Sri Lanka is facing a critical juncture in its electricity sector, with industry bodies raising serious concerns over the Draft National Electricity Policy. In a joint submission, the Ceylon Chamber of Commerce, the American Chamber of Commerce, the Exporters Association of Sri Lanka, the Federation of Renewable Energy Developers, the Joint Apparel Association Forum, the National Chamber of Commerce of Sri Lanka, and the Sri Lanka Association for Software and Services Companies outlined gaps in the policy that, if unaddressed, could undermine the nation’s energy transition, investment climate, and affordability objectives.
The submission recognises the urgent need for reform in the electricity sector but stresses that the current draft fails to address several critical areas in sufficient depth. Affordability, decarbonisation commitments, incentives for renewable energy, market competition, and long-term financial sustainability are either inadequately addressed or entirely absent. The joint statement warns that these deficiencies could threaten Sri Lanka’s ability to attract investment, maintain energy security, and meet its decarbonisation targets.
Among the most contentious proposals in the draft policy is the revision of tariffs. The draft suggests removing cross-subsidies and restricting subsidies exclusively to households consuming less than 30 kWh per month. According to the submission, this approach could weaken access to affordable electricity, disproportionately impact low- and middle-income households, and pose significant fiscal risks. Energy poverty in Sri Lanka is estimated to be around 60 kWh per month, meaning the proposed threshold could disadvantage millions of citizens.
The draft policy also introduces measures that could deter renewable energy investment. Provisions allowing uncompensated curtailment, the removal of feed-in tariffs, and mandatory time-of-use tariffs for rooftop solar users could make projects un-bankable for international lenders. This, in turn, would increase the cost of capital and discourage private investment, potentially slowing the adoption of sustainable energy solutions. The joint submission emphasises that such policy measures, if implemented without proper analysis, risk undermining confidence in Sri Lanka’s energy sector.
Procedural concerns were also highlighted in the submission. The Electricity Act prescribes a two-stage consultation process with stakeholders and the public, but the draft policy appears to have bypassed the initial consultation with the Regulator, the National System Operator, licensees, and other relevant bodies. By moving directly to public consultation, the policy formulation is deemed procedurally defective, raising concerns among international partners and investors. The submission stresses that meaningful stakeholder engagement is essential to ensure a robust and legally sound policy framework.
Legal and governance issues compound the concerns. Several recommendations in the draft policy exceed the authority of the drafting committee and conflict with existing legislation and contracts. Proposals that override Power Purchase Agreements, deny compensation for curtailment, or destabilise feed-in tariff mechanisms could compromise the financial viability of licensees and disrupt long-term contractual obligations. These issues, if unresolved, may erode investor confidence and increase uncertainty in the electricity sector.
The submission also critiques the policy’s lack of forward-looking measures. It highlights the absence of a coherent framework for energy transition, energy storage, market competition, cross-border electricity trading, and emerging technologies such as green hydrogen. The draft’s utility-centric approach fails to consider modern electricity systems and international best practices. By not addressing these areas, Sri Lanka risks falling behind regional peers in renewable energy deployment, technological adoption, and investment attraction.
Specific clauses in the draft policy were identified as particularly problematic. Curtailment without compensation transfers all system risk to generators, violating contractual principles and reducing project bankability. The migration of rooftop solar users to time-of-use tariffs could increase bills and loan repayment difficulties, discouraging distributed energy adoption. Removal of feed-in tariffs would severely limit new solar rooftop installations and delay renewable energy integration. The joint submission stresses that a stable, predictable policy environment is essential to attract private capital and ensure long-term sector growth.
The policy’s approach to subsidies and cross-subsidisation is also under scrutiny. Limiting direct subsidies to households consuming less than 30 kWh per month risks exacerbating energy poverty. Previous removal of cross-subsidies led to over 1.5 million electricity disconnections, demonstrating the potential social and economic consequences of poorly designed tariff structures. Industry bodies argue that cross-subsidies should be retained for households consuming below 60 kWh monthly, as well as for critical industrial and commercial consumers, to maintain energy access, support grassroots economic activity, and protect vulnerable populations.
International benchmarking shows that neighbouring countries are adopting far more enabling renewable energy policies. Bangladesh, for example, has integrated net metering, open access, peer-to-peer trading, energy storage, EV integration, tax incentives, and concessional financing to attract investment while ensuring energy security. The joint submission notes that Sri Lanka could benefit from similar approaches to balance investment, affordability, and decarbonisation goals.
The joint submission proposes targeted amendments to address the draft policy’s critical deficiencies. These include strengthening transparency and compensation for curtailment, maintaining feed-in tariffs for renewable energy projects, allowing flexibility for rooftop solar prosumers, indexing tariffs to reduce long-term consumer costs, and protecting existing Power Purchase Agreements from retroactive changes. Industry bodies emphasise the need for a detailed impact analysis to understand the social, economic, and financial implications of policy measures before implementation.
Furthermore, the submission calls for alignment of the draft policy with the Electricity Act and coordination with the Ministry of Finance and the Ministry of Policy Implementation. Without such alignment, tariff reforms could carry macroeconomic and fiscal consequences, undermining the long-term sustainability of Sri Lanka’s electricity sector. Effective consultation with technical, financial, and market experts is necessary to ensure that the policy supports investment, affordability, and sector resilience.
The energy sector is a critical pillar of Sri Lanka’s economy, underpinning industry, IT services, tourism, and manufacturing. Policy instability or poorly designed reforms could have cascading effects on economic growth, employment, and international competitiveness. By contrast, a robust, forward-looking electricity policy could attract foreign investment, accelerate renewable energy adoption, and strengthen the nation’s energy security.
Industry bodies have expressed readiness to engage constructively with policymakers to shape a policy that balances affordability, sustainability, and investment confidence. The submission underlines that comprehensive revision of the draft policy, with meaningful consultation and evidence-based planning, is necessary to safeguard Sri Lanka’s energy future. A modern electricity policy should anticipate emerging technologies, market evolution, cross-border trade, and global decarbonisation trends to ensure the sector supports national development objectives.
The joint submission warns that the Draft National Electricity Policy, in its current form, risks undermining Sri Lanka’s energy transition and economic stability. Procedural lapses, legal misalignments, backward-looking measures, and inequitable tariff proposals could compromise investor confidence and delay renewable energy deployment. Industry bodies call for urgent revisions, detailed impact analysis, and alignment with legislation to create a policy that strengthens Sri Lanka’s energy security, supports renewable energy growth, and protects consumers from disproportionate financial burdens. The outcome of these consultations will shape the trajectory of Sri Lanka’s electricity sector for years to come, determining whether the country can secure a sustainable, modern, and inclusive energy future.
