Grid-Connected Wind Power Generation
Grid-Connected Wind Power Generation
Business Model Description
Invest in or provide project financing for large-scale wind power generation to sell the generated capacity to the national energy grid. Projects can be, both onshore/land and offshore.
Wind Power Plant Developers: Presently there are 17 onshore wind power plants operated by private sector companies having Generation Licenses contributing to about 150 MW capacity. Some of these companies are subsidiaries of larger companies involved with renewable energy development (17). Examples of companies active in the IOA space:
WindForce Ltd., incorporated in 2010, is a supplier and facilitator of wind power. Their wind power plants are of commercial grade and constructed with breakthrough technology and unparalleled expertise. Their ultra-modern plants offer a steady, uninterrupted flow of electricity to the National Grid.
Senok entered into wind power projects in 2010. It is one of the first companies to develop wind power projects that reached the 10MW installed capacity threshold in 2010. As at 2021, there are 4 wind plants with a total generation power of 40 MW (11)
Expected Impact
Wind-based electricity generation to serve household, commercial and industrial players. Increase the proportion of RE in the total energy mix.
How is this information gathered?
Investment opportunities with potential to contribute to sustainable development are based on country-level SDG Investor Maps.
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Country & Regions
- Sri Lanka: Southern Province
- Sri Lanka: Northern Province
- Sri Lanka: Eastern Province
- Sri Lanka: North Western Province
- Sri Lanka: North Central Province
Sector Classification
Renewable Resources and Alternative Energy
Development need
The dependence on imported fossil fuels is a critical challenge and has adverse impacts on energy security (specifically the current power outages). Yet, there is a huge renewable energy (RE) resource potential, estimated as 133 GW (1), (2). The sector also lacks reforms particularly for renewable energy integration. 2020 wind capacity 7% of the total RE capacity(3)
Policy priority
2021 National Budget and updated Nationally Determined Contributions (NDCs) in September 2021 (6) specifies the target of achieving 70% of power generation from Renewable Energy (RE) sources by 2030. The Sustainable Energy Authority of Sri Lanka (SLSEA) estimates a total RE capacity addition of 8,560 MW by 2030 to achieve this (5).
Gender inequalities and marginalization issues
As per 2020 data, although 100% of the population has access to grid electricity (16), there exist shortfalls in power supply impacting most communities, particularly MSMEs and rural communities, thereby leading to economic losses. The affordability of electricity is also threatened due to an increase in generation costs with global crude oil price hikes.
Investment opportunities
As of 2020, the installed renewable energy generating capacity was 2,447 MW (3). However, majority of renewable energy generation is from hydro, with limited contribution from solar and wind, even though their resource potential is large. The total technical potential is estimated at 101,900 MW for wind, 26,600 MW for ground mounted solar PV, 1,500 MW for floating solar PV (1)(2)
Key bottlenecks introduction
Lack of land availability; grid Infrastructure and integration issues; lack of long-term data on resources; limited industrial environment to support large scale development, deployment and operation; limited access to green finance.
The existing Law does not allow power wheeling and multi-buyer model, limiting the scope of renewable energy projects.
Alternative Energy
Development need
Renewable energy accounted for approximately 35% of the total energy mix in 2019 and 2020. Coal and oil has contributed to more than 60% of total generation mix in the same period. Therefore, there is scope for increasing the contribution from wind which has very high potential in onshore and offshore areas. Estimated growth in electricity demand is 4.7% (2022-2046) (3)
Policy priority
2021 National Budget and updated Nationally Determined Contributions (NDCs) in September 2021 (6) specifies the target of achieving 70% of power generation from Renewable Energy (RE) sources by 2030. The Sustainable Energy Authority of Sri Lanka (SLSEA) estimated a wind capacity addition of 3,400 MW by 2030 through onshore (1,400 MW) and offshore (2,000 MW) wind (5).
Gender inequalities and marginalization issues
The overdependence on imported fossil fuel is threatening energy security and affordability, with increasing generation costs, leading to economic losses, especially for vulnerable groups (MSMEs and rural communities). Large-scale deployment of wind power in rural areas would provide jobs for local communities, women and marginalized groups.
Investment opportunities
The estimated 8,560 MW increase in renewable energy by 2030, includes 3,400 MW from both onshore and offshore Wind power. The estimated total technical potential of off-shore wind in Sri Lanka is 92 GW as per World Bank. With the pledge on net-zero carbon by 2050, further opportunities for investment are expected to emerge in the long-term.
Key bottlenecks introduction
The current tariff regime does not reflect the cost of generation. Also, some projects are not bankable given the exchange rate risks. The CEB Act also restricts multi buyer models, thereby power wheeling to make projects viable and attractive.
Wind Technology and Project Developers
Pipeline Opportunity
Grid-Connected Wind Power Generation
Invest in or provide project financing for large-scale wind power generation to sell the generated capacity to the national energy grid. Projects can be, both onshore/land and offshore.
Wind Power Plant Developers: Presently there are 17 onshore wind power plants operated by private sector companies having Generation Licenses contributing to about 150 MW capacity. Some of these companies are subsidiaries of larger companies involved with renewable energy development (17). Examples of companies active in the IOA space:
WindForce Ltd., incorporated in 2010, is a supplier and facilitator of wind power. Their wind power plants are of commercial grade and constructed with breakthrough technology and unparalleled expertise. Their ultra-modern plants offer a steady, uninterrupted flow of electricity to the National Grid.
Senok entered into wind power projects in 2010. It is one of the first companies to develop wind power projects that reached the 10MW installed capacity threshold in 2010. As at 2021, there are 4 wind plants with a total generation power of 40 MW (11)
Business Case
Market Size and Environment
> USD 1 billion
> 25%
Addition of 3400 MW required from wind power to achieve 2030 target
In 2020, 100% of Sri Lanka's population had access to electricity. The major source of electricity generation is imported fossil fuels, and only a fraction of households had access to affordable, reliable and clean energy (4). Therefore, there is potential to increase the uptake of wind, having the largest technical potential, and relatively low investment cost.
The national budget 2021 announced a renewable energy target of 70% by 2030 in accordance with the updated NDCs in 2021, wherein the electricity sector expects a 5% unconditional and 20% conditional reduction of greenhouse gas (GHG) emissions (6). The estimates by SLSEA on the contribution to 70% target includes an addition of 3,400 MW from onshore and offshore wind power plants (5).
Indicative Return
15% - 20%
15% - 20%
10% - 15%
Financial analysis of renewable energy development is governed by the feed-in tariff methodology used by the regulators. It is a technology specific, cost reflective tariff with a loan repayment period of 6 years. The latest publication on the Methodology for Feed-In-Tariffs - NCRE (20) is used.
Average ROE for three years (2018/19/20) is 15.2%. Average Price to Earnings Ratio (P/E) is 8.46 (9)
In a wind power plant, the selection of a Project Developer is based on a competitive bidding process, wherein the Project Proponent shall submit its Tariff Proposal indicating the proposed Flat Tariff for 20 years. The Request for Proposal (RFP) specifies a Maximum Tariff (Upper Benchmark), and the tariff proposed should be less than the stated maximum tariff.
The selection of the successful project proponent (Project Developer) is primarily based on the lowest tariff quoted among eligible proposals (3). The maximum tariff specified in the RFP will be based on a similar approach and parameters, and the NCRE tariff methodology of PUCSL (20), which will, thus, reflect similar financial performances.
Investment Timeframe
Medium Term (5–10 years)
The government has calculated a 6-year payback period for the sector. The short span of time which the firms have taken to be successful in the sector is testimony to this. WindForce Ltd. has been Sri Lanka’s leading supplier and facilitator for wind power plants since a decade (10)
Senok is one of the first companies to develop wind power projects that reached the 10MW installed capacity threshold by 2010. As at 2021, there are 4 wind plants with a total generation power of 40 MW under its operations. (11)
Ticket Size
> USD 10 million
Market Risks & Scale Obstacles
Market - Volatile
Capital - Limited Investor Interest
Impact Case
Sustainable Development Need
Although 100% of the population has access to electricity (4), more than 60% of Sri Lanka's power generation is through coal and oil. (5) Hence, the country relies heavily on imported fossil fuels instead of utilizing its abundant wind potential.
Current generating costs of fossil-based electricity are significantly high, and a potential consumer tariff hike is expected in the future to reflect actual cost of generation. Meanwhile, the cost of renewable based electricity generation is decreasing gradually, and is now cheaper than that of fossil fuels. Therefore, use of renewable energy can reduce the cost of generation and consumer tariffs.(35)
Sri Lanka’s share of global carbon emissions was only 0.06% in 2020 (14). However, Sri Lanka is vulnerable to climate change impact. The updated NDCs have given adaptation areas under sectors of Agriculture, Fisheries, Biodiversity, Coastal & Marine, Tourism & Recreation. (6)
Gender & Marginalisation
There are concerns about quality and equality of access to electricity in rural areas, specifically for women entrepreneurs. Only those with diesel generators can run their operations during daily power cuts. However, renewable energy can provide clean, affordable energy to all.
Installation projects can help increase income and economic opportunities for women across the country, especially in remote areas.
Expected Development Outcome
Large scale deployment of wind energy will reduce dependence on imported fossil fuels. It is an effective way for the required transition towards a carbon zero economy by 2050, ensuring sustainable development.
It can ensure energy security; accessibility; optimum cost of electricity; enhancing the share of clean energy; and providing opportunities for Innovation and Entrepreneurship.
Gender & Marginalisation
Increase access to clean, affordable and reliable energy without power outages, especially for rural households and MSMEs, including women entrepreneurs.
Address the Energy trilemma: Energy security, Energy equity and Energy sustainability, to provide convenient, affordable energy services and support socially equitable development of the country. (3)
Promotes wind energy, and provides more employment opportunities, particularly for women and marginalized communities.
Primary SDGs addressed
7.2.1 Renewable energy share in the total final energy consumption
Renewable energy electricity generation on average in 2020 was 35%.
Increase renewable energy mix in the electricity generation to 70% by 2030.
12.a.1 Installed renewable energy-generating capacity in developing countries (in watts per capita)
107.01 watts per capita
480 watts per capita
Secondary SDGs addressed
Directly impacted stakeholders
People
Gender inequality and/or marginalization
Planet
Corporates
Public sector
Indirectly impacted stakeholders
People
Planet
Corporates
Public sector
Gender inequality and/or marginalization
Outcome Risks
Although, locations have been identified, environmental approvals will have to be obtained by individual developers. For projects over 10MW, it will be carried out through competitive bidding.
Frequent failures of the grid impact power generation from wind, due to a lack of storage facilities. Investment would be required to upgrade the grid, and control a decentralized generation system.
Due to lack of storage, there is a possibility of power curtailing from wind sources with insufficient demand at non-peak hours.
Gender inequality and/or marginalization risk: If power wheeling is not allowed there could be regional disparity as some regions may be more suitable for efficient generation of solar power.
Impact Risks
If renewable energy targets are not met, people will not receive affordable, clean, adequate access to electricity. Estimated total technical potential of offshore wind in Sri Lanka is 92 GW.
If renewable energy targets are not achieved there will be more dependence on fossil fuels which could result in higher consumer tariffs.
Impact Classification
What
Wind power generation increases access and affordability for clean energy, enhances economic productivity, and reduces the impact of climate change for both rural and urban areas.
Risk
Although the wind power model is proven, potential changes in tariffs and regulations are required to make it a viable venture.
Contribution
The wind addition of 1,400 MW onshore and 2,000 MW offshore plants to achieve 70% policy target by 2030 needs a total investment of USD 7.89 billion, bringing in much-needed FDI.
Impact Thesis
Wind-based electricity generation to serve household, commercial and industrial players. Increase the proportion of RE in the total energy mix.
Enabling Environment
Policy Environment
National Energy Policy 2019 (33)- This is a sectoral policy covering areas related to power and energy (both supply/generation and demand/end use). One of the ten pillars is enhancing share of renewable energy. Indigenous renewable energy sources will be developed to the optimum level to attain sustainability and higher degree of resilience in the energy sector.
Sri Lanka Electricity Act, No. 20 of 2009 and amendment in 2013 and 2022 (7) enabling Sri Lanka to meet the increasing demands for electricity in the future. Provide for the regulations of the generation, transmission, distribution, supply and use of electricity.
Sri Lanka Sustainable Energy Authority (SLSEA) Act No. 35 of 2007 (23). Provide for the establishment of the SLSEA; to develop renewable energy resources; to declare energy Development Areas; promote energy security, reliability, and cost-effectiveness in energy delivery
Financial Environment
It is expected that the Feed-in-Tariff Scheme will be updated to be cost-reflective with exchange risks. According to stakeholders RE tariff average is around LKR 13/=
Tax concessions for wind turbines. Sri Lanka Green Finance Taxonomy by CBSL in May 2022 is expected to enable financial market participants to raise low-cost funding for green activities through both domestic and foreign markets (12).
Corporate income tax rate for a company supplying electricity to the national grid generated by using renewable energy resources is at a concessionary 14% with effect from 2021 (13)
Regulatory Environment
On-grid renewable energy development in the country is primarily governed by two legislatives: (i) Sri Lanka Electricity Act, No. 20 of 2009 and its subsequent amendments in 2013 and 2022 (7) and (ii) Sri Lanka Sustainable Energy Authority (SLSEA) Act No. 35 of 2007 (23)
Standardized Power Purchase Agreement for renewable energy projects under 10 MW with Small Power Purchase Tariff as published by Public Utilities Commission of Sri Lanka.
Sri Lanka Electricity Act No. 20 of 2009, covers exemptions and Generation License under two categories: upto 25 MW and over 25 MW (25). The application for the development of a grid-connected wind power plant should be accompanied by the relevant documents and information as specified in the Regulation, the Application Forms upto 25 MW (26), over 25 MW (27) and the Guideline for Applicants. (28)
Grid connected wind power plants is governed (28) by other regulations such as IEE wiring regulation BS 7671 of 2008 or latest; Regulations on Electricity Safety, Quality & Continuity 2016; Distribution Code of Sri Lanka; Grid Code of Sri Lanka.
For projects larger than 10 MW it shall be under competitive bidding approach (24). Should also obtain Energy Permit from SLSEA
Marketplace Participants
Private Sector
Around 17 wind power plants are operated by private sector companies are involved wind energy sector (17). WindForce and Senok are two of the leading wind energy developers.
Government
Ceylon Electricity Board (CEB),Sri Lanka Sustainable Energy Authority (SLSEA), Public Utilities Commission of Sri Lanka (PUCSL)
Multilaterals
Asian Development Bank (ADB), International Finance Corporation (IFC), World Bank
Non-Profit
The Ceylon Chamber of Commerce
Target Locations
Sri Lanka: Southern Province
Sri Lanka: Northern Province
Sri Lanka: Eastern Province
Sri Lanka: North Western Province
Sri Lanka: North Central Province
References
- (1) Renewable Energy Development Plan Phase-I 2019-2025; http://powermin.gov.lk/english/wp-content/uploads/2019/08/Renewable-Energy-Development-Plan-English.pdf
- (2) Renewable Energy Resource Development Plan 2021-2026 (Draft) www.energy.gov.lk/images/renewable-energy/renewable-energy-resource-development-plan-en.pdf
- (3) CEB Long Term Generation Expansion Plan 2022-2041 (Draft) -https://ceb.lk/front_img/img_reports/1636539187LTGEP_2022-2041_Web_compressed.pdf
- (4) Central Bank Economic and Social Statistics 2021- https://www.cbsl.gov.lk/en/publications/other-publications/statistical-publications/economic-and-social-statistics-of-sri-lanka/ess-2021
- (5) SLSEA (February 2022), Proposed renewable energy capacity for 70% renewable energy taget by 2030, Internal Report (Unpublished), Personal Communication.
- (6)GoSL (September 2021), Updated Nationally Determined Contributions (NDCs), https://unfccc.int/sites/default/files/NDC/2022-06/Amendmend%20to%20the%20Updated%20Nationally%20Determined%20Contributions%20of%20Sri%20Lanka.pdf
- (7) Sri Lanka Electricity Act, No. 20 of 2009 and amendment in 2013 and 2022 - https://www.pucsl.gov.lk/wp-content/uploads/2017/12/electricity_act_2009.pdf;http://powermin.gov.lk/english/wp-content/uploads/2017/11/2013-Act-No.-31-Amendment-to-Act-No.-20-Sri-Lanka-Electricity-Act-E.pdf
- (8) Long Term Generation Expansion Plan 2018-2037- https://ceb.lk/front_img/img_reports/1532407706CEB_LONG_TERM_GENERATION_EXPANSION_PLAN_2018-2037.pdf
- (9) Windforce Ltd Prospectus - https://cdn.cse.lk/pdf/upcoming_listing/WINDFORCE-Prospectus-Part-1.pdf
- (10) About Windforce - https://windforce.lk/
- (11) About Regen Renewables - https://www.regen.lk/
- (12) About Nikini Solar - http://www.nikini.lk/solution_category/solar_photovoltaic_solutions/
- (13) Tax update: May 2021 - https://assets.kpmg/content/dam/kpmg/lk/pdf/kpmg-tax-news/may-2021/mya-2021-kpmg-srilanka-tax-news2-flash.pdf
- (14) Sri Lanka CO2 Country Profile - https://ourworldindata.org/co2/country/sri-lanka
- (15) Ministry of Finance Annual Report (2020): https://www.treasury.gov.lk/api/file/0b7d1935-6235-4156-97b6-752d6a8039d0
- (16) World Bank, Access to electricity (% of population) - Sri Lanka, https://data.worldbank.org/indicator/EG.ELC.ACCS.ZS?=desc&locations=LK,Accessed on 14th July 2022.
- (17) PUCSL, List of Licensees and Excemptions, https://www.pucsl.gov.lk/electricity/licensee/list-of-licensees/,Accessed on 10th July 2022
- (18) SLSEA, Solar PV Service Providers, https://www.energy.gov.lk/images/soorya-bala/registered-solar-pv-service-providers.pdf,Accessed on 29th June 2022
- (19) IRENA (July 2022), Renewable Power Generation Costs in 2021, The International Renewable Energy Agency, https://irena.org/-/media/Files/IRENA/Agency/Publication/2022/Jul/IRENA_Power_Generation_Costs_2021_.pdf
- (20) PUCSL (October 2011), The Methodology for Feed-In-Tariffs - NCRE, https://www.pucsl.gov.lk/wp-content/uploads/2019/01/ncre_tariffs-methodology.pdf
- (21) CEB (March 2020), Request for Proposals - Establishment of Wind Power Plant on Build Own and Operate Basis, https://www.pucsl.gov.lk/wp-content/uploads/2020/01/RFP.pdf
- (22) CEB (March 2020), Request for Proposals - Establishment of Solar PV Power Plant on Build Own and Operate Basis, https://ceb.lk/front_img/tender_pdf/200306060312150MW_AC_Solar_RFP_All_GSS.pdf
- (23) Sri Lanka Sustainable Energy Authority (SLSEA) Act No. 35 of 2007, https://www.energy.gov.lk/images/about-us/inception/2007-act-no-35-sri-lanka-sustainable-energy-authority-e.pdf
- (24) SLSEA (July 2011), On Grid Renewable Energy Development - Policies and Procedures to Secure Approvals to Develop a Renewable Energy Project to Supply Electricity to the National Grid, https://www.energy.gov.lk/images/renewable-energy/renewable-energy-development-guidebook.pdf
- (25) The Electricity (Applications for Licences and Exemptions) Regulation, 2009, Extraordinary Gazette No. 1617/34, September 03, 2009. https://www.pucsl.gov.lk/wp-content/uploads/2017/09/Regulations-for-Electricity-Applications-for-Licences-Extensions-of-Licences-and-Exemptions.pdf
- (26) PUCSL, Application for a Licence to Generate Electricity up to a Generation Capacity of 25 MW,
- (27) PUCSL, Application for a Licence to Generate Electricity Over and Above a Generation Capacity of 25 MW, https://www.pucsl.gov.lk/wp-content/uploads/2022/07/Application-form-for-a-licence-to-generate-electricity-over-and-above-a-generation-capacity-of-25-MW.pdf
- (28) PUCSL, Guideline for Applicants - Application for a Licence to Generate Electricity up to a Generation Capacity of 25 MW, https://www.pucsl.gov.lk/wp-content/uploads/2021/10/Guideline-to-fill-Application.docx
- (29) PUCSL (February 2017), Issuance of Certificate of Exemption, The Gazette of the Democratic Socialist Republic of Sri Lanka, Extraordinary, No. 2006/19, https://www.pucsl.gov.lk/wp-content/uploads/2017/09/Issuance-of-Certificate-of-Exemption-for-Domestic-Solar-Power-Generation.pdf
- (30) SLSEA, Application for Registered Photovoltaic (PV) Service Provider, https://www.energy.gov.lk/images/soorya-bala/application-for-registered-pv-service-provider.pdf
- (31) CBSL (April 2019), Roadmap for Sustainable Finance in Sri Lanka, https://www.cbsl.gov.lk/sites/default/files/Sri%20Lanka%20Sustainable%20Finance%20Roadmap%20FINAL%2008.04.19.pdf
- (32) PUCSL Consultation Document on the Proposed Electricity Tariff 2022 - https://www.pucsl.gov.lk/other-supporting-documents-stakeholder-consultation-on-the-proposed-electricity-tariff-2022/
- (33) National Energy Policy & Strategies of Sri Lanka http://powermin.gov.lk/english/wp-content/uploads/2019/11/2135-61_E.pdf
- (34) CEB Long Term Generation Expansion Plan 2015-2034 -https://ceb.lk/front_img/img_reports/1532408363CEB_LONG_TERM_GENERATION_EXPANSION_PLAN_2015-2034.pdf