Challenges faced by Sri Lanka’s Energy Sector are many. While ensuring a continuous supply of  electricity  and  petroleum  products,  the  growing  economy  has  to  manage  a  strategic  balance  between  indigenous  energy  resources  and  imported  fossil  fuels. Electricity  supply  to household  needs is yet to reach a quarter of Sri Lanka’s population. Commercial energy utilities are required  to  be  further  strengthened  to  improve  their  financial  viability  and  service  quality.  The  involvement of the country’s population in the investment, operation, regulation, and delivery of  energy services needs to be increased.    This  document  declares  the  National  Energy  Policy  of  Sri  Lanka,  and  spells  out  the  implementing  strategies,  specific  targets  and milestones  through which  the Government  of Sri  Lanka and  its people would  endeavour  to develop and manage  the  energy  sector  in  the  coming  years  in order  to  facilitate achieving  its millennium development goals. Specific new  initiatives  are included in this policy to expand the delivery of affordable energy services to a larger share of  the population, to improve energy sector planning, management and regulation, and to revitalise  biomass as a significant resource of commercial energy.    Institutional responsibilities to implement each policy element and associated strategies to reach  the  specified  targets  are  also  stated  in  this  document.  Ministry  of  Power  and  Energy  has  discussed the draft document with a wide group of stakeholders, obtained the views of members of  the public  and made  the necessary  amendments  before publishing  this National Energy Policy  and Strategies of Sri Lanka. This National Energy Policy  and Strategies  of Sri Lanka  shall be  reviewed  and  revised  after a  period of three years.


INTRODUCTION


1.1  Energy Supply

Energy  supply  in  Sri  Lanka  is  mainly  based  on  three  primary  resources,  namely,  biomass,   petroleum and hydroelectricity.    In 2004, hydro-electricity production  in  the  country  accounted  for  710.71  kTOE  (thousand  tonnes  of  oil  equivalent)  while  the  biomass-based  energy  supply  was  4,513.3  kTOE.    Approximately  4,131.9  kTOE  was  provided  by  imported  crude  oil  and  finished  petroleum  products  such  as  diesel  and  liquefied petroleum gas  (LPG).   Additionally,  the non-conventional  resources  (mainly  wind)  provided  3.6  kTOE  of  primary  energy,  giving  an  aggregate  primary  energy  supply  of  approximately  9,359.5  kTOE.    Primary  energy  contributions  in  2004  to  national energy supply were 48.2% from biomass, 44.2% from crude oil and petroleum  products, and 7.6% from hydroelectricity and other renewable sources. The use of non- conventional energy resources in Sri Lanka is of a relatively smaller scale and therefore  its contribution is presently of low significance in the macro energy picture.


1.2  Energy Demand Growth

With the increasing demand for energy to provide for the country’s economic and social  development,  total  primary  energy  demand  is  expected  to  increase  to  about  15,000 kTOE  by the year 2020 at an average annual growth rate of  about 3%. Electricity  and petroleum  sub-sectors are  likely  to  record higher annual growth  rates of about 7- 8%.   Hydro  electricity  production  and  biomass-based  energy  supplies, which  are  the  only  large-scale  indigenous  primary  energy  resources  available  in  Sri  Lanka,  are  expected  to  increase  only  marginally  in  the  near  future.    This  is  mainly  due  to  limitations  in  further hydropower development owing  to  lower  economic viability  of  exploiting  the  remaining  large  hydropower  sites  and  limited  use  of  biomass  with  gradually increasing standard of living of the population.  This means that the country’s  incremental  primary  energy  requirements  need  to  be  supplied  mainly  by  imported  fossil fuels in the medium term. In the longer term, possible development of indigenous  petroleum  resources  and  accelerated  development  of  non-conventional  renewable  energy  are  likely  to make  a  significant  change  in  Sri  Lanka’s mix  of  primary  energy  resources.


1.3  Energy Sector Governance

Electricity and petroleum are the two main commercial energy supply sub-sectors in Sri  Lanka.    Both  these  sub-sectors, which  are  largely  served  by  state-owned  utilities,  are  presently undergoing a process of reforms. Biomass is also emerging as significant form of commercial energy.

The  electricity  supply  industry  is  dominated  by  state  sector  institutions,  namely  the  Ceylon Electricity Board (CEB) and Lanka Electricity Company (Pvt) Ltd (LECO). CEB  is  expected  to  be  unbundled  vertically  and  horizontally  to  form  one  generation  company,  a  single  transmission  and  bulk-power  trading  company  and  several  distribution  companies.    A  regulatory  structure  in  the  form  of  the  Public  Utilities  Commission  of  Sri  Lanka  (PUCSL)  is  already  in  place,  for  all  physical  infrastructure  sectors, inclusive of the electricity and petroleum industries.
Although  the  PUCSL  has  been  already  set  up  under  the  provisions  of  the  Public  Utilities  Commission  of  Sri  Lanka  Act  No.  35  of  2002  to  regulate  the  physical  infrastructure  sectors,  it  will  be  empowered  to  execute  regulation  only  when  the  individual  industry  legislations  are  enacted and made  effective.   At present, only  the  electricity industry, the water service industry and petroleum industry are listed in the  PUCSL Act.
LPG industry is owned by the private sector except for the contribution of about 15% of  the total LPG supply by the state-owned Ceylon Petroleum Corporation (CEYPETCO),  which  is  the only player at present  in  the petroleum  refining business. CEYPETCO  is  already  competing  with  Lanka  Indian  Oil  Company  (Lanka  IOC)  in  petroleum  distribution. A  third  player  could  also  join  petroleum  distribution,  but  this  has  been  temporarily suspended by the Government due to the lack of anticipated benefits to the  country  and  its  consumers  through  the  liberalization  and  part  privatization  of  the  downstream petroleum  sub-sector.   PUCSL, which will  be  the  future  petroleum  sub- sector  regulator,  will  have  the  authority  to  decide  on  the  future  structure  of  the  petroleum sub sector.

Biomass  still  remains  a  sub-sector  not  formally  organised  unlike  the  electricity  and  petroleum  sub-sectors.   With  new  developments where  contribution  of  biomass  as  a  primary  resource  of  energy  for  electricity  generation  could  become  substantial,  the  biomass sub-sector would also become more organised.

The “National Energy Policy and Strategies of Sri Lanka” is elaborated in three sections in this policy document.

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