By: Staff Writer
October 15, Colombo (LNW): Sri Lanka’s ambition to attract billions in private investment into renewable energy faces a critical test: whether the Government can transform its electricity-sector reforms and generation potential into commercially viable projects that international investors are willing to finance.
International Finance Corporation (IFC) Regional Infrastructure Industry Manager for Bangladesh, Sri Lanka and Nepal Edore Onomakpome warned at the Sri Lanka Economic and Investment Summit 2026 that the country’s success would depend less on its renewable energy resources than on credible contracts, predictable procurement and institutions capable of delivering bankable investments.
Sri Lanka begins with significant advantages. Electricity access is almost universal, hydropower provides an established foundation, network losses are relatively low, and renewable sources account for more than half of annual electricity generation. Yet these strengths have not automatically translated into a sufficiently deep pipeline of investment-ready renewable energy projects.
“The success metric is not the number of entities being created, but whether each entity can plan, contract, recover costs and actually finance its investments,” Onomakpome said, raising fundamental questions about whether institutional restructuring alone can deliver the investment transformation the country needs.
The warning comes as Sri Lanka seeks to integrate more wind and solar power while maintaining reliable and affordable electricity supplies. Expanding generation without simultaneously strengthening transmission, distribution and energy storage could undermine the very transition the country hopes to accelerate.
Regional competition exposes Sri Lanka’s weaknesses
Onomakpome’s comparison with regional markets reveals the competitive challenge facing Sri Lanka. Vietnam offers lessons in rapidly scaling renewable generation while coordinating transmission expansion. The Philippines demonstrates the importance of transparent competition, bankable contracts and a deeper private-sector generation ecosystem. Thailand provides examples of predictable procurement, established counterparties and stronger domestic financing.
Sri Lanka cannot simply copy these models. However, the comparisons underline the need to develop clear regulatory arrangements, dependable contractual structures and financing mechanisms suited to its own electricity market.
Currency risk presents another major obstacle. Renewable energy projects earning revenue in rupees but borrowing in US dollars face potential financial strain when exchange-rate movements increase debt-servicing costs. Limited long-term rupee financing and the relatively small domestic banking pool further restrict investment options.
Investors can also compare Sri Lankan projects with opportunities in larger neighbouring markets, including India. Unless the country offers competitive risk-adjusted returns, reliable payments and predictable rules, its renewable energy potential may not be sufficient to attract capital.
Contractual uncertainty and concerns over the financial strength of electricity purchasers can increase borrowing costs and the returns demanded by investors, ultimately affecting the cost of electricity supplied to consumers.
Reform must produce commercially viable institutions
Sri Lanka has made progress in changing the legal framework and unbundling the electricity sector into separate entities. However, the effectiveness of these reforms will depend on whether the new institutions can operate commercially, recover costs and implement credible investment plans.
Onomakpome identified transparent procurement, stronger grids, energy storage and evolving market arrangements—including wheeling, open access and greater corporate demand—as priorities for attracting investment.
The World Bank Group has approved a programme combining green investment, institutional strengthening and a payment-risk guarantee. Its success will depend on implementation, including credible contracts, appropriate tariffs, clear curtailment rules and funded investment plans.
For the Government, the challenge is to ensure that institutional reforms translate into lower financing risks, more competition and reliable electricity supplies. Without that transition, renewable energy announcements may generate expectations rather than investment.
Ultimately, Sri Lanka’s energy transition will be judged not by the number of projects announced or institutions established, but by the capacity to finance, construct and operate projects that deliver affordable electricity while strengthening economic competitiveness.
