SRI LANKA ENERGY SECTOR ASSESSMENT, STRATEGY, AND ROAD MAP DECEMBER 2019 ASIAN DEVELOPMENT BANK SRI LANKA ENERGY SECTOR ASSESSMENT, STRATEGY, AND ROAD MAP DECEMBER 2019 ASIAN DEVELOPMENT BANK Creative Commons Attribution 3.0 IGO license (CC BY 3.0 IGO) © 2019 Asian Development Bank 6 ADB Avenue, Mandaluyong City, 1550 Metro Manila, Philippines Tel +63 2 8632 4444; Fax +63 2 8636 2444 www.adb.org Some rights reserved. Published in 2019. ISBN 978-92-9261-888-9 (print), 978-92-9261-889-6 (electronic) Publication Stock No. TCS190557-2 DOI: http://dx.doi.org/10.22617/TCS190557-2 The views expressed in this publication are those of the authors and do not necessarily reflect the views and policies of the Asian Development Bank (ADB) or its Board of Governors or the governments they represent. ADB does not guarantee the accuracy of the data included in this publication and accepts no responsibility for any consequence of their use. 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If the material is attributed to another source, please contact the copyright owner or publisher of that source for permission to reproduce it. ADB cannot be held liable for any claims that arise as a result of your use of the material. Please contact [email protected] if you have questions or comments with respect to content, or if you wish to obtain copyright permission for your intended use that does not fall within these terms, or for permission to use the ADB logo. Corrigenda to ADB publications may be found at http://www.adb.org/publications/corrigenda. Notes: In this publication, “$” refers to United States dollars, and “SLRs” refers to Sri Lankan rupees. ADB recognizes “Ceylon” as Sri Lanka. Cover design by Jasper Lauzon. CONTENTS Tables and Figures iv Acknowledgments vii Abbreviations viii Weights and Measures ix EXECUTIVE SUMMARY 1 I. SECTOR ASSESSMENT: CONTEXT AND STRATEGIC ISSUES 5 A. Overall Sector Context 5 1. Energy Consumption 6 2. Energy Resources 10 3. Organization of the Energy Sector 12 B. Electricity Supply and Use 15 1. Overview of the Electricity Supply Industry 15 2. Electricity Use and Efficiency 37 3. Core Sector Issues, Causes and Effects 42 C. Petroleum Sector 61 1. Overview of the Petroleum Industry 61 2. Issues in the Petroleum Sector 64 II. SECTOR STRATEGY 69 A. Government Strategy, Policy, and Plans 69 1. National Energy Policy and Strategies 2008: 69 Summary Status of Implementation 2. Sri Lanka Energy Sector Development Plan 2015–2025 73 3. Policy Changes of the Government 74 B. ADB’s Sector Support Program and Experience 75 C. Other Development Partner Support 76 D. Future Support by Development Partners 77 E. ADB Self-Evaluation 78 1. Lessons Learned 79 F. ADB’s Energy Sector Strategy 82 III. SECTOR ROAD MAP AND RESULTS FRAMEWORK 85 APPENDIXES 89 iii Tables, Figures, and Annexes TABLES AND FIGURES TABLES 1 Key Economic Indicators, 2017 5 2 Key Indicators of Petroleum Industry, 2017 8 3 Key Indicators of Electricity Industry, 2017 9 4 Electricity Generation by Source, 2017 23 5 Number of Accounts by Customer Category, 2017 27 6 Distribution Assets Owned by Each Distribution Licensee, 2017 28 7 Target Transmission and Distribution Losses and Actual Losses 29 in 2016 8 Cost of Supply to Customers and Revenue, 2016 30 9 Structure of Approved Costs of Supply and Sales Income, 2011–2017 31 10 New and Renewable Energy Power Plants Serving the Grid, 2017 32 11 Avoided Cost-Based Feed-In Tariffs for Agreements Signed up 33 to 2007 12 Cost-Reflective Feed-In Tariffs for Agreements Signed after 2007 34 13 Subsidy Providers and Subsidy Receivers 39 14 Base Case Generation Expansion Plan, 2018–2037 47 15 Status of New Generation Projects 51 16 Power Sector Investment Requirements, 2017–2025 55 17 Electricity Price Comparison in the Region 57 18 ADB Sector Road Map and Results Framework 85 FIGURES 1 Energy Intensity of Countries with Similar Per Capita GDP 6 2 Share of Primary Energy Supply by Source, 2017 7 3 Primary Energy Supply, 2009–2017 7 4 Energy Use by Sector, 2000–2017 9 5 Organization of the Energy Sector, 2017 12 6 Functionally Unbundled Power Sector Monopoly, 2009–present 16 7 Changing Market Structure of Electricity Sales 17 8 Total Installed Capacity and System Peak Demand 17 9 System Load Profile on 17 May 2017 18 10 System Load Profile Normalized to the Peak Demand 19 11 System Annual Load Factor, 2000–2017 19 iv Tables and Figures 12 Generation Capacity Mix, 1986–2017 20 13 Generation Fuel Mix, 1986–2017 21 14 Energy Mix in Power Generation, 1986–2017 22 15 Installed Capacity Share, Ceylon Electricity Board, and Private 22 Power Producers, 1990–2017 16 Generation Energy Share by Ownership, 1990–2017 23 17 Planned Transmission System, 2025 26 18 Share of Customer Accounts of Each Distribution Licensee, 2017 27 19 Costs of Supply at Each Level of Delivery, 2016 30 20 Development of Generating Capacity from New Renewable Energy 36 21 Consumption and Customers in Each Household 37 Consumption Block 22 Estimated Generation Capacity Deficits, 2017–2025 52 23 Comparison of Electricity Prices for Medium-Scale Customers 58 24 Country Comparison of Electricity Supply Cost 59 25 Forecast Costs of Supply, 2017–2025 60 26 Import of Crude Oil and Petroleum Products from 1990 62 27 Domestic Sales of Petroleum Products 63 28 Market Share of Refinery Output and Refined Product Imports 64 29 Ceylon Petroleum Corporation Sales and Losses 65 30 Sri Lanka Energy Sector Problem Tree 88 v Typical grid substation in Sri Lanka. vi (photo by Pushpa Kumara) Acknowlegments ACKNOWLEDGMENTS his report was prepared by a team led by Aiming Zhou, principal energy Tspecialist, South Asia Department (SARD), N. K. Ranishka Wimalasena, senior project officer (energy), SARD, and consultants Tilak Siyambalapitiya and Pil-Bae Song. The team was supervised by Priyantha Wijayatunga, director, energy division, SARD. Staff support was provided by Angela Francesca O. Bernaldo, project officer, Karen Grace Ochavo, associate environment officer, and Marietta L. Marasigan, consultant. Guidance and support was also provided by Yongping Zhai, chief, energy sector group, Sustainable Development and Climate Change Department. The team was grateful for the guidance and support from the Government of Sri Lanka, Ministry of Power, Energy and Business Development. vii Abbreviations ABBREVIATIONS ADB Asian Development Bank BSC breaker-switched capacitors CEB Ceylon Electricity Board CFL compact fluorescent lamp CPC Ceylon Petroleum Corporation DSM demand-side management EA 2009 Electricity Act No. 20 of 2009 ERA 2002 Electricity Reform Act No. 28 of 2002 GDP gross domestic product IMF International Monetary Fund IPP independent power producer JICA Japan International Cooperation Agency LAUGFS Lanka Auto Gas Filling Stations LCC Lanka Coal Company LECO Lanka Electricity Company LIOC Lanka Indian Oil Company LNG liquefied natural gas LOLP loss of load probability LTGEP long-term generation expansion plan LV low voltage MPRD Ministry of Petroleum Resources Development MOPE&BD Ministry of Power, Energy and Business Development MV medium voltage NRE new renewable energy PPA power purchase agreement PRDS Petroleum Resource Development Secretariat PUCSL Public Utilities Commission of Sri Lanka PV photovoltaic SLRs Sri Lankan rupees SLSEA Sri Lanka Sustainable Energy Authority SPP small power producer SPPA standardized power purchase agreement viii Abbreviations WEIGHTS AND MEASURES bbl barrel of oil Gcal gigacalorie Gg gigagrams GWh gigawatt-hour kg kilogram kgoe kilogram of oil equivalent km2 square kilometer kt kiloton ktoe kiloton of oil equivalent kV kilovolt kVa kilovolt-ampere kWh kilowatt-hour kWh/m2/day kilowatt-hour per square meter per day Mvar megavolt-ampere reactive MW megawatt MWh megawatt-hour toe ton of oil equivalent ix Access to electricity. The Mahiyanganaya Grid Substation has improved access to electricity for 150,000 homes (photo by Pushpa Kumara). EXECUTIVE SUMMARY Economy. With a population of 21.4 million and a land area of 65,610 square kilometers (km2), Sri Lanka is a high population density country with 326 persons per km2 (40th in the world, according to the World Population Review). The country’s per capita GDP was $4,065 in 2017. Sri Lanka entered the upper middle-income category of countries (as defined by the World Bank) for the first time this year. Energy supply and use. Sri Lanka used 12.8 million tons of oil equivalent energy in 2017. At $7.5 of economic output per kilogram of oil equivalent in 2014, Sri Lanka ranks high among countries that report similar per capita economic output. Petroleum, imported as crude oil and finished products, provides the highest share (43% in 2017) of energy to the national economy, followed by biomass (37%), coal (11%), hydro (6%), and new renewable energy (3%). The country has succeeded in delivering modern energy sources to its whole population; petroleum products and bottled liquefied petroleum gas are widely available.