight for solar power.
Studies have indicated that Sri Lanka’s offshore wind resources can be a game-changer in achieving energy self-sufficiency. Investment in these industries can reduce foreign fueldependence, lower the cost of electricity, and enhance energy security. With this direction, the journey of India’s shift towardRenewable Energy has been remarkable for the last 10 years with agrowth rate of 388%. Earlier last year, Founder and CEO of CEEW, a green energy and environment think tank Dr. Arunabha Ghosh had said that India is currently the 4th largest solar energy market in terms of installedcapacity globally and India is constantly modifying its market design to reduce the costs. India’s growth in the green energy sector has been a blessing for neighboring countries. Nepal, a country hitherto plagued with power shortages, depending on India for more than half of its power supply in 2019, managed to change the scenario through well-planned implementation of its projects. With projects being installed under GMR and Satluj Jal Vidyut Nigam among others, Nepal has transformed its energy sector now emerging as an energy exporter. In the same way, the potential for energy turnaround in Sri Lanka is also enormous. With projects such as roof-top solar systems for religious institutions and schemes for the construction of renewable energy infrastructure in the North and Eastprovinces, there is also a shift towards sustainable production of energy. Large-scale expansion of these activities could take Sri Lanka towards a more robust and sustainable energy mix.
Rebuilding Investor Confidence
Adani’s withdrawal raises concerns about the investment climate in Sri Lanka’s energy sector. To attract and retain foreign investors, the government must ensure greater transparency, predictable and consistent policies, and a regulatory framework that encourages fair competition. By addressing these factors, Sri Lanka can foster an environment where both domestic and international investors feel confident in committing to long-term energy projects.
Investment will be crucial for a country like Sri Lanka because past experience has been that debt has put pressure on the economy. The 2022 economic crisis has been a valuable lesson to avoid the trend of debt, which has been a consistent message from India on several occasions.
Regional Energy Cooperation with India
Despite Adani’s exit, Sri Lanka continues to engage with India on energy collaboration. Among the initiatives that are proposed is the power grid interconnection between the two countries. If implemented, this project would allow Sri Lanka to import electricity from India during peak demand periods and export surplus renewable energy when available. Such a system would enhance energy security, stabilize supply, and reduce dependence on costly emergency power production methods. Moreover, India has already been involved in several renewable energy schemes in Sri Lanka, for example, building wind and solar power in the Jaffna peninsula. Sampur power project adds more muscle to this cooperation which can aid to speed up Sri Lanka’s greener future energy.
Diversification and Future Strategy
Sri Lanka’s energy mix today is dependent on coal and diesel-fired power stations and is therefore vulnerable to fuel price fluctuations and foreign exchange deficits. The economic crisis of 2022 reflected the risks of such over dependence when shortages of foreign currency resulted indisruptions in bringing in oil and coal, and subsequently, prolonged power cuts.
To minimize such threats, Sri Lanka must diversify its sources of power. These involve increasing the utilisation of renewable sources, introducing liquefied natural gas (LNG) into the grid, and modernizing existing power plants to enhance efficiency. The development of offshore wind farms and enhancing solar energy production can significantly lower the island nation’s reliance on imported fuels.
Conclusion
Adani Green Energy’s pullout from Sri Lanka’s wind power sector poses challenges but also opportunities to rethink and adopt measures for ease of doing business. By tapping its renewable energy sources, improving investment policies, diversifying the energy mix, and improving regional cooperation, Sri Lanka can make a transition towards a more sustainable and self-sufficient power sector. While there are still near-term challenges on the horizon, this moment presents an opportunity to build a stronger, more resilient energy future for the economy and the world.
