Sri Lanka’s elevated risk profile to trigger higher tariffs in future state energy tenders

• Elevated risk profile expected to drastically reduce participation in upcoming renewable tenders
• Developers warn of much higher quoted tariffs to offset financial risks of state partnerships

By Nishel Fernando 

Sri Lanka’s renewable energy sector is warning of a severe long-term fallout from the ongoing financial crisis, cautioning that the government’s blatant disregard for the existing payment agreements will drastically drive up the cost of future clean energy projects. 

With the National System Operator currently defaulting on a staggering Rs.10 billion owed to the independent developers, the industry leaders stress that investor confidence has been fundamentally shattered. 

The Federation of Renewable Energy Developers revealed that the elevated risk profile of doing business with the state would inevitably lead to a sharp decline in participation for the upcoming state tenders, forcing those who do bid to quote significantly higher tariffs to cushion against the anticipated payment delays.

The core of the issue lies in the complete halt of disbursements for renewable energy supplied to the national grid since December 2025.

This liquidity freeze, driven by the state’s desperate diversion of funds to finance expensive emergency thermal power amid a substandard coal tender scandal, is completely altering the financial calculus for the local and international investors. 

The banks and lending institutions are already categorising the state energy contracts as high-risk, making it nearly impossible for the developers to secure financing at competitive rates. Without a reliable revenue stream, the financial models that underpin these long-term infrastructure investments collapse.

Federation President Manjula Perera emphasised that this crisis extends far beyond the immediate survival of the existing power plants, threatening to permanently alter the pricing structure of the entire industry. 

“When the state utility blatantly disregards payment agreements, it severely damages the fundamental trust required for long-term infrastructure investments,” Perera stated. 

“Future state tenders will inevitably see a drastically reduced participation rate. Those who are still willing to bid will be forced to quote much higher tariffs, simply to offset the elevated risk profile of partnering with a defaulting state entity.”

The ripple effects of this shattered confidence are expected to severely derail Sri Lanka’s ambitious climate and energy goals. Independent renewable producers currently contribute approximately 14 percent to the national grid, with the ongoing projects expected to push this share to 20 percent over the next two years.

However, without a predictable and honoured payment mechanism, integrating crucial new technologies such as battery energy storage systems becomes an impossibility. The investors will simply redirect their capital to more stable markets, leaving Sri Lanka highly dependent on volatile and expensive imported fossil fuels.

Federation Secretary Lasitha Wimalaratne warned that the ongoing default is actively destroying the country’s reputation with crucial financial partners. 

“We are actively compromising our sovereign credibility on the global stage,” Wimalaratne explained. 

“The international funding agencies and local commercial banks are watching this crisis unfold. You cannot expect the private sector to shoulder the immense financial burden of state inefficiencies indefinitely without pricing in that massive risk. If the government wants affordable clean energy, they must prove they are a reliable financial partner.”