Sri Lanka’s electricity crisis raises a fundamental question that goes beyond tariffs, fuel imports and the management of the national grid: should citizens be free to generate their own electricity when they can do so safely without relying on the state or imposing any cost on the public?
The answer should be straightforward. A household that installs solar panels and batteries to power its own appliances or a factory that invests in an independent energy system to maintain production during power disruptions should not have to navigate a licensing process designed for a commercial electricity supplier or a community mini grid.
Yet the regulatory framework appears to make precisely this distinction difficult to establish. While the government promotes renewable energy and recognises the growing importance of battery storage, citizens who wish to achieve genuine energy independence face administrative requirements that seem disproportionate to the activity they intend to undertake.
This is more than a bureaucratic inconvenience. At a time when the country needs to conserve foreign exchange, reduce its dependence on imported fossil fuels and rebuild investor confidence, preventing households and businesses from investing in independent power systems makes little economic sense.
The case for reform rests on three principles: the national interest, the proportionality of regulation and the citizen’s right to choose how electricity is obtained.
A costly contradiction in energy policy
The renewable energy sector has faced serious financial and regulatory difficulties. According to figures cited in the underlying analysis, payments owed to renewable energy developers by the National System Operator exceeded Rs.10 billion by early May 2026, with arrears accumulating at approximately Rs.2.5 billion a month.
The arrears reportedly began in December 2025 when shortfalls in coal generation increased reliance on diesel and heavy fuel oil. The prioritisation of cash for imported fossil fuels over payments to domestic renewable energy producers has placed considerable pressure on the latter.
Renewable energy developers have also faced restrictions on generation during periods of excess daytime supply. Since February 2025, the analysis reports that renewable generation has been curtailed on Sundays and mercantile holidays between 9 am and 3 pm with estimated losses to the industry of Rs. 2 billion to Rs. 2.5 billion monthly.
These developments have serious implications. Investors who commit capital on the basis of government-approved arrangements need confidence that contractual obligations will be honoured. When payment delays and retrospective policy changes undermine that confidence, the consequences extend beyond existing projects. Future investment becomes more expensive and the country risks losing access to capital that could help meet its renewable energy targets.
The difficulties faced by rooftop solar users are equally significant. The source analysis estimates that more than 75 per cent of approximately 150,000 rooftop solar users have been financially affected by changes to tariff arrangements and the withdrawal of net plus purchase agreements.
The lesson is clear: a country cannot credibly encourage private investment in renewable energy while leaving investors uncertain about the stability of the rules governing their investments.
But there is a further contradiction. If citizens cannot be assured that the grid will provide a reliable service or that the financial arrangements supporting their investments will remain predictable, why should they be prevented from reducing their dependence on the grid altogether?
Consumers should not bear the cost of institutional failure
Energy difficulties have also been compounded by controversy surrounding coal procurement. The original analysis cites an expert committee estimate of Rs.15.7 billion in additional costs associated with substandard coal supplied to the Lakvijaya power plant between January and September 2026. This figure comprises Rs.7.1 billion in additional coal consumption and Rs.8.6 billion in replacement power costs.
The reported estimate illustrates how weaknesses in procurement and power generation can translate into a direct economic burden. Additional fuel consumption, the need for replacement electricity and the resulting financial pressures ultimately affect consumers and the wider economy.
The analysis also records electricity tariff increases in April and May 2026, including an increase of up to 18 per cent for certain high consumption household and industrial categories in May. Where such increases reflect higher generation costs, consumers may have little choice but to absorb them. But the situation becomes more troubling when the additional costs arise from failures that consumers neither caused nor could prevent.
This is where the question of energy independence becomes particularly relevant. A household or business that invests in an independent solar and battery system reduces its exposure to electricity tariffs and supply disruptions. It may also reduce demand for imported fuel depending on the extent to which its system displaces grid consumption. Such an investment does not require the state to finance a power plant, enter into a power purchase agreement or guarantee payment for electricity supplied to the grid.
Why, then, should the State make it difficult for citizens to undertake it? The objective should not be to encourage every consumer to abandon the national grid. The grid will remain essential to the country’s electricity system. The objective should be to allow those who wish to invest in genuine self-sufficiency to do so under a clear, proportionate and safety conscious regulatory framework.
The off grid licensing problem
The most striking obstacle identified in the analysis concerns the licensing of off grid renewable energy systems. Section 5(c) of the Sustainable Energy Authority Act assigns the Sri Lanka Sustainable Energy Authority a role in encouraging and promoting off grid renewable energy projects. Yet, according to the Auditor General’s findings cited in the original paper, no energy licenses had been issued for off grid renewable energy projects by July 2024 despite the relevant statutory provisions.
The application requirements include a detailed feasibility study, engineering designs, a socio-economic survey, a Central Environmental Authority report and proof of financial capability. Applicants must also obtain confirmation from the relevant distribution entity that grid extension is not planned for the location during the next five years.
These requirements may have a purpose when a developer proposes a mini utility intended to supply electricity to an isolated community. Such a project involves public service considerations, infrastructure planning and the potential distribution of electricity to third parties. But should the same requirements apply to a household installing solar panels and batteries exclusively for its own consumption?
Consider a small factory that wishes to maintain essential operations during an outage or a hotel that wants to reduce its dependence on the grid during expensive evening hours or a household that can afford a solar and battery installation and wishes to protect itself against future tariff increases. If the proposed system is physically disconnected from the national electricity network, cannot export electricity and supplies only the owner’s premises, its impact on the grid is fundamentally different from that of a commercial electricity supplier.
Requiring such an applicant to prove that the grid will not reach the premises for five years appears particularly difficult to justify. The owner is not asking the state to provide electricity nor is the owner seeking permission to sell electricity to others. The owner is simply investing private funds to meet a private need. Regulation should reflect that distinction.
Energy independence is in the national interest
The economic case for off grid solar becomes stronger when viewed against the electricity demand and dependence on imported fuel. The original analysis records peak demand of approximately 3,089 megawatts in March 2026, with daily consumption of around 58-60 gigawatt hours. It also identifies the period between 6 pm and 10 pm as a critical window when solar generation is no longer available and expensive fuel-based generation may be required. This creates an important opportunity for solar energy combined with battery storage.
Solar panels generate electricity during daylight hours when demand and supply conditions may differ substantially from those prevailing in the evening. Batteries allow some of that electricity to be stored and used later, reducing the amount of electricity that must be drawn from the grid during peak hours. The original analysis estimates that a 10 per cent reduction against peak demand of 3,089 MW would amount to approximately 309 MW.
This should be understood as an illustrative policy objective, not a guaranteed outcome. The actual contribution would depend on how much off grid capacity is installed, the size of the batteries, the duration of storage, the timing of consumption and the extent to which systems can reliably supply evening demand.
Nevertheless, the underlying principle is sound: every appropriately sized private system that displaces fossil-fuel-based grid generation can help reduce the country’s fuel requirements. For a country vulnerable to external price shocks and foreign exchange constraints, that is a benefit worth encouraging.
The government has already recognised the importance of battery energy storage in its long term electricity planning. The original analysis refers to planned battery energy storage projects in the Southern and Western regions. The same basic technology can also serve households, hotels, commercial establishments and factories.
There is an obvious policy question here. If battery storage is valuable when deployed by the state or a utility, why should it be treated as a regulatory problem when privately financed consumers use it to reduce their own demand? The state need not subsidize these investments. It need not guarantee a purchase price for the electricity generated nor need it to assume responsibility for operating the systems. It needs only to establish clear safety requirements and remove unnecessary administrative obstacles.
A citizen’s right to choose
The argument for off grid electricity is not solely economic. It also concerns the appropriate limits of state regulation. Electricity is an essential service, but that does not mean the state should monopolise every lawful means by which citizens obtain it.
A person who installs a solar panel and battery on private property to operate household appliances is not necessarily entering the electricity supply business. The same is true of a company that installs an independent system to keep its own machinery running. Provided the installation meets appropriate electrical and fire safety requirements, the public interest in controlling such a system is limited.
This does not mean that all energy regulation should be abandoned. Unsafe wiring, defective equipment, fire hazards and unauthorised connections to the grid are legitimate concerns. Systems capable of exporting electricity into the national network also raise technical issues that require appropriate controls.
But these concerns should not become a justification for treating every independent installation as a major energy project. A physically isolated system does not require the same level of regulatory scrutiny as a generating facility supplying electricity to the public. The principle should be simple: regulate the risks that exist rather than imposing administrative burdens associated with risks that do not.
Sri Lanka can address this problem without dismantling its electricity regulatory framework. Five targeted reforms would provide a workable starting point.
Five practical reforms
First, exempt genuinely disconnected systems from energy licensing. The Sustainable Energy Authority Act should be amended or appropriately clarified to distinguish private self-consumption systems from projects supplying electricity to third parties. A system with no physical connection to the transmission or distribution network and no capacity to export electricity should qualify for a simplified compliance procedure rather than a full energy licence.
Second, establish a clear technical definition of off grid operation. The rules should specify the conditions under which a system qualifies as genuinely isolated. They should also distinguish between a completely disconnected installation and a backup system that uses a manual transfer switch but cannot export electricity to the grid. Clear definitions would protect the integrity of the grid connected regulatory framework while giving households and businesses greater certainty.
Third, adopt internationally recognised safety standards. Standards such as IEC 62619 and UL 9540 provide reference points for battery safety and energy storage systems. Sri Lanka should establish an appropriate compliance framework based on recognised standards, qualified installation practices and proportionate inspection requirements. A safety self-declaration, supported by technical documentation and subject to random inspections, could replace routine project by project approval where the risks justify a simplified process.
Fourth, recognise private storage as a contributor to national energy security. The National System Operator should incorporate credible estimates of off grid capacity into its demand forecasts. Better information would help planners assess the potential contribution of private storage to peak demand reduction and fuel savings. Such recognition should not imply that the state controls the operation of privately owned isolated systems.
Fifth, count the systems without attempting to control their everyday operation. A simple registration or self-certification portal could collect basic information about installed capacity for planning purposes. Annual reporting could be anonymous in aggregate, subject to any narrowly defined legal requirements that may legitimately apply. The objective should be to understand the scale of private investment, not to create another layer of administrative supervision.
The obstacles are institutional, not technological
The principal challenge may be political and institutional rather than technical. The original analysis points to the centralising direction of the electricity sector under the Sri Lanka Electricity (Amendment) Act No. 14 of 2025, which it says restricted generation and distribution licenses to state-owned entities and strengthened ministerial control.
Against this background, a policy that gives households and businesses greater independence may run counter to the prevailing institutional approach. But the case for off grid self-consumption should not be framed as a contest between the state and private enterprise.
The national grid will continue to serve an indispensable purpose. Large scale generation, transmission, system balancing and electricity distribution require coordinated planning. Not every consumer can afford an independent system and off grid installations will not eliminate the need for public investment in electricity infrastructure.
Nevertheless, the existence of a national grid does not justify preventing consumers from meeting some or all of their own needs independently nor does deregulation have to mean the absence of standards. A system of technical certification, clear boundaries, installer accountability and proportionate inspections can protect public safety without requiring every household or business to secure a full energy license.
The government should also recognise the commercial incentive already emerging. Rising electricity costs and concerns about reliability encourage businesses to seek alternatives. If the regulatory framework remains unnecessarily restrictive, capital that could be invested in energy resilience may instead be delayed or deployed elsewhere. A more enabling policy would allow private investment to complement the national system rather than compete with it.
From dependence to resilience
The energy debate should move beyond the assumption that every solution must originate with the state or pass through a centralised electricity supply arrangement. When public finances are constrained, imported fuel is expensive and the electricity sector faces questions about procurement, reliability and contractual credibility, private investment in independent energy systems deserves serious consideration.
The potential benefits are substantial: reduced dependence on imported fuel, lower exposure to grid disruptions, greater resilience for businesses and additional progress towards renewable energy objectives without direct Treasury subsidies.
These benefits should not be exaggerated. Off grid solar and battery systems have upfront costs depending on appropriate system design and require safe installation and maintenance. Their contribution to national peak demand reduction will depend on actual deployment and performance. But these are reasons to establish sensible standards and assess outcomes, not reasons to preserve an unnecessarily burdensome licensing process.
Sri Lanka’s policy choice is ultimately straightforward. It can continue to treat private energy self-sufficiency as an activity requiring extensive official permission or it can recognise that citizens and businesses are capable of making responsible investments in their own resilience.
The proposed reform is not a rejection of regulation. It is an argument for regulatory proportionality: strict enough to protect safety and prevent unauthorised grid connections but not so restrictive that it suppresses legitimate private initiative.
A household that wishes to power its own home or a business that wishes to protect its operations should not have to prove that the national grid will remain absent for five years before being allowed to invest in an independent electricity system. The state’s responsibility is to ensure that electricity infrastructure is safe, reliable and financially sustainable. It should not make citizens unnecessarily dependent on that infrastructure when they have the means to help themselves.
Sri Lanka needs a power policy that counts private initiative as an asset, recognises energy independence as a contribution to national resilience and allows citizens to choose their own path to self-sufficiency.
