The Geopolitics of Sri Lanka’s Renewable Energy-based Economic Recovery

The geopolitics of the Indian Ocean Region (IOR) is changing rapidly as the region intensifies efforts to address climate change by transitioning to clean energy sources. Sri Lanka is a significant player in the IOR and its bilateral relations with regional and extra-regional powers are interwoven with broader geopolitical considerations. The primary focus of these relations is Sri Lanka’s pursuit of energy security, which significantly impacts its foreign policy decisions. Sri Lanka’s 2022 economic crisis highlighted the impact of Chinese expansionism in South Asia and raised questions about the looming energy insecurity [1] in the Sri Lankan economy. [2]

60% of Sri Lanka's energy supply still relies on non-renewable sources. With limited fossil fuel reserves, the country meets 40% of this demand through energy imports. [3]  The International Energy Agency has forecasted that the demand for energy in Sri Lanka will escalate exponentially in the coming decade, amplifying the existing disparity between energy demand and energy supply. Thermal power remains the primary energy source in Sri Lanka, and the country's efforts to ensure energy access for all have led to significant investments in thermal power plants, exceeding USD 4 billion in the past year. [4] The Norochcholai Coal Power Plant, built by China, generates nearly half (45%) of Sri Lanka's total electricity. [5] Currently, Sri Lanka is unable to diversify its energy mix, despite having several hydroelectric power projects, as limited rainfall leads to insufficient power generation capacity.

Sri Lanka's energy security is deeply interconnected with its economic security. For instance, the Sri Lankan tourism industry was severely impacted by fuel shortages and power cuts following the country's financial crisis. A primary recommendation for the government is to revive its energy sector, which can only be achieved through increased investment in alternative renewable energy sources. [6] This includes the installation of solar panels on household, commercial, and community buildings, particularly in coastal villages. Sri Lanka could become a self-sustaining island by utilizing its indigenous renewable energy sources.

Although Sri Lanka, as a tropical country, has vast potential to harness solar, wind (both onshore and offshore), biogas, and geothermal energy, its renewable energy penetration in the current energy mix remains low. Presently, hydroelectricity and biogas form the backbone of the renewable energy sector in Sri Lanka. [7] Adapting to other renewables is crucial for Sri Lanka to reduce its dependence on imported fuels, lower energy costs, and keep up with the emission reduction goals outlined in its Nationally Determined Contributions. Sri Lanka aims to generate 70% of its electricity from renewable sources by 2030 and is actively promoting investments in renewable energy to achieve this goal. [8]  An adequate electricity supply would also offer co-benefits like supporting clean mobility and the country’s electronic vehicle sector.

However, the substantial investments needed for renewable infrastructure are currently unfeasible due to the ongoing financial crisis. Investing in renewable energy demands significant capital, and given the country's current financial circumstances, it may not be a viable option. The transition to sustainable energy in Sri Lanka is difficult without significant self-funding, necessitating partnerships with countries like China, India, and the US to invest in its renewable energy sector.

This has created the challenge of carefully balancing the interests and demands of partner countries for Sri Lanka. With both China and India offering investment opportunities while also posing geopolitical concerns, Sri Lanka prioritizes its economic growth in alignment with the IMF relief fund and the liberalization of its energy market. [9] In March 2023, the island nation decided to liberalize its fuel retail market which had been a state monopoly held by the Ceylon Petroleum Corporation. The only exception to this until now has been Lanka IOC, an auxiliary company of the Indian Oil Corporation, which operates retail petrol and diesel stations, making it the only private oil company to do so. However, the subsequent liberalization of the Petro-retail market has now opened the market to foreign players, welcoming Sinopec, the Chinese oil and gas giant to sign the deal. [10] To address the challenges caused by the financial crisis, Sri Lanka has reached out to the US-based company RM Parks and the Australian company United Petroleum for assistance. [11] This has lessened the geopolitical concerns of Washington and New Delhi, previously caused by the increasing Chinese presence in Colombo.

Strengthening Partnerships with Regional Actors to Secure Sri Lankan Renewable Energy Sector

Thus, the path to renewable energy adaptation is not one without challenges. By choosing renewable energy as a driver of economic growth over traditional systems of fossil fuel-based growth, Sri Lanka has the opportunity to become the flagbearer of climate adaptation. [12] Sri Lanka has the opportunity to become a leader for vulnerable island nations affected by climate change and to create pathways for addressing the challenges they face.  International climate negotiation platforms offer a crucial opportunity for Sri Lanka to remind the Global North of its commitment to support vulnerable economies through grants (rather than loans) and to embrace emerging renewable energy technologies. Sri Lanka should establish itself in climate transition platforms by advocating for the reconstruction of its economy through investments in renewable energy.

The transition to a low-carbon, renewable energy economy requires critical materials that are necessary for the production of wind turbines, solar panels, and battery storage systems. These include lithium, cobalt, rare earth metals, graphite, copper, aluminum, and nickel, among others. However, the concentration of these materials in a limited number of countries poses geopolitical risks and uncertainties for the energy transition. Many countries, including India, are seeking to reduce their dependence on China, which is the largest producer of rare earth metals. South Asian countries need to explore the possibility of partnering with each other to ensure a stable supply of rare earth metals and promote the development of their domestic rare earth industry, recognizing the strategic significance of these elements. [13]

Transition to renewable energy is crucial for Sri Lankan energy security, which necessitates strengthening trade collaborations with regional powers on critical materials, raw materials for wind turbines, solar panels, energy storage systems, and finished renewable energy products. As a neighboring country on a similar path to carbon neutrality and one of Sri Lanka's largest energy partners, this situation provides India with opportunities for transnational cooperation—whether through state-driven initiatives or non-state actors—to enhance energy trade across borders and ensure energy security. To accomplish this, Sri Lanka and India need a paradigm shift in their regional cooperation framework by aligning with SDG 17—Global Partnership for Sustainable Development. This alignment should emphasize clean energy transition scenarios that can outline pathways for future climate action. Some forward movement has already been achieved in this regard as Sri Lanka has signed multiple agreements with India to develop an energy hub, including a 135 MW solar power plant in the eastern port district of Trincomalee, along with 350 MW wind power plants in Mannar. [14]

India and Sri Lanka are developing countries with extensive coastlines, separated by Palk Bay and the Gulf of Mannar, and they share overlapping Exclusive Economic Zones (EEZs). These regions are rich in resources, including fisheries, pearl beds, and wind energy potential. An offshore renewable energy project that is collaborative and located in a shared EEZ would be advantageous for the energy security of both countries. Given the intermittent nature of wind turbines, the potential for generating green hydrogen from this offshore renewable farm could play a crucial role in the energy mix. Green hydrogen can be transported through pipelines, trucks, and ships as a versatile energy source for various applications, including power generation and transportation. Therefore, cooperation between India and Sri Lanka should be based on sustainable development goals and should encompass sustainable practices, measures for climate change mitigation and adaptation, research, and the development of emerging technologies. Through joint ventures, friend-shoring, information sharing, and research collaborations, the development of cooperative offshore renewable energy development zones between Sri Lanka and India may lead to a robust and secure energy supply chain resistant to disruptions.