By Dr. Erandathie Pathiraja
Sri Lanka’s energy challenges are deeply rooted in structural issues, characterized by reliance on hydropower susceptible to climate variability, dependence on fossil fuels, and an outdated electrical grid. While the adoption of solar energy has increased rapidly, limitations such as grid saturation and high energy storage costs hinder further advancements. To bolster energy resilience in the short term, implementing low-cost policy measures like storage subsidies, shared microgrids, incentives for daytime energy use, and smart meters is essential.
For decades, Sri Lanka has grappled with energy insecurity, which has evolved into a structural predicament rather than isolated incidents. The country’s electricity framework is affected by three main vulnerabilities. Primarily, it depends heavily on a bimodal rainfall pattern, resulting in hydropower being prone to fluctuations. Secondly, there is a near-total reliance on imported fossil fuels, with minimal utilization of alternative renewable sources, mainly rooftop solar, to compensate for shortfalls. Lastly, the aging grid infrastructure is ill-prepared for the distributed energy landscape needed to address these issues.
As the El Niño phenomenon intensifies drought conditions and global crises persist, the urgency of the energy crisis escalates, particularly with rising demand. The need for cooling energy will also increase as South Asia faces more frequent and severe heatwaves resulting from human-induced climate change, urbanization, and El Niño effects.
The electricity landscape in Sri Lanka is fundamentally linked to water resources. Historically, hydropower has been the most affordable and cleanest source of baseload energy, providing 40-45% of the nation’s electricity during favorable rainfall years. The predictable rainy seasons from May to September and November to January create known peaks and troughs in generation. However, when these monsoon periods underperform, particularly during El Niño years, reservoir levels drop, prioritizing drinking and irrigation needs, compelling the Ceylon Electricity Board (CEB) to increase costly thermal generation.
This pattern of vulnerability is not new; Sri Lanka has faced drought cycles driven by El Niño for many years, typically occurring in intervals of 3-7 years. The El Niño-Southern Oscillation (ENSO) has historically influenced rainfall patterns, leading to both droughts and floods depending on the event’s timing.
Despite this history, Sri Lanka’s preparedness has often been reactive, characterized by emergency procurement, rolling blackouts, and public appeals for reduced consumption. Past droughts in 2016, 2019, and the most recent 2022-23 episode necessitated emergency fuel purchases, exacerbating the import bill amidst dwindling foreign reserves. In 2022, thermal generation constituted about 47% of the total electricity output, with oil-based plants compensating for reduced hydroelectric production. Such scenarios increase operational costs, particularly when they coincide with global oil price hikes. The crisis in 2022, worsened by the war in Ukraine, further complicated the situation, leaving Sri Lanka struggling to secure fuel shipments due to its heavy reliance on imports.
Additionally, the economic implications of thermal generation include higher emissions, reduced plant efficiency, and increased maintenance expenses over time. Fluctuations in global oil prices, influenced by geopolitical dynamics in the Middle East, render fuel-oil generation a financial risk. A sustained disruption in global supply chains could severely undermine the entire system.
On a positive note, solar energy’s contribution to Sri Lanka’s electricity mix has grown significantly, reaching approximately 7% by 2024 and nearly doubling by 2025. Rooftop solar, once a niche option at 2% in 2020, became a substantial player in the energy supply, contributing around 867 GWh and climbing to 9.5% by 2025. However, this growth faces two major barriers.
Firstly, grid capacity is overwhelmed in densely populated regions, primarily the Western Province. The CEB has imposed restrictions on new rooftop solar connections in these high-demand areas, limiting access for households that could benefit the most from solar investments. Energy curtailment has become a widespread issue globally due to constrained grid capacity, expensive storage solutions, and unpredictable energy generation.
Secondly, the cost of battery storage remains prohibitively high for many Sri Lankan households. Although the economics of standalone battery systems have improved since 2020, they are still largely unaffordable without financial assistance.
In contrast, various energy-dependent countries, such as Germany, the UK, the Netherlands, Spain, Australia, and Malaysia, have successfully implemented solar energy solutions and reaped the benefits during recent global crises.
Several policy measures can be enacted to improve the energy situation in the near term, particularly those that enhance energy security from a grassroots level. Initiating a targeted subsidy program for solar battery storage could significantly increase adoption among middle-income families, with a co-financing model covering 20-30% of costs. This program could also stimulate local installation and maintenance industries, creating green job opportunities.
Encouraging community microgrids equipped with storage facilities in urban developments, industrial parks, and rural areas, rather than relying solely on individual rooftop connections, could also help. Many countries, including Germany and Spain, are utilizing “solar balconies” for condominium developments and suggest adapting these concepts for schools and community centers.
Furthermore, incentivizing daytime electricity usage has already been implemented, with recent revisions to accommodate the growing electric vehicle market through time-of-use tariffs. Some nations, like the UK, encourage consumers to utilize more energy during the day to stabilize the grid, providing incentives or free rates to reduce storage needs and payments to solar farms for curtailing production.
Accelerating the deployment of smart meters should be a priority. The current rollout has been sluggish due to procurement delays, lack of urgency in policy implementation, and cost considerations. Recognizing smart meters as critical infrastructure with dedicated funding and statutory rollout targets could unlock significant value from other interventions. The absence of such measures adversely impacts time-of-use pricing, demand response, and the measurement of rooftop solar exports.
Beyond these immediate solutions lies the enduring challenge of transition financing. Shifting to a distributed renewable energy system necessitates advanced smart grid infrastructure and potentially an interconnection between India and Sri Lanka for regional energy balancing. Power sector reforms could attract private investment to fill the financing gaps left by the government. Here, Sri Lanka’s engagement with multilateral climate financing becomes crucial for developing infrastructure that enhances climate resilience and distributes benefits broadly within society.
Every solar panel installed, every smart meter deployed, and every battery added serves as a safeguard against future droughts, El Niño events, or oil price surges.
Rather than relying on crisis management, Sri Lanka has the opportunity to develop a robust energy system that minimizes the need for rescue operations. The nation has historically rebounded from energy crises through emergency actions, support from the IMF, and the eventual return of rainfall. However, true resilience requires proactive measures to address the certainties of future droughts, El Niño impacts, and oil market fluctuations.
Dr. Erandathie Pathiraja,
Research Fellow,
Institute of Policy Studies of Sri Lanka (IPS)
Financial Chronicle Biz English | Sri Lanka Business News.
