Sri Lanka power generation cost is set for a significant reduction as the Energy Ministry moves to lower electricity production expenses through competitive bidding and procurement reforms. The strategy aims to ease household bills while improving efficiency across the power sector.
Sri Lanka power generation cost targeted to fall below Rs25 through reforms
Sri Lanka’s Energy Ministry has announced plans to reduce electricity generation costs to below Rs25 per unit, marking a decisive shift in procurement policy and cost management within the power sector. The proposed reduction would represent a substantial decline from mid-2025 levels and aligns with the government’s broader objective of delivering meaningful electricity tariff relief to consumers.
Energy Minister Kumara Jayakody said generation costs, which averaged around Rs37 per unit in July 2024, have already been brought down to approximately Rs29 per unit. The next phase of reform, he explained, is aimed at pushing that figure down to Rs25 or lower by expanding competitive bidding mechanisms across all new power purchases.
The cost reduction strategy is closely tied to the policy commitments of the National People’s Power administration. According to Minister Jayakody, the government’s election platform pledged to reduce electricity bills by around 30 percent over a three-year period. Lowering generation costs is seen as a critical prerequisite for delivering on that promise without placing additional strain on public finances or the balance sheets of state-owned utilities.
“If we bring the generation cost down to 25 rupees a unit, there will be a reduction of about 32 percent in costs,” the minister said, emphasizing that purchase prices must remain below that threshold for the savings to be sustainable. He noted that controlling procurement prices is central to ensuring long-term tariff stability rather than temporary relief.
A cornerstone of the reform effort is the shift away from administratively determined feed-in tariffs toward open, competitive tendering. Under the previous system, guaranteed tariffs often resulted in elevated costs and limited transparency. By contrast, competitive bidding allows prices to be discovered through market forces, encouraging efficiency and innovation while discouraging excessive margins.
Minister Jayakody said competitive procurement would also reduce the scope for politically connected or inefficient operators to overcharge the Ceylon Electricity Board. Transparent tender processes, he argued, protect consumers by ensuring that power is purchased at the lowest viable cost while maintaining quality and reliability standards.
Early results from the new approach suggest significant potential for further savings. According to the minister, wind power projects procured through competitive bidding have already delivered purchase prices as low as Rs12 per unit. Battery energy storage systems, which are increasingly important for integrating renewable energy into the grid, have reportedly come in below Rs20 per unit.
These outcomes, officials say, demonstrate how technological progress and competitive pressure can sharply reduce costs when procurement frameworks are properly designed. As renewable energy technologies mature and scale increases, the ministry expects prices to decline further, strengthening the case for accelerated adoption.
However, the effort to reduce Sri Lanka power generation cost faces challenges from macroeconomic conditions, particularly currency volatility. Renewable energy investors are increasingly seeking tariffs denominated in US dollars, citing the impact of rupee depreciation on equipment imports, financing costs, and returns on investment.
Energy sector analysts warn that when the domestic currency weakens, the cost of electricity generation rises across most power sources, except for fully amortized renewable plants owned by the Ceylon Electricity Board. Imported fuel costs, foreign-currency loans, and dollar-linked contracts all become more expensive, potentially undermining the benefits of procurement reforms.
Minister Jayakody acknowledged that exchange rate instability complicates the government’s cost-reduction strategy. He noted that while competitive bidding can significantly lower base prices, sustained currency depreciation can offset these gains, placing upward pressure on overall electricity costs and weakening the intended economic impact.
Despite these risks, officials maintain that transparent procurement and diversification toward lower-cost renewable energy remain the most effective tools for long-term cost control. By reducing reliance on imported fossil fuels and improving grid efficiency, Sri Lanka aims to insulate its power sector from external shocks while supporting environmental and fiscal objectives.
The reform agenda also reflects broader efforts to restore public confidence in the energy sector following years of high tariffs and supply disruptions. Lower and more predictable generation costs are expected to support industrial competitiveness, attract investment, and ease the cost-of-living burden on households.
As the ministry advances its plans, stakeholders will be watching closely to see whether procurement reforms, currency management, and infrastructure investment can be aligned to deliver lasting benefits. If successful, the strategy could mark a turning point in Sri Lanka’s electricity sector, shifting it toward a more affordable, transparent, and resilient model.