Sri Lanka has been one of the fastest growing economies in South Asia in recent years. Following a 30-year civil war, Sri Lanka has seen a sharp rise in energy use and demand over the past decade as it transitions from a predominantly rural agricultural economy to an urban economy.
At present, fossil fuels (including coal) account for approximately 55% of Sri Lanka’s energy mix, with the remaining 45% generated from a range of alternative sources, including solar, wind and hydropower. Sri Lanka depends heavily on imports of petroleum and coal for its energy requirements, accounting for a significant portion of Sri Lanka’s import expenditure. If unchecked, it is feared that this will set Sri Lanka on a course towards a major power crisis as early as in 2021.
Due to its continued dependence on fossil fuels, Sri Lanka’s long-term future has yet to be completely secured. Accordingly, Sri Lanka’s energy future must be secured by meeting energy demands through the development and adoption of domestically produced renewable sources of energy, thereby reducing the economic burden of its energy imports.
That said, the cost of renewables can be rather prohibitive. Globally, the need for a profound transformation of the world’s energy-producing infrastructure is widely recognised amidst mounting concerns about global climate change. However, for Sri Lanka in particular, where a significant portion of the population still battles poverty and lacks access to basic energy needs, long-term environmental sustainability concerns are often overshadowed by more immediate concerns about energy affordability. Therefore, an outright elimination of thermal generation may be too hasty for Sri Lanka at this point in time.
Ambitious plans afoot
In April 2016, 171 countries, including Sri Lanka, convened at the United Nations headquarters in New York to sign the Paris Agreement on Climate Change. Sri Lanka is also one of 43 countries in the Climate Vulnerable Forum, a global partnership of countries that are disproportionately affected by the consequences of global warming, and has pledged to generate 100% of its energy from renewable sources as early as possible, and by 2050 at the latest.
The future of renewables in Sri Lanka is bright, given the significant strides made by various stakeholders towards using fully renewable energy for electricity generation. For example, in 2017, the government gave the green light to the development of a renewable energy project in Punarin, comprising a hybrid of wind (240MW) and solar (800MW).
In the same vein, the 2016 Suriya Bal Sangramaya programme involves the installation of rooftop solar panels with the stated goal of attaining a total capacity of 200MW by 2020. In addition, a syndicate of banks, including Sri Lanka’s Hatton National Bank, arranged an LKR9b loan facility in 2018 for the construction of Western Power Company’s revolutionary 10MW waste-to-energy power plant in Kerawalapitiya, Muthurajawela. Western Power Company, a subsidiary of the publicly traded Aitken Spence, has scheduled the power plant to be fully operational by 2020, after which it will use 700 tonnes of municipal solid waste daily.
The rocky road to a greener Sri Lanka
Whilst the Sri Lankan government’s long-term renewables aspirations are certainly heading in the right direction, it would be apposite to consider their practical implications. The 2050 journey is a marathon, not a sprint. Accordingly, the government is likely to find success by fine-tuning the most appropriate approach to take, bearing in mind the (i) suitability of fossil fuels for Sri Lanka’s short-term economic development; (ii) overstated environmental impact of coal; and (iii) cost of renewable energy sources.
The Sri Lankan government’s approach has so far been to push for the rapid development of wind, solar, small-scale hydro and other renewables, but the renewables sector is still not expected to grow robustly in the coming years. For now, the sector is unavoidably hampered by the relatively high costs of installation and operation compared to traditional methods of power generation.
Further, in the next 20 years, success in attaining many of the 2050 goals will hinge on whether renewables can become a mainstay of the Sri Lankan energy mix. Given the large capital outlay and relative delay before they generate returns, renewable sector investments are inherently long-term. For such investments, assurance and protection of investments are necessary, and best done through long-term tariffs and the absence of ad hoc policy changes. At present, it is uncertain whether such measures will be implemented, leading to some uncertainty among investors.
The state has provided subsidies to enhance the appeal of renewable energy resources with the aim of diversifying the energy sector. However, these subsidies could balloon to the point of being no longer viable, at which point it would become prudent to rebalance the energy mix in favour of fossil fuels instead.
Additionally, before thermal energy is replaced entirely, a nuanced approach would be wise. Since LNG and natural gas have been known to be approximately as clean as renewables, it would be worthwhile exploring incorporating them into the energy mix, particularly given the natural gas discoveries in the Mannar Basin off the north-west coast of Sri Lanka. That leaves coal as a possible target for change, warranting a closer look.
The economic suitability of coal
As can be seen in the following table, coal is still widely used today, and will continue to be used in the future, in both developing and developed nations such as Japan, China and India, notwithstanding the Paris Agreement and various low-emissions plans and ambitious climate-action commitments.
From the table above, with coal power making up more than half of the total energy produced in developing countries such as China and India, it is evident that these countries are still heavily dependent on coal in driving economic development.
Full decarbonisation is therefore unlikely be an immediate priority for these countries compared to key issues such as economic growth and poverty alleviation. Likewise, it would be prudent for Sri Lanka to follow suit in taking a pragmatic approach to decarbonisation.
Coal is not so dirty after all
Perceiving all coal as irretrievably dirty would be to gloss over the issue. Coal as a whole is not the enemy – inefficient generation by coal is. Possibly, a better approach would be to explore how developing countries can use low- or zero-carbon-emission alternatives to traditional fossil fuel infrastructure and technology.
This is best exemplified by Japan, which has chosen to develop world-leading technology in highly efficient coal-fired power generation rather than omitting coal entirely. This has paid dividends: carbon dioxide emissions have been reduced to the same level as for natural gas plants, one of the cleanest fossil fuels.
Demonstrably, coal still has a future role in light of clean coal technology (CCT) because it can be burnt more efficiently and is less polluting. Unfortunately, in many developing countries, the harnessing of CCT’s environmental benefits has been hampered both by a lack of public awareness and policy priority, and often a lack of the necessary institutional and financial capacity.
Nonetheless, strong government support for the goal of reducing carbon emissions in general could ease the greater adoption of CCT. Accordingly, Sri Lanka might be wise to take a leaf out of Japan’s book by investing in the ‘clean-coal’ energy sector, rather than entirely disregarding coal. Indeed, the Sri Lankan government is already aware of the economic benefits, as demonstrated by its endorsement of the proposed construction of several highly efficient and super-critical coal-fired plants.
A country’s energy sector is the backbone of its industrial competitiveness and the midwife of its economic growth. In this regard, Sri Lanka’s efforts to protect the environment while pursuing its economic goals are admirable. Ultimately, however, Sri Lanka’s successful attainment of its sustainable energy goals depends on how proactively it tackles the key challenges facing its energy sector.
In the final analysis, developing countries’ outright abandonment of fossil fuels is potentially premature and will hamper development. Rather, Sri Lanka needs major structural reforms and risk-tolerant investment capital in the renewable sector in order to attain its twin goals of reduced carbon emissions and the elimination of energy poverty. These are long-term challenges. In the meantime, coal is necessary to sustain the Sri Lankan economy, and keeping it would be a well-balanced and far-sighted move.
Kohe Hasan would like to thank Mr Gamini Wanasekara, former deputy chairman of the Ceylon Electricity Board, for his invaluable assistance in connection with this article.
The views expressed in this column are the author's own and do not necessarily reflect this publication's view, and this article is not edited by Asian Power. The author was not remunerated for this article.
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Kohe Hasan is a partner at Reed Smith LLP based in Singapore. She advises on energy projects globally with a focus on emerging markets, in particular Sri Lanka and Cambodia.