Manufacturers demand renewable power access as electricity costs surge

• FTZMA argues industry is being asked to shoulder bulk of a projected Rs.38bn electricity sector shortfall, despite not being responsible for underlying causes
• Warns industrial consumers are already grappling with 8.7% tariff increase implemented and another increase within weeks could undermine export pricing negotiations for September-December order cycle
• Says approximately Rs.23bn of projected shortfall would effectively fall on industrial, large commercial, government and bulk consumers
• Seeks a cap on any extraordinary industrial tariff increase, demanding it be limited to system-weighted average increase

The export manufacturers yesterday warned that imposing another extraordinary electricity tariff hike on the industry, without activating the long-promised power wheeling reforms, would deepen the country’s competitive disadvantage against the regional rivals and risk disrupting the export contracts already under negotiation for late 2026.

In a strongly-worded submission to the Public Utilities Commission of Sri Lanka (PUCSL), the Free Trade Zone Manufacturers Association (FTZMA) argued that the industry is being asked to shoulder the bulk of a projected Rs.38 billion electricity sector shortfall, despite not being responsible for the underlying causes, while simultaneously being denied access to cheaper renewable energy through the national grid.

“We make this submission on a single principle: if the industry is asked to absorb a disproportionate share of an extraordinary deficit, then the same regulatory decision must give the industry the means to manage its energy cost going forward,” FTZMA Chairman Dhammika Fernando said in the submission.

The PUCSL is expected to make a decision this week on an extraordinary tariff revision, following the higher generation costs linked to the reduced rainfall, lower availability at the Lakvijaya coal plant and elevated global fuel prices.

The FTZMA warned that the industrial consumers are already grappling with an 8.7 percent tariff increase implemented from April 1, under the second-quarter tariff review and said another increase within weeks could undermine the export pricing negotiations for the September-December order cycle.

The association said that approximately Rs.23 billion of the projected shortfall would effectively fall on the industrial, large commercial, government and bulk consumers after the Treasury subsidies shielded 95 percent of the smaller users.

Section 13 of Sri Lanka Electricity Act No.36 of 2024 provides for open access power wheeling, allowing the industrial users to purchase electricity directly from the renewable energy producers, using the national grid for a regulated wheeling charge. The FTZMA said the legal provision exists but has not yet been operationalised by the regulators.

“The result is that the Sri Lankan industry pays the price of a tool the law promises but does not yet deliver,” the submission stated.

The FTZMA argued that Sri Lanka is now lagging behind the key regional manufacturing competitors, including India, Vietnam and Bangladesh, all of which already operate industrial open-access frameworks that allow the manufacturers to directly source renewable power.

“The conclusion is unavoidable. The Sri Lankan industrial consumers are presently the only ones in this group of countries who cannot, as a matter of operational right, contract directly with a renewable generator and have that energy delivered through the national grid for a transparent wheeling charge,” the FTZMA said.

The group also sought a cap on any extraordinary industrial tariff increase, demanding it be limited to the system-weighted average increase rather than allowing the industry to become the “residual revenue source” of the power sector.

In addition, the FTZMA called for any increase to be temporary, with an automatic sunset clause by the end of the third quarter of 2026, unless the audited data justified its continuation.

The submission further proposed a true-up mechanism to refund the consumers if the actual deficit turns out to be lower than the forecast Rs.38 billion, noting that the industrial users had previously funded excess recoveries after the Ceylon Electricity Board posted profits of around Rs.61 billion in the third quarter of 2023 and Rs.58 billion in the first quarter of 2024, before the tariffs were cut in July 2024.

The FTZMA also framed power wheeling as a broader macroeconomic reform rather than merely an industrial concession, arguing that greater renewable energy wheeling could reduce Sri Lanka’s fuel import bill by an estimated US $ 50 million to US $ 80 million annually, if 200 MW of industrial renewable capacity is connected through the grid.

“The opposite outcome, a measured, time-bound tariff decision coupled with the immediate activation of the open access framework, would serve every stakeholder: the Treasury, new electricity sector entities, renewable energy developers, country’s foreign exchange reserves and industrial consumers, who employ tens of thousands of Sri Lankans and earn the foreign exchange this country runs on,” the FTZMA said.