The Energy Services Delivery Project - ESDP (1997-2002)

The ESDP was created because the GoSL wished to facilitate a transition from the public sector monopoly to a more market-based system in order to extend energy access to the rural populations, taking into account the challenges and barriers that had been identified. In addition to the global objective of mitigating carbon emissions, the national objectives were the following:

  • Encourage the participation of the private sector, NGO’s and cooperatives in the provision of grid-connected and off-grid energy services using renewable energy sources.
  • Reduce demand for electricity through Demand-Side Management (DSM)
  • Strengthen public and private institutional capacity to deliver energy services through renewable energy and DSM.

The project was designed to finance investments in selected energy resources by the private sector and the Ceylon Electricity Board (CEB), and provide capacity-building for renewable energy development and DSM.

Project components:
Total estimated project costs
US $55.6 M

Credit Line:
US $48.9 M
Medium and long term financing to private firms, NGO’s and cooperatives
for Solar PV, Village Micro Hydro Systems, rehabilitation of grid-connected
tea estate mini hydro sites and other renewable energy investments through
Participant Credit Institutions (PCIs). [1]

Pilot wind farm:
US $3.8 M
3 MW grid-connected wind farm developed by the private sector for

Capacity building:
US $2.6 M
Support for commercial building energy efficiency initiatives, strengthening
CEB to implement DSM action plan, preparing natural Renewable Energy
Strategy, and facilitating private power investment and pre-electrification,
institutional support to ESDP credit line and participant banks.

Actual project costs
US $44.3 M


World Bank
project snapshot:

US $21.1 M
US $ 5.7 M

Project dates


Simultaneously, this project was supported by the UNDP (1998-1999) with the Sri Lanka Renewable Energy & Energy Capacity Building Project, to complement the ESDP with the necessary Technical Assistance (TA) to the CEB’s Pre-Electrification Units, to support private sector and NGO developers of renewable energy projects and to support to CEB’s DSM unit for load research. Its objectives were to encourage private sector investment in mini hydro and Village Hydro, wind and biomass projects by addressing resource capabilities and pre-feasibility issues; and to build up professional capacity in renewable energy and energy efficiency industry, design and implementation.

The additional TA provided by UNDP/GEF was complementary to the ESDP TA component. In relation with mini and village hydro projects, it was meant to provide a hydro resources assessment in one hydrologic basin of the country, pre-investment documentation for grid-connected hydro projects, methodological documentation and software and a training seminar.

Contemporaneously, the GoSL received the cooperation of USAID through CEB and the work conducted by the National Renewable Energy Laboratory (NREL) of the USA, in the field of wind and solar resources mapping, as well as their integration into Geographic Information Systems and the identification of grid-connected wind projects. The wind energy potential assessed for Sri Lanka shows that over 24 GW installed capacity is possible. [2]

Under these circumstances, in 2002, a successful period of the implementation of small hydro systems started to meet the growing demand and to reach the remote and poor sectors of the population in Sri Lanka.

The IDA funds were on lent to PCIs at the Average Weighted Deposit Rate (AWDR) [3] and those PCIs on-lent to final borrowers at market rates and terms.

The physical targets were met or exceeded, at about 20% lower cost in US$ dollar terms than planned. The final investment costs of the village hydro and mini hydro components were lower than expected in US $XX per kW installed capacity.

The GoSL assumed the credit risk of each individual PCI and PCIs repaid directly to the GoSL.

Type of hydro development
Grace Period
AWDR + 4%
6 - 8 yrs.
1 - 2 yrs.
AWDR + 4-6%
6 - 8 yrs.
1 - 2 yrs.

Type of hydro development
Actual results by 12/31/02
21 MW developed by private sector
31 MW installed by 10 private developers and
15 sub-projects with planned additional capacity
250 kW in 20 systems serving 2000 HH
350 kW serving 1,732 HH

Outcomes and Impacts:


  • As specific outputs of mini hydro development, it can be mentioned the existence of six private hydro developers and that the hydropower development costs were 6 % less than the planned costs per kW installed capacity, or $963.5/kW vs. $1,030/kW.
  • In the case of Village Hydro Systems, the completed average cost show US$ 2,060/kW in comparison with US$ 2,023/kW of the project estimations.
  • The average ERR [4] as well as the FIRR [5] are higher than foreseen by the project, due basically to higher capacity factors than estimated in the project and due to the design of the plants based on the available average dry season flow in the project sites.
  • In addition, the avoided costs of the consumers were higher than estimated, increasing the willingness to pay for village hydro generated electricity.


  • The protected demand of 100W per household became insufficient, compared with actual demand of 200 W per household.


  • The global development objectives were to mitigate the impact of GHG emissions by overcoming barriers to RE and energy efficiency. These objectives were fully achieved.


  • In the field of grid-connected renewable energy projects (mainly mini hydro power plants), it is worth mentioning the development of Small Power Purchase Agreement (SPPA) with CBE and the availability of long term credits through local commercial Banks.
  • The ESDP generated collective experience in RE and a dynamic energy industry and expertise community, together with the above mentioned achievements in the strengthening of the on-grid and off-grid power generation and distribution infrastructure.
    • As result, ESDP generated a strong industry of renewable energy developers, suppliers, consultants and trainers in Sri Lanka.
    • The financial institutions of Sri Lanka have gained experience with on-grid and off-grid hydropower generation (including PV SHS and wind energy) as result of the implementation of the ESDP. These were commercial Banks, leasing companies and MFIs.
    • The GoSL and its energy institutions have a greater awareness of the RE projects. Also at the provincial levels of authority. The close relation with off-grid systems brought the consciousness of the importance of energy, the private participation, the role of the PCIs and to commit its participation in similar future projects. The CEB has enhanced its institutional capacity in implementation of RE projects.
    • The village hydro community has reached a critical mass and has standardized approaches for locally manufactured equipment.
  • Private suppliers and developers have entered also the market and have initiated the general improvement of after sales services.
  • The mini hydro design and construction capacity has reached a sufficient development in the country as to motivate the entrepreneurs to explore overseas markets.

Among the major factors affecting the implementation and outcome of the project outside the control of the GoSL, the energy Sector Unit of the WB identified:

  • the impact of the ethnic conflict on the market for RE in Sri Lanka
  • the availability of long term capital in the country
  • the international price of oil.

The last of these affected the tariffs of mini hydro projects, defined as the cost of avoided capacity of oil fired power plants.

The factors under the control of the GoSL were related to:

  • the availability of long-term financing capital
  • the regulatory oversight on small hydro power tariffs that generated loss of confidence among the developers and financiers before the revision of the formula that sets a floor price and sets tariffs as a rolling average of three year values.

The participation of the Micro Finance Institutions (MFIs) was of decisive importance for the establishment of the off-grid village-hydro systems.

[1] PCIs: DFCC Bank, National Development Bank (ND B), Hatton National Bank (HNB), Sampath Bank, commercial Bank and Saravodaya enterprises Development Sources (SEEDS).
[2] D. Elliot, et.a., Wind Energy Resources Atlas of Sri Lanka and the Maldives, National Renewable Energy Laboratory, prepared for the U.S. Agency for International Development, August 2003.
[3] AWDR: Average Weighted Deposit Rate.
[4] ERR: Economic Rate of Return
[5] FIRR Financial Internal Rate of return