A sweeping industry warning says Sri Lanka’s draft electricity policy risks higher bills, stalled renewables, and shaken investor confidence unless urgent legal alignment and genuine stakeholder consultation are carried out.
Sri Lanka is standing at a decisive crossroads in its electricity sector, with leading industry bodies warning that the Draft National Electricity Policy could trigger long-term damage if adopted in its current form. In a rare and unified intervention, a coalition of business, export, technology, energy, and manufacturing associations has formally raised the alarm, arguing that the draft policy contains serious gaps that threaten the country’s energy transition, affordability goals, and investment climate.
In their 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 outline a broad set of concerns. They argue that while reform of the electricity sector is necessary and overdue, the draft policy fails to provide the depth, clarity, and legal coherence required to safeguard Sri Lanka’s long-term energy security.
The submission acknowledges the urgency of restructuring Sri Lanka’s power sector, particularly in the context of rising costs, climate commitments, and economic recovery. However, it stresses that the current draft does not adequately address several foundational pillars of a modern electricity system. Key areas such as affordability, decarbonisation commitments, incentives for renewable energy, competitive market structures, and long-term financial sustainability are either weakly developed or missing altogether. Industry bodies caution that these shortcomings could undermine Sri Lanka’s ability to attract capital, maintain a stable energy supply, and meet national and international decarbonisation targets.
One of the most controversial elements of the draft policy is its approach to tariff reform. The policy proposes the removal of cross-subsidies and limits direct subsidies exclusively to households consuming less than 30 kilowatt hours per month. According to the joint submission, this proposal risks weakening access to affordable electricity and disproportionately affecting low- and middle-income households. Energy poverty in Sri Lanka is estimated at around 60 kilowatt hours per month, meaning the proposed threshold would exclude a large segment of vulnerable consumers. Industry groups warn that such a narrow subsidy framework could create significant social stress while also introducing fiscal risks.
Concerns are equally strong regarding the draft policy’s impact on renewable energy investment. Provisions that allow uncompensated curtailment, the removal of feed-in tariffs, and mandatory time-of-use tariffs for rooftop solar users are seen as particularly damaging. Industry representatives argue that these measures would make renewable energy projects unbankable for international lenders, raise the cost of capital, and discourage private sector participation. Slower renewable energy adoption, they warn, would directly conflict with Sri Lanka’s stated sustainability and climate objectives.
The submission highlights that policy credibility is as important as policy intent. Measures that are introduced without proper economic, technical, and financial analysis could undermine confidence in Sri Lanka’s energy sector at a time when stability is most needed. Investors, especially those involved in long-term infrastructure projects, require predictable rules, enforceable contracts, and transparent regulatory processes.
Procedural flaws form another major pillar of the industry critique. Under the Electricity Act, policy development is required to follow a two-stage consultation process involving regulators, system operators, licensees, and other stakeholders before broader public consultation. The joint submission notes that the draft policy appears to have bypassed this initial stage, moving directly to public consultation. This deviation, they argue, renders the process procedurally defective and raises red flags among international investors and development partners who place high value on regulatory governance and due process.
Legal and governance concerns further deepen the unease. Several recommendations in the draft policy are said to exceed the authority of the drafting committee and conflict with existing laws and contractual obligations. Proposals that override Power Purchase Agreements, deny compensation for curtailment, or destabilise feed-in tariff mechanisms could compromise the financial viability of electricity licensees. Such actions, industry bodies warn, would disrupt long-term contracts, increase uncertainty, and weaken investor trust in Sri Lanka’s regulatory environment.
The submission also criticises the draft policy for being backward-looking in a rapidly evolving global energy landscape. It points to the absence of a coherent framework for energy transition planning, grid-scale and distributed energy storage, competitive electricity markets, cross-border power trading, and emerging technologies such as green hydrogen. The policy’s utility-centric approach, they argue, does not reflect modern electricity systems or international best practices. Without these forward-looking elements, Sri Lanka risks falling behind regional peers in renewable energy deployment, technological innovation, and investment attraction.
Several specific clauses in the draft policy are identified as particularly harmful. Curtailment without compensation transfers system risk entirely onto generators, violating established contractual principles and reducing project bankability. Shifting rooftop solar users to time-of-use tariffs could increase household electricity bills and create loan repayment difficulties, discouraging distributed energy adoption. The removal of feed-in tariffs would severely limit new rooftop solar installations and delay the integration of renewable energy into the national grid. Industry bodies stress that a stable and predictable policy environment is essential for attracting private capital and ensuring long-term growth of the electricity sector.
The policy’s treatment of subsidies and cross-subsidisation is another area of concern. Restricting subsidies to households consuming less than 30 kilowatt hours per month risks deepening energy poverty. Past experience shows the dangers of poorly designed tariff reforms, with the previous removal of cross-subsidies leading to over 1.5 million electricity disconnections. Industry groups argue that cross-subsidies should be retained for households consuming below 60 kilowatt hours monthly, as well as for critical industrial and commercial users, to preserve energy access, support grassroots economic activity, and protect vulnerable communities.
International comparisons strengthen the industry’s argument. Neighbouring countries are adopting far more enabling renewable energy policies. Bangladesh, for example, has implemented net metering, open access frameworks, peer-to-peer energy trading, energy storage integration, electric vehicle incentives, tax benefits, and concessional financing to attract investment while maintaining energy security. The joint submission suggests that Sri Lanka could adapt similar mechanisms to balance investment growth, affordability, and decarbonisation objectives.
To address the draft policy’s deficiencies, the submission proposes a series of targeted amendments. These include strengthening transparency and ensuring fair compensation for curtailment, retaining 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 importance of conducting detailed impact assessments to evaluate the social, economic, and financial consequences of proposed reforms before implementation.
The submission also calls for closer alignment between the draft policy and the Electricity Act, along with coordination involving the Ministry of Finance and the Ministry of Policy Implementation. Without such alignment, tariff reforms could carry macroeconomic and fiscal consequences that undermine the long-term sustainability of the electricity sector. Meaningful consultation with technical experts, financial institutions, and market participants is seen as essential to ensuring reforms support affordability, investment confidence, and sector resilience.
Sri Lanka’s energy sector underpins much of the national economy, supporting industry, information technology services, tourism, and manufacturing. Policy instability or poorly designed reforms could have cascading effects on economic growth, employment, and international competitiveness. Conversely, a coherent, forward-looking electricity policy could attract foreign direct investment, accelerate renewable energy deployment, and strengthen national energy security.
Industry bodies have signalled their willingness to engage constructively with policymakers to develop a balanced and future-ready electricity policy. They argue that comprehensive revision of the draft policy, grounded in evidence-based planning and genuine stakeholder consultation, is essential to safeguarding Sri Lanka’s energy future. A modern policy framework, they contend, must anticipate technological change, market evolution, cross-border trade opportunities, and global decarbonisation trends.
The joint submission concludes with a stark warning. In its current form, the Draft National Electricity Policy risks undermining Sri Lanka’s energy transition and economic stability. Procedural shortcomings, legal inconsistencies, backward-looking measures, and inequitable tariff proposals could erode investor confidence and delay renewable energy growth. Industry bodies are calling for urgent revisions, robust impact analysis, and strict alignment with existing legislation to ensure the policy strengthens energy security, supports sustainable power generation, and protects consumers from disproportionate financial burdens. The outcome of this policy debate will shape Sri Lanka’s electricity sector for decades, determining whether the country can secure a sustainable, modern, and inclusive energy future.
