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From: web.worldbank.org
ESDP (Energy Service Delivery Project) & RERED (Renewable Energy for Rural Economic Development)

Table of Contents
Overview
Historical perspective
Background on the energy situation in the 1990s
Program Summaries
Analysis
Additional information



Overview


Where: Territory of Sri Lanka

What: Three medium term renewable energy programs which included: private sector participation, energy efficiency, DSM, Institutional and regulatory development, and mini and micro hydropower development in three distinct stages:

1. ESDP - 1997-2002

  • Mini Hydro Grid-connected Plants: 31 MW installed.
  • Off-grid Village Hydro Systems: 350 kW
  • Mini and micro hydro Potential Assessment: 100 MW in 250 sites.

2. RERED - 2003-2008

  • Mini Hydro Grid-connected Plants: Additional capacity of 87.3 MW, in 39 mini hydro units.
  • Off-grid Village Hydro Systems: Additional capacity of 1,135 kW, in 114 micro hydro projects commissioned.

3. RERED - Additional Financing - 2008-2011

  • Mini Hydro grid-connected plants: Additional capacity of 17.9 MW, in 7 mini hydro units. Additionally 6 projects under construction with 22.5 MW.

  • Village Hydro Systems: Additional capacity of 81 kW; in 12 micro hydro projects commissioned.

Carbon: Grid-connected mini hydropower plants saved between 2004 and 2007 a total of 930,402 tonnes of CO2 emissions due to electricity generation.

Impacts: Strong development of small hydropower run-of-river industry (developers, consultants, equipment manufacturers, financing intermediaries) ; carbon emission reductions ; improvement of energy efficiency and demand side management ; community based energy service institutions providing energy supply solutions with and for the base of the social pyramid ; incorporation of local small companies or consumer societies ; clean energy availability ; improvement in living conditions of poor families (health, water supply and education services improvement) ; productive use of energy and increase of incomes for the poor ; savings in energy cost for households ; job creation ; new access roads to remote villages ; increase in private sector participation (in investment, co-financing, project preparation, manufacture, supply and testing of equipment) ; regulatory and institutional evolution, adjustment of regulatory system for mini hydro and village hydro entrepreneurs.
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Relevant history pertaining to small hydro development in Sri Lanka


1974: The National Engineering Research Development Center (NERD) of the Ministry of Science and Technology Started activities; since then 80% of its research activities were related to energy, including hydro turbines and solar thermal energy.

1979: Started the Alternative Energy Unit of CEB

1980: ITDG [1] started activities in the region.
During the 1980’s 10 plantation, hydro schemes were rehabilitated.

1984: The Sri Lanka Energy Managers Association (SLEMA) started with the cooperation of USAID and the Government of the Netherlands to carry out energy efficiency training courses and workshops for energy managers and associated professionals.

1985: The GoSL created the Sri Lanka Sustainable Energy Authority by enactment of Sri Lanka Sustainable Energy Authority Act No 2, with the mission to guide the nation in all its efforts to develop indigenous energy resources and conserve energy resources through exploration, facilitation, research & development and knowledge management. The Energy Conservation Fund (ECF) was established.

1988: Power Sector Master Plan Study estimated in 30 MW the small hydro potential existent in 60 undeveloped sites; further 8 MW exist in about 290 irrigation tanks and reservoir sites. Another 50 MW of small hydro potential could be harnessed in 140 sites, to be rehabilitated or re-developed. This potential is considered important to meet the increase of electricity demand, both, on-grid and off-grid.

1991: The Energy Forum was established with the participation of RE related NGOs, private sector firms, government agencies. Since 1999 it is a non-profit organization. The Forum promotes RE, community based energy service organizations and articulates different levels of public administration in the country.
Village level Micro hydro were executed (2 villages) with participation of ITDG.

1995: CEB approved the establishment of Pre-Electrification Units (PEU). The Ministry of Science and Technology established the Alternative Energy Division. The NERD Center had on-going solar, wind and micro-hydro R&D Programs. The Ceylon Institute for Scientific and Industrial Research (CISIR) had similar activities as well as the University of Moratuwa.
A National Committee for preparing a Sri Lanka Energy Policy was formed. It included 14 representatives of the public and private sector.

1996: ITDG Sri Lanka (Currently “Practical Action”) carried out courses on mini-hydro grid-connected design and analysis. During 1996, ITDG Sri Lanka [2] studied cascading hydro sites ranging from 150 to 500 kW for a private tea estate. Two grid-connected demonstrations were financed, and 500 existing hydro sites were identified in disuse.
Hydro developer Syrex promoted 6 hydro schemes.


[1] Intermediate Development Technology Group
[2] W.R. Asanka Perera, Muhaweli, Deputy Manager, Hydro Power, CEB.

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Background on the energy situation in the 1990s


Key data points
  • Sri Lanka is an island country in the Indian Ocean with 65,600 km2 surface and 20 million inhabitants.
  • In 1996 Sri Lanka faced a growing power demand up to 8% per year. Out of the total population 75% lived in rural areas. At that time the GNP per capita was in the order of US$ 750.
  • In 1997 about 70% of Sri Lanka’s households outside Colombo and the Western Province lacked access to grid electricity. The Ministry of Irrigation and Power estimated that only 42% of the rural households would be economically feasible to connect to the grid by 2000.
  • The power generation and transmission was under the exclusive responsibility of the state owned Ceylon Electricity Board (CEB). The electricity services were cut up to 6 hours per day. The CEB owned and operated 1409 MW installed capacity in Sri Lanka - 1137 MW hydro and 272 MW thermal - and generated 3500 GWh per year, i.e. less than 200 kWh/capita per year. CEB distributed electricity to 1.3 million customers and in Colombo, Lanka Electricity Company (LECO) distributed to 0.2 million customers. Additional 800 MW were necessary to be installed up to 2003. At that time, 300,000 off-grid households were using automotive batteries as power source for lights, radios and TV.
  • Biomass accounted still as the most important source of primary energy in the energy balance of the Country.
  • About 50% of the hydropower potential of Sri Lanka was already developed.
  • The country faced growing demand of imported fossil fuels to generate thermal power, mainly diesel.
  • In 1992, capital requirements for distribution investments averaged US$ 650/customer.
  • With as specific objectives to promote the provision of grid-connected and off-grid energy services by the private sector with renewable energy sources, including small hydropower, besides the Demand Side Management (DSM) strengthening and the improvement of private and public sector performance to deliver energy, the Government of Sri Lanka (GoSL) started in 1997 the ESDP. In 2002, a complementary project was approved, RERED, with funding of the same multilateral institutions and in 2007 an Additional Financing for RERED has been awarded to Sri Lanka.

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The role and vision of the government

The energy strategy of the GoSL, endorsed by the Environmental Action Plan (June 1994), pretended to optimally develop the energy resources within a least economic cost and environmental approach, develop and manage forest and non forest wood fuel resources, improve institutional capacity to develop the energy sector, promote efficiency pricing in energy, develop energy conservation and diversity energy sources.

The following steps were taken by the GoSL, in order to implement this strategy, and meet the growing demand of electricity:

  • To encourage private sector to invest in power generation, including renewable sources and diesel fueled generation.
  • To enter into power purchase agreements, awarding mini hydro sites to private entrepreneurs and removing selected import duties.
  • To promote energy efficiency and market based tariffs and taking demand side management measures to reduce demand
  • To initiate legal and regulatory changes.

Sri Lanka has ratified the framework convention on climate change.
As policy objective, the Government has declared the universal access to electricity by 2000.

Within a context of growing risk of energy supply shortage (up to 11 %) the cost of grid based service extension was perceived as increasingly expensive and there were growing pressures to extend the grid while 300,000 users were consuming electricity from automotive batteries.


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Opportunities and challenges for development
Sri Lanka has significant renewable energy potential, like hydro and small hydro power, wind and biomass.

A World Bank study confirmed the economic viability of rehabilitating at least 100 small grid-connected mini hydro power plants under 2 MW each. In 1999 ITDG identified 250 sites for 100 MW of small hydro capacity.

Pilot off-grid solar PV and Village Hydro Systems have been supported by the Government, multilateral financing organizations and NGOs before the implementation of the ESDP. Those experiences demonstrated the viability and social acceptability of small scale off-grid renewable energy technologies to provide electricity services to isolated rural areas.

The significant renewable energy potential in Sri Lanka -hydro, solar and wind - for small off-grid power projects, faced important barriers, constraining its market based development:

  • High up-front investment cost and lack of adequate term financing.
  • Lack of familiarity of the private sector and of the financing organizations with renewable energy projects.
  • High transaction costs, commercial risk perceptions and lack of consumer awareness.
  • Insufficient regulatory framework and market conditions for private project developers.
  • Lack of local, regional and social institutions for village hydro development

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Program Summaries


First Period: 1997-2002 - Energy Service Delivery Project - ESDP

This project, with the cooperation of the World Bank’s International Development Association (IDA) and GEF (Global Environment Facility), created a Renewable Energy Fund. This Fund was devoted to the financing of private Estate Hydro, Village Hydro, Photovoltaic Solar Home Systems (PV SHS), business development and an Administrative Unit of the Project.

The ESDP with a credit amount of IDA of US$ 24.2 million and a grant of US$ 5.9 million from GEF, besides the creation of an important industry of suppliers, developers consultants and trainers, four major solar companies (985kW), one 3 MW grid-connected wind farm in the hydropower field has achieved the following results:

  • Mini Hydro grid-connected plants: 31 MW installed capacity, in 15 sub-projects, compared with the target of 21 MW.
  • Village Hydro Systems: 350 kW installed capacity against 250 kW of project target; 1,732 beneficiary households against 2,000 anticipated in the project; total number of systems 35, 15 more than planned.
  • Mini and micro hydro Potential Assessment: 100 MW in 250 sites [3]

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. More details here ->


[3] In 2002 Nexant/SARI Energy prepared for USAID the Report “Regional Hydro Power Resources: Summary and Analysis of Selected SARI Data” that includes “Regional Hydro-power Resource: Status of Development and Barriers, Sri Lanka”, September 2002.

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Second Period: 2003-2008 – Renewable Energy for Rural Economic Development - RERED

The successful results obtained with the ESDP encouraged the formulation of the Renewable Energy for Rural Economic Development (RERED) Project. This project, initially scheduled for 2003-2007, lasted until June 2008, has been structured as Credit Program and a Technical Assistance (TA) Program, to be supported by both IDA and GEF. The development objectives were to improve the rural quality of life, providing electricity access to remote communities through off-grid renewable energy sources and to promote private sector power generation for the national grid from renewable energy sources.

With a total budget of US$ 133.8 million (US$ 75.0 million financed by IDA, US$ 8.0 million financed by GEF, US$ 50.0 million financed by other foreign commercial sources and US$0.8 million by the borrowers), RERED had the following objectives and targets in the field of hydropower investments in Sri Lanka:

  • Grid-connected Mini Hydro: 50 MW of capacity additions in 5 years. (Also 22.5 MW capacity additions were planned with wind power and 12 MW with biomass based generation).
  • Village Hydro Systems: 90 Village Systems planned to serve 4500 households.

The relevant achievements in the hydropower sector were the following, as of March 31, 2008:

  • Grid-connected capacity addition: Additional capacity in renewable energy technologies, 87.3 MW, in 39 mini hydro projects (plus 1 MW biomass installed capacity).
  • Off-grid Village Hydro Systems: 114 systems, with 1,135 kW in operation, serving 4,331 households.

More details here ->

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Third Period: 2008-2011 - RERED Additional Financing

In June 2008 the World Bank and GEF approved an additional financing of US$ 102.5 million, whereby IDA contributed with US$ 40.0 million and US$ 3.2 million unutilized funds from RERED, as well as US$ 1.1 million from GEF. The contribution of the GoSL amounts to US$ 5.5 million, the Sub borrowers US $29.5 million and the Participant Credit Institutions (PCIs) with US$ 23.2 million.

The development objectives of the Additional Financing for RERED were the increase of off-grid rural electricity access to promote economic growth and social development and to diversify and expand grid power generation through renewable energy resources. These objectives were to be achieved by enhancing the important energy market established in previous periods (1997-2007) with ESDP and RERED, with emphasis in private sector and community based solutions, enabling increased energy access, higher productive consumption of electricity and greater dependence on indigenous renewable resources for power generation.

Out of the total Additional Financing for RERED for the period 2008-2011, 58.5 % is devoted to grid-connected RE power generation, 34.6 % to solar PV (Photovoltaic) investments, 1.7 % to independent mini grid systems, 1% to energy efficiency and DSM, 0.5 % to cross-sectoral energy applications and 3.6% to Technical Assistance.

As of March 31, 2009, the achievements regarding the hydropower components were the following:

  • Mini Hydro grid-connected plants: Additional capacity of 17.9 MW in 7 mini hydro units, with 6 projects under construction, with 23.5 MW
  • Off-grid Village Hydro Systems: Additional capacity of 81 kW in 12 micro hydro projects commissioned.

More details here ->

Total achievements in hydro projects the period 1997 – 2009, as of March 3, 2009:


  • Mini Hydro grid-connected plants: 159.9 MW in 67 plants.
  • Off-grid Village Hydro Systems: 1,576 kW, in 141 villages for 6,435 beneficiaries.

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Analysis


Key success factors

Almost all NRE have thus far been financed and implemented as mini-hydro plants by the private sector through the World Bank’s ESDP and RERED project which will continue to provide funds until 2011 or when the funds have been exhausted. Some of the key success factors can be summarized as follows:

  • IPPs (Independent Power Producers) developing renewable energy projects of less than 10 MW capacity were exempt from pre-qualification process and Letter of Intent (LoI) are issued on first come-first served basis,
  • Standardized Power Purchase Agreements (PPA) with CEB was stipulated for off-take of power.
  • Minimum level of profitability from the project is ensured through PPA by agreeing to a minimum tariff.
  • Tariff is determined before beginning of each year by CEB based on avoided cost methodology (no capacity charge).
  • Government provided tax holidays ranging from 5 to 10 years, depending on the scale of the investment, and exemption from import duty during construction and implementation of the project.
  • Technical assistance and quality data has been provided through the government and the RERED project. [4]
  • Project developers were able to drive costs down by building in local efficiencies, for example, rolling penstock pipes on site rather than transporting them in pre-fabricated.

[4] Price Waterhouse Coopers, Hydro Sector Study of India and Sri Lanka, 2006

Lessons learned

The Sri Lankan experience of on-grid and off-grid mini and micro hydro generation in the context of ESDP, RERED and RERED Additional Financing for more than 12 year makes evident a series of lessons for the Developing agencies, multilateral and bilateral organizations and other stakeholder parties committed with development, social and environmental objectives.

  1. The complexity of mini and micro hydro development: It is evident that the small hydropower development requires a complex set of favorable conditions. The most relevant conditions are the following:
    1. A sufficient knowledge of the hydropower potential for mini and micro hydro available in the country, at least at an inventory level or at pre-feasibility level of the best suited candidates to meet the demand, preferably in the framework of a Master Plan.
    2. The existence of the market conditions (demand and tariff level), that justify the private sector intervention.
    3. An appropriate and if possible specific regulatory framework for micro and mini hydro.
    4. The existence or the promotion of developers, consultants, entrepreneurs and technicians for hydropower.
    5. The social acceptance of the future customers of isolated non-grid Village Hydro Systems.
    6. The credit accessibility and appropriate conditions for hydro power projects.
  2. The gradual adjustment of governmental energy policies in relation with mini and micro hydro is important. This relates to the extension of electricity service coverage to rural areas, the increase of the share of hydropower in the production of electricity in the country, and to the permanent interaction with regional and local authorities, target population entrepreneurs and international and multilateral cooperation entities. The evolution of policy is best handled in a dialectical, incremental approach and rooted in on-the-ground realities as opposed to ideology.
  3. Programs must be flexible and holistic in their design. The ESDP and RERED included a credit component, TA component and AU, as well as the input of different institutions experienced in technology, project preparation, project development, equipment supply, financing, equipment and materials testing, and social motivation and organization to establish consumer societies for off-grid systems.
  4. A good program is technology agnostic. Multiple technology options for grid-connected RET are needed to meet demand of electricity in off-grid communities. To a large extent, this choice is best made by the entrepreneurs, the developers and the communities depending on the specific site.
  5. Small hydro development programs such as these do require support. The lack of economies of scale in mini and micro hydro power plants, together with low tariff levels associated with the willingness to pay of poor communities or limited purchasing power make certain levels of tax exemptions and subsidies neessary to enable financial sustainability. The incremental cost evaluation and compensation has been and will be a key issue for sustainability of the smallest off-grid systems. Financial sustainability of grid-connected mini-hydro power plants requires, at least, long-term tariff level assurance, minimum load dispatch conditions and least cost and cost effective investments. Gradual exploitation of best potential micro hydro sites, will increase incentive requirements, subsidies or affordable access to carbon credits to make the projects financially viable.
  6. Grid improvements are often needed to absorb the power generation of the multiple mini hydro power plants and other connected renewable energy plants. The network capacity will determine the actual energy and power injection in the system or the rejection of this power and energy.
  7. To prevent under-planned performance of mini hydro power plants and Village hydro systems, the corresponding institutions (ECA) have to strengthen the labeling, machinery and equipment certification and after-commissioning testing, as well as appropriate procurement contractual conditions.
  8. The design of ESDP and RERED can serve as model for other electrification projects with renewable energy and energy efficiency components.

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Additional Information


Table of Contents


Summaries of lessons learned from previous reports

World Bank

According to the World Bank [5] the lessons learned during the execution of the ESDP were as follows:

· The unique design of the project can serve as a model for other rural electrification initiatives with RE and energy efficiency components. Its characteristics with potential broadest applicability were:

  • Demand driven and commercially focused.
  • Multiple stakeholders to overcome financial and Market barriers associated with small scale RE and energy efficacy.
  • Strategic partnership between central government, provincial councils CEB commercial and development Banks, MFIs, developers, contractors, consultants, industry associations, suppliers, rural electricity cooperators and consumers.
  • Stable, competent and proactive AU.

The lessons learned are concentrated around three main issues:

1. Business and policy environment:

  • The key barrier of access to capital must be addressed as a priority: Appropriate loan conditions, credit assistance, working capital, proper agents, PCIs and MFIs. Hereby was of paramount importance the particular country and institutional experience of Sri Lanka, both with mini- and village hydro systems.
  • For small hydro developers transparent and standardized contracting and tariff setting is essential (PPA) and for village hydro developers access to credits in favorable terms and to reliable manufactures of hydropower equipment were required before engagement of small communities with off-grid systems.

2. Scale-up the market: Several measures have to be taken to foster the continued growth of RE industry:

  • Reliable after sales service system to be established.
  • Information technology to be introduced in the PCIs and the MFIs to reduce delay of loan approvals to reasonable levels.
  • Consumers should be trained properly in operation, maintenance and energy use.

3. Establish robust Project and Financial management System: Apart from accounting, recordkeeping, it is worth to mention the performance of the AU in brokering partnerships among the stakeholders, assimilating the underlying technologies and setting up the financial management system.

The same report points out the following remaining challenges:

  • Policies and procedures with potential to create procurement problems during implementation should be addressed and resolved before (WB) Board approval, in order to avoid inordinate delays.
  • An independent regulatory regime is required to govern tariff determination, to safeguard adequately the sector’s financial viability.
  • The degree of risk in including project components in areas with lines must and/or difficult legality should be rigorously assessed during project preparation and appraisal, and mechanisms for downscaling or pulling out should be identified before such components are included.

[5] World Bank, Sector and Thematic Evaluation Group, Operations Evaluation Department, Report No.: 29532, “Project Performance Assessment Report Sri Lanka, Energy Services Delivery Project (Credit 2938. CE; GETF 28955)…“ June 25, 2004.

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CORE International Inc.

In this context, it is worth to mention some issues referred to in the report of CORE International, Inc . [6] in the experiences gained with ESDP and RERED thus far (2003):

  • Income generation opportunities in the electrified villages is higher than in un-electrified villages
  • Lack of capital and lack of technical training influence income-generating potential, regardless whether a village is electrified or not.
  • The capacity of the private sector is not sufficient to cater to the needs of the entire off-grid community. Development of partnerships should include public institutions and civil society to enhance their capacity to reach a wider group. The experience with ESDP and RERED shows the strength and the contributions of each such as follows:
  • Private Sector: Providing technology, energy services and after sale services for a fee (service companies).
  • Public Institutions: Developing a master plan incorporating grid extension and off-grid energy technology, in linking potential end-users with civil society organizations and private sector in establishing one-stop- shops for clearances and in monitoring after sale services.
  • Civil Society Organizations: Providing micro financing, in mobilizing the community, in organizing end-users, in conducting R & D and in monitoring after sales services.

[6] CORE International, Inc. “Global Village Energy Partnership (GVEP) Support to Sri Lanka on Action Plan Development”, submitted to Office of Energy and Information Technology, Economic Growth, Agriculture and Trade Bureau, U.S. Agency for International Development (USAID), Washington, D.C., U.S.A., April 2004.

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Resource Development Consultants (RDC)

The Monitoring & Evaluation Report of RDC [7] submitted to the AU points out, although not explicitly as lessons learned the following comments related to hydro projects:

  • DFCC Bank AU should pay more attention to the high incidence of post installation low performance of micro-hydro projects as well as to the high ratio of number of households served per kW. These aspects affect the quality of the service. The AU should ensure at the design verification stage the post installation performance.
  • It is necessary to continue to strengthen the Village Energy Consumer Societies to perform their duties properly. In addition, the Federation of Consumer Societies should be monitored.
  • Training efforts and enforcement of testing and certifying micro-hydro turbines and ancillary equipment will help to overcome power supply outages and poor quality lighting in certain cases.

[7] RDC, Resources Development Consultants Ltd., Colombo, Sri Lanka, “Monitoring & Evaluation of the Renewable Energy for Rural Economic Development Project”, Bi. Annual Report (6 Months ending 31st March 2008), submitted to DFCC Bank, Administrative Unit.

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Siemens Power Technologies

In addition, it is worth taking into account the results of a technical report [8] prepared by Siemens Power Technologies International Ltd. for the AU, with as objective the verification of the Capability of the interconnected grid to absorb the power generation of the grid-connected NRE small scale plants in normal and in contingency conditions without overload of the transmission system. This verification is more important the higher is the aggregated generation capacity of the mini hydro projects and other RE small projects to be incorporated in the interconnected system. This fact stresses the necessity of a Master Plan for RE projects to be connected to the grid in view of the least economic cost condition and the sustainability of the individual mini hydro generation enterprises and the technical compatibilization of the technical specifications of the power plant with the requirements of the grid, as well as to avoid the identification of hidden costs.

[8] Siemens Power Technologies Ltd,” Technical Assessment of the Generation Absorption Capacity of the Sri Lanka Power System – Final Report”, RERED Project (Renewable Energy for Rural Economic Development). Technical Assessment of Sri Lanka’s Renewable Resource Based Electricity Generation, Prepared for DFCC Bank, Sri Lanka, August 2005.

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Sri Lanka’s Energy Policy June 2008 and Non-conventional Renewable Energy (NRE) Based Electricity in the Grid

Table of Contents:
The challenges
Main characteristics of the energy sector
Energy policy elements
Implementing strategy
Specific targets, milestones, and institutional responsibilities
Nonconventional renewable energy (NRE) based electricity in the grid
Electricity pricing
Supply-side efficiency
Demand-side efficiency
Rural Electrification

The GoSL issued officially in June 2008 through the Ministry of Power & Energy this official document as committed in the framework of the RERED additional financing project, it declares the National Energy Policy of Sri Lanka. The most relevant and pertinent parts of this document for the RETs and particularly for small, mini and micro hydro development, are the following:

The Challenges:

  • Ensuring a continuous supply of electricity and petroleum products to meet the requirements of the growing economy.
  • To manage a strategic balance between indigenous resources and imported fossil fuels.
  • To strengthen commercial energy institutions
  • The increase of the involvement of the country’s population in the investment, operation and delivery of energy.

Main Characteristics of the Energy Sector

  • The energy supply in Sri Lanka is based on three primary resources: biomass (47.3%), crude oil and petroleum products (45.3%) and hydro electricity (7%).
  • To meet the growing energy demands of the country in the medium term, due to the constraints in development of hydro and biomass sources, will rely on imported fuels. In the longer term possible development of indigenous petroleum sources and NRE, may modify favorably the energy supply structure.
  • The energy sector governance is undergoing a process of reforms. The electricity supply nominated by the state sector is expected to be unbundled; the institution of regulation (PUCSL, created in 2002) is in place and in the process to be empowered, alongside with an enhanced regulatory legal framework.

Energy Policy Elements

  • Providing basic energy needs.
  • Ensuring energy security.
  • Promoting energy efficiency and conservation (Supply Side Management - SSM-and DSM).
  • Promotion of indigenous resources (reduce dependence, solve economic and social constraints).
  • Adopting appropriate pricing policy (cost reflectivity, targeted subsidies and competitiveness).
  • Enhancing energy management capacity.
  • Consumer protection and ensuring a level play field for stakeholders in energy sector.
  • Protection from adverse environmental impacts of energy facilities.

Implementing Strategies (RET and especially hydro power)

  • Providing basic energy needs (priority to improvement access by rural areas to commercial energy expansion of grid extension or off-grid systems for electricity access, and implementation of systematic action plan).
  • Ensuring energy security (fuel diversification in electricity generation, diversification of transport sector, regional cooperation, including viable cross-border energy transfer).
  • Promoting energy efficiency and conservation (SSM and DSM), ECF empowered.
  • ECF Act will be amended, power generation network losses reduction, electrification of railroad network, strategic plan for street lighting.
  • Promoting indigenous resources (use of economically viable, friendly, NRE resources, concessional financing to implement remaining medium scale hydroelectric projects; socially, economically and environmentally viable but not viable under normal commercial terms, incentives for access to green funding, including CDM to facilitate NRE, even if their economy is marginal, facilitation of an agency for systematic planning and promotion of NRE, R&D on adopting new technologies and practices in the use of NRE to sent local conditions).
  • Adopting appropriate pricing policy (PUCSL to be empowered for regulations to take appropriate pricing strategies, cost reflecting price policy, to ensure optimal energy supply and to identify special social groups deserving special consideration owing to social needs or commercial realities).
  • Consumer protection and ensuring level playing field for energy stakeholder.
  • Enhancing quality of supply (PUCSL) to assure minimum quality level and reasonable increase in allowed returns to utilities concerned.
  • Protection from adverse environmental impacts of energy facilities (PUCSL to apply National Environmental Act).
  • General strategies: Reform and restructuration of energy sector to enable both, state and private sector development; unbundling and reform of electricity sector and strengthening of PUCSL; international arrangements on CDM to facilitate financing of energy efficiency and RE developments, PUCSL to formulate project selection principles for energy sector supply side, central agency to ensure compliance of policy measures in energy efficiency and NRE developments.

Specific Targets, Milestones and Institutional Responsibilities

  • Medium term targets for electrification of households through grid extension: 80% of total household to be provided access to grid by 2010 and 6% of households using off-grid systems by 2010.
  • Responsible Institutions: Ministry of Power and Energy (MPE), Long Term Planning; PUCSL: implementation with support of electricity utilities, ECF, provincial councils and other stakeholders.
  • Target subsidies to all Samurdhi [8] beneficiaries on-grid, off-grid connected households and non-electrified households (50% of cost of supply of first 30 kWh/month, through different modalities).
  • Fuel diversity and security targets:

The structure of electrical energy supplied to the grid as a share of the total, will be the following:

Year
2010
2015
Conventional hydroelectric
42%
28%
Maximum from oil
31%
8%
Coal
20%
54%
Minimum from NRE
7%
10%

The institutional responsibilities remain with PUCSL, electricity utilities and petroleum subsector downstream players. The Long- Term Generation Expansion Plan shall reflect the strategy and milestones and shall be a 20-year plan, updated every two years.

Non-conventional Renewable Energy (NRE) Based Electricity in the Grid.

  • NRE Resources include small-scale hydropower, biomass including dendro power, biogas and waste, solar power and wind power.
  • Commercial development of biomass will be encouraged and facilitated.
  • The Government will endeavour to reach a minimum level of 10% of electrical energy supplied to the grid to be from NRE until 2015.
  • A review of technical limits and financial constraints of absorbing NRE will be carried out in order to remove technical and financial barriers.
  • The NRE strategy shall not cause any additional burden on the end use customer tariffs. If justified, the Government may subsidize it.
  • The Government recognizes that certain NRE technologies would require incentives to ensure their capacity build-up to contribute to the national NRE target. Incentives shall be provided on a competitive basis and shall be technology-specific.
  • To make available the incentives for NRE technologies, the Government will create an ‘Energy Fund’, which will be managed by the ECF. This fund will be strengthened with grants, energy cess and CDM proceeds. This fund will be used to provide incentives for the promotion of NRE technologies and strengthen the transmission network to absorb the NRE technologies into the grid.
  • NRE developments will not be charged any resource cost (royalty) for a period of 15 years from the commercial operation date. Resource costs charges from selected NRE technologies after the 15th year of commercial operation shall be used to finance incentives for further NRE development, through the Energy Fund.
  • The Institutional responsibility to implement this NRE strategy and to achieve targets shall lie with the PUCSL and ECF. The ECF shall prepare a Long-term Non-conventional Renewable Energy Plan (LTNREP), which shall provide interim targets for specific NRE technologies, upper thresholds of pricing, and resource costing. The LTNREP shall be a 20- year plan, updated at least once in two years. Implementation of the LTNREP shall be promoted and facilitated by ECF

Electricity Pricing

  • Gradual cost effective pricing of average electricity tariff with DSM; lifeline tariff to domestic consumers (50% up to 30 kWh/month for Samurdhi beneficiaries); Bulk electricity prices fixed through PPA and cost transmission distribution regulated.
  • The institutional responsibility corresponds to PUCSL, electricity utilities and General Treasury.

Supply-Side Energy Efficiency

  • Gradual reduction of transmission and distribution losses to 13.5 % of net generation by end 2009;
  • Optimal operation of integrated hydro-thermal system to maximize hydro power output;
  • Informed decisions on rehabilitation grid new investments in the national interest.

Institutional responsibility: PUCSL and electricity utilities

Demand-Side Energy Efficiency:

  • Labeling of appliances and continuous refinement of labeling method.
  • Capacity development of ESCOs in the private and public sector.
  • Enhancement of national energy database.
  • Availability of a variety of energy efficiency financing mechanisms.
  • Capacity development of financial institutions to treat energy efficiency.
  • Updating of Energy Efficiency Building Code.
  • Information for energy efficiency improvement.
  • The Ministry of Power and Energy shall establish a National Energy Planning Team with sufficient powers to analyze and make specific recommendations on energy sector aspects and performance assisted by the Department of Census and Statistics.
  • National Energy Database and Analysis of the Energy Sector Performance shall be updated every year.

Institutional Responsibility: The National Energy Planning Team shall prepare a 20-year plan and publish it at least every two years. The National Energy Balance and Energy Performance Sector shall be published annually.

Rural Electrification

  • A special fund will be created for rural electrification programs with donor funds, government contribution and from future electricity distribution utilities, as main sources.

Institutional Responsibility: The Ministry of Power and Energy, the Ministry of Finance and the PUCSL are responsible

[8] "Samurdhi" is the National Program introduced by the GoSL in 1994 to alleviate poverty.

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Sri Lanka Electricity Act No. 20 of April 8, 2009
The Sri Lanka Electricity Act was passed in the Parliament on 3rd March 2009. This Act in includes provisions enabling the Public Utilities Commission of Sri Lanka to regulate economic, safety and technical aspects of the Generation, Transmission, Distribution, Supply and Use of electricity in Sri Lanka.
The Sri Lanka Electricity Act repeals the Electricity Reform Act, No.28 of 2002 and the Electricity Act (Chapter 205).
I important issues related with generation, licenses are the following:

  • The administration of the provisions of the Electricity Act No. 20 shall vest in the Public Utilities Commission (PUCSL, referred to as the “Commission”) established under the Public Utilities Commission of Sri Lanka Act, No. 35 of 2002.
  • The functions of the Commission shall be to act as the economic, technical and safety regulator for the electricity industry in Sri Lanka, and to advise the Government on all matters concerning the generation, transmission, distribution, supply and use of electricity in Sri Lanka; to exercise licensing, regulatory and inspection; to regulate tariffs and other charges levied by licensees and other electricity undertakings, in order to ensure that the most economical and efficient service possible is provided to consumers; to promote the efficient use and conservation of electricity;
  • The Commission shall discharge the functions assigned to it by or under this Act in a manner which it considers is best calculated to protect the interests of consumers in relation to the supply of electricity, by promoting efficiency, economy and safety by persons engaged in, or in
  • Commercial activities connected with, the generation, transmission, distribution, supply and use of electricity; to secure that all demands for electricity in Sri Lanka are met; to secure that licensees acting efficiently will be able to finance the carrying on of the activities authorized or required by their licences; to promote the efficient use of electricity supplied to premises; etc.
  • The Minister shall have the power to formulate general policy guidelines in respect of the electricity industry.
  • The Minister shall forward the general policy guidelines to the Cabinet of Ministers for its approval. All amendments sought to be made to the guidelines approved by the Cabinet of Ministers, shall also be required to be approved by the Cabinet of Ministers.
  • Prohibition of generation of electricity without licence. Trespassers shall be guilty of offence and liable on conviction after summary trial before Magistrate.
  • Any person can participate in a bidding process for generation, provided it conforms the requirements of Law.
  • No person other than any one of the following shall be eligible to apply for the issue of a generation licence, to generate electricity over and above the generation capacity of 25 MW: i. CEB, ii. A local Authority, iii. A company incorporated under the Companies Act, No. 7 of 2007, in which the government, a public corporation, a company in which the government holds more than fifty per centum of the shares or a subsidiary of such a company, holds such number of shares as may be determined by the Secretary to the Treasury, with the concurrence of the Minister in charge of the subject of Finance.
  • No person other than the CEB shall be eligible to apply for the issue of a transmission licence.
  • No persons other than any one of the following shall be eligible to apply for the issue of a distribution licence: The CEB, a local authority, a company incorporated under the Companies Act, No. 7 of 2007, in which the Government holds more than fifty per centum of its shares; or a society registered under the Co-operative Societies (Law, No. 5 of 1972).
  • A person shall not be granted both, a generation licence and a distribution licence.

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The Public Utilities Commission of Sri Lanka (PUCSL)

The PUCSL was established in 2002 by the Act No. 35 a regulator for the Electricity and Water Service sectors. It came into operation in mid 2003 with the appointment of its authorities. After March 2006 Petroleum is also under the responsibilities of the Commission.

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Federation or Electricity Consumer Societies

This Federation joins the Electricity Consumer Societies of the micro hydro off-grid systems in rural areas of Sri Lanka. According to public information the fees has 104 ache members, Electricity Consumer Societies that serve 10,250 families and a total population of 51,000. Six Districts are represented and the Federation maintains close relations with the Energy Forum.

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