In January 2023, India’s External Affairs Minister (EAM) Dr. S. Jaishankar, visited Sri Lanka and remarked on the importance of energy security for the island nation. He stated, “Energy security is today one of Sri Lanka’s most serious challenges. A search for solutions must necessarily encompass the larger region. Only then will Sri Lanka get the full benefit of scale. This country has enormous renewable energy potential that can become a sustainable source of revenue. It has the capability as well for Trincomalee to emerge as an energy hub. In its support for Sri Lanka, India is prepared to be a reliable partner on such initiatives”. [1]

It is crucial to consider the context in which these remarks were made. Since 2019, Sri Lanka has been grappling with an economic crisis marked by unprecedented levels of inflation, the depletion of foreign exchange reserves, and a shortage of essential goods. This crisis resulted from a combination of factors, including tax cuts, unfeasible external debt, the 2019 Easter bombings, and the effects of COVID-19 on the country’s tourism sector. Sri Lanka has also faced significant energy challenges, stemming from its reliance on costly fossil fuel imports and inadequate energy infrastructure. In recent years, India’s relationship with Sri Lanka has been guided by Delhi’s Neighbourhood First Policy and its SAGAR vision. This approach encompasses security, trade, connectivity, and people-to-people relations. However, energy interdependence has not been adequately addressed. As such, Delhi has sought to enhance its energy cooperation with Colombo.

Sri Lanka has set ambitious targets for its energy future, aiming to generate 70% of its power from renewable sources by 2030 and 100% by 2050. [2] However, according to a UNIDO report by Charles Arthur, more than 50% of the country’s energy is generated through imported fossil fuels in 2019. [3] To this end, India has initiated several bilateral projects and the integration of power grids between India and Sri Lanka. During President Wickremesinghe’s visit to India in July 2023, a Memorandum of Understanding (MoU) on cooperation in the field of renewable energy was signed, along with an energy permit for the Sampur Solar Power Project. [4] This project will feature a 135-MW solar power plant in Trincomalee, to be built in two phases. The first phase, expected to generate 50 MW of electricity, will be completed by 2025. Trincomalee is a strategically located port city in northeast Sri Lanka comprising a natural harbor and oil farm.

Sri Lanka’s energy consumption versus electricity production. 

Source: Our World in Data/Energy Institute Statistical Review of World Energy (2023)

In January 2022, the Lanka Indian Oil Corporation (LIOC), Ceylon Petroleum Corporation (CPC), and the Government of Sri Lanka signed agreements to jointly develop the Trincomalee oil tank farm which holds the potential to significantly enhance Colombo’s energy security. [5] The oil farm consists of 99 tanks with a total capacity of 1.2 million tonnes of fuel. As per the agreement, the two countries will jointly refurbish 61 of the 99 tanks, with the remaining 24 and 14 tanks developed by the CPC and the LIOC respectively. [6]

According to the India-Sri Lanka Economic Partnership Vision, the two countries are exploring cooperation in green hydrogen and green ammonia to augment the renewable energy mix in power generation. Sri Lanka has also embarked on a renewable energy project with India’s Adani Group, representing a total investment of USD 442 million. [7] This project includes a 250-MW wind power plant in Mannar and another 100-MW plant in Pooneryn, set to be completed by December 2024. In March this year, an agreement was signed for the development of hybrid renewable energy systems for islands off the Jaffna Peninsula which are not connected to Sri Lanka’s national grid. [8] The project will be carried out as a grant assistance from the Government of India and will feature 530 kw wind power, 1,700 kw solar power, 2,400 kWh battery power and a 2,500 kw diesel power system. [9] Apart from this, the two countries are exploring an estimated USD 1.2 billion undersea transmission line that will link Anuradhapura in Sri Lanka to Chennai in India through a combination of a 130-km overland transmission line and an undersea line via a submarine cable. [10] Furthermore, India is working on establishing a high-capacity power grid interconnection that will enable bidirectional electricity trade. [11] This grid can facilitate electricity trade with India as well as with other regional partners, including the BBIN and BIMSTEC countries.

To address its foreign exchange crisis, Sri Lanka has allowed Chinese oil company Sinopec and other international firms, including Australia’s United Petroleum and the US’ RM Parks in collaboration with Shell, to sell fuel below the government’s maximum retail price. [12] Sinopec’s proposal for a USD 4.5 billion refinery project in southern Sri Lanka, near the China-managed Hambantota Port, has been approved, making it the single largest investment in Sri Lanka since the economic crisis. [13] Sri Lanka has also entered into other foreign partnerships such as with the U.S. Agency for International Development (USAID) on a USD 19 million project to increase the deployment of renewable energy and advanced technologies and expand the role of the private sector. [14] In June 2022, USAID had announced its partnership with VEGA to provide technical assistance to develop Sri Lanka’s electric vehicle sector. [15]

Despite these developments, concerns exist around the viability of certain key projects. For instance, the Norochcholai Power Plant, the largest thermal power plant in Sri Lanka, built with Chinese assistance, has experienced frequent breakdowns due to poor infrastructure, resulting in power outages. [16] The plant also generates substantial waste, causing irreversible environmental impacts in the area. [17] There are also legal challenges with awarding tenders to private companies which are presently not allowed as per Sri Lankan rules. Such an issue was observed with Adani group’s wind power project which ultimately went through as a government-to-government arrangement between India and Sri Lanka. [18]

A significant reality facing South Asian countries is that India and China have been unwilling to collaborate on projects in third countries. In February 2021, India released new rules governing the trade of electricity in a carefully drafted document, according to which power plants owned by a company situated in “a third country with whom India shares a land border” and “does not have a bilateral agreement on power sector cooperation with India” cannot sell power to India. [19] This was implemented essentially to dissuade Chinese companies from setting up power stations in other South Asian countries to sell electricity to India. These rules also apply to tripartite trade done through transmission grids in Indian territory. Subsequently, in December 2021, China suspended a project to install hybrid energy plants in three islands off the coast of Jaffna, over “security concerns from a third party”. [20]

Need for Sri Lanka to Balance Energy Partnerships

Nevertheless, there is potential for other powers to jointly work with India or China in Sri Lanka. In 2019, China partnered with Sri Lanka and Ethiopia for a three-year project on trilateral South-South cooperation for renewable energy technologies to achieve sustainable development goals (SDGs). [21] Delhi and London have operationalized a Global Innovation Partnership (GIP) which will focus on climate-smart innovations and development in third countries. While the GIP is in its inception phase, early-stage talks have taken place regarding cooperation within Sri Lanka’s power and energy sector. [22] India is also keen to operationalize its grid-interconnection initiative called the One Sun One World One Grid (OSOWOG) through the International Solar Alliance, and Colombo will look to derive some benefit from it. However, that will only happen if the island nation can quickly improve domestic electricity production.

Over the past decade, Sri Lanka has attempted and oftentimes failed to successfully balance itself between regional powers. Nevertheless, Sri Lanka’s need for energy independence remains paramount. Although external support for non-renewable energy remains essential in the short term, the long-term focus should be on enhancing domestic infrastructure to boost renewable energy production. The goal is to achieve energy self-sufficiency and eventually export energy to the region. Other countries such as Nepal, Bhutan and Bangladesh are already engaged with India in cross-border electricity transmission. Sri Lanka can also be a part of this exchange, connecting itself to a regional power grid in South Asia. This will enhance Colombo’s economic resilience and provide it with bargaining power in its relations with partners. To start with, establishing political will and overcoming regulatory challenges will be instrumental.