The Federation of Renewable Energy Developers (FRED), representing the leading renewable energy developers in Sri Lanka and affiliated with the Ceylon Chamber of Commerce, has issued a grave warning. The organization asserts that without government intervention to address the financial turmoil caused by payment failures from the National System Operator (Pvt) Limited (NSO), the domestic renewable energy sector is at risk of total collapse.
Payments for renewable energy contributions to the national grid have been completely suspended since December 2025. With monthly payment obligations amounting to LKR 2.5 billion, the cumulative defaults have surged to an alarming LKR 10 billion as of April 2026.
Underlying Issues: Favoring Costly Fossil Fuels Over Sustainable Alternatives
Senior officials from the NSO indicated that the main reason for this financial crisis is the preferential treatment given to payments for diesel and heavy fuel power generation. This approach is aimed at compensating for a daily supply deficit of approximately 100MW to 150MW due to inefficiencies in coal power generation since December.
The ongoing geopolitical tensions, particularly between Iran and the United States, have led to soaring costs for thermal power generation, reaching or exceeding LKR 100 per kWh.
FRED argues that it is unjust for traditional power providers to receive preferential payment treatment while the renewable energy sector is overlooked. They demand that renewable energy developers be granted the same priority in payments as coal, diesel, and heavy fuel operators. FRED cautions that continued prioritization of costly fossil fuel power generation, coupled with defaults on payments to renewable energy providers who offer more affordable and cleaner energy, could result in a supply crisis if these operators are forced out of business.
Impacted Capacity
This financial crisis negatively affects various renewable energy projects, including ground-mounted solar, mini-hydro, wind, and biomass installations, excluding rooftop solar systems. The capacity currently suffering from these payment failures includes:
Severe Consequences for the Industry
The inequitable treatment is severely impacting nearly 400 small and medium-sized enterprises (SMEs) and local entrepreneurs. The repercussions include:
- Impending Financial Defaults: Power plant operators are increasingly unable to meet their bank loan obligations, which poses a risk of widespread Non-Performing Loans (NPLs) within the banking sector and threatens broader economic stability.
- Significant Threat to Employment: Business owners have depleted their personal resources. Should the NSO not release payments promptly, thousands of employees—including technical personnel, laborers, electricians, mechanics, engineers, and administrative staff—will face salary delays.
- Operational Stagnation: The lack of revenue hampers operators’ ability to purchase essential spare parts for maintenance. This will likely lead to plant malfunctions, diminishing renewable energy output and worsening the national energy shortfall.
- Erosion of Investor Confidence: The apparent disregard for payment commitments is undermining investor trust. Future renewable energy tenders may experience significantly lower participation and increased tariff bids due to heightened risks associated with state business.
- Threat to National Credibility and Climate Objectives: This crisis endangers Sri Lanka’s standing with international funding bodies. Additionally, hindering the renewable energy sector poses a serious setback to the nation’s long-term clean energy ambitions and sustainable development goals.
Urgent Request for Action
To prevent the total breakdown of the renewable energy sector and avert further economic damage, FRED is calling on the Government of Sri Lanka to take immediate measures:
- Immediate Treasury Intervention and Grant Allocation: If the NSO struggles to obtain commercial funding due to its status as a new corporate entity with insufficient collateral, FRED strongly urges the Ministry of Finance and the General Treasury to step in. Furthermore, if the government or the treasury provides a grant, at least LKR 10 billion must be allocated specifically for the payments to renewable energy developers.
- Cabinet Action: An urgent Cabinet directive should be issued to authorize and expedite these financial solutions before the SME energy sector is compelled to default en masse with domestic banks.
FRED is prepared to collaborate with the government to secure a stable, sustainable, and economically viable energy future for Sri Lanka; however, immediate financial support is essential to maintain energy supply in the present.
