Solar Tariffs Down 30% — Is a Silent Clearance Block also in Place?
The Government to reduce Solar Tariffs by as much as 30%
As of March 25th, 2025, the government, with recommendations from the CEB, presented a revised tariff structure for new solar rooftop installations. This proposal presents a heavy reduction in payments based on the scale of energy generated. The new rates are as follows:
Systems generating less than 20 kW will now be paid Rs 19 per unit
Systems generating between 20 kW and 100 kW will now be paid Rs 17 per unit
Systems generating between 100 kW and 500 kW will now be paid Rs 15 per Unit
Note that this only affects individuals planning on getting rooftop solar. Prior rooftop solar owners will be paid according to their previous contracts signed.
Why the sudden decrease in Solar Tariffs?
As we predicted in our earlier post – Solar tariffs to be further reduced? – this change possibly comes after the culmination of several issues.
- First is the IMF’s criticism of the change in energy prices made in January. The current electricity prices are not cost-reflective and have caused significant losses in the operation of the CEB during recent months.
- Grid-instability caused by overproduction from renewable sources such as Solar that do not have “inertia”. This was determined to be a major source of stress to the country’s electrical grid and was the leading cause of the notable countrywide blackout experienced on February 9th, 2025.
- Solar installation prices have come down since their peak a few years ago, leading to it being an incredibly fruitful investment for a majority of households and investors, with ROIs typically in the 5-year range now down to 3 or below.
Is reducing Solar Tariffs truly the best option to solve these issues?
The 21% drop back in January will most likely be reversed to a certain degree. As this is bound to raise public disapproval, the government may be taking additional measures to reduce the cost of production itself. However, reducing the price of solar power is possibly the worst way to go about this. This data from the PUCSL regarding the production costs in January 2024 shows that the highest electricity cost per unit belongs to Thermal Power Plants. Thermal Coal and Thermal Furnace Oil have production costs of 24.4 lkr/kWh and 64.71 lkr/kWh, respectively. In comparison, renewable options such as Major Hydro and Rooftop Solar have production costs of 4.81 lkr/kWh and 24.59 lkr/kWh. The government could achieve a far greater impact on both electricity costs and the country’s foreign reserves by reducing reliance on fossil fuel-based energy production. However, the entire grid cannot be powered solely by renewables. This limitation primarily arises due to the issue of “inertia,” as previously discussed.
So, what is “inertia”? In this context, inertia is the stored energy in the spinning parts of traditional power plants, like turbines and generators. This energy helps the grid stay stable by resisting sudden changes in frequency when there’s a disturbance, such as a plant shutting down or a big surge in demand. The inertia buys time for backup systems to kick in before the situation gets worse. However, as we add more renewable sources like solar and wind, which don’t have heavy spinning parts, the grid naturally has less inertia, making it more sensitive to sudden changes.
Production methods like solar contribute little to no inertia, making it increasingly challenging for CEB operators to maintain stable grid functionality. However, reliance on fossil fuels is not the only solution. To address the issue of low inertia in renewable energy sources, the grid must incorporate energy storage solutions. These range from large-scale battery systems connected directly to the grid to initiatives like the recently approved water battery project by the CEB. Until such infrastructure is fully developed and implemented, heavy dependence on renewables like solar remains challenging. This was clearly demonstrated during the recent Avurudu season, when the CEB requested solar system owners to voluntarily disconnect from the grid during peak hours due to significantly reduced energy demand over the holidays.
While it is true that solar installation costs have dropped significantly from their peak, Sri Lanka’s target of achieving 70% renewable energy production by 2030 remains heavily dependent on substantial investment in solar energy. A reduction in solar tariffs could significantly curb investment interest in the sector. Furthermore, frequent changes and revisions to the tariff structure deter foreign investors and undermine international confidence in Sri Lanka’s renewable energy goals—potentially costing the country millions in green bond opportunities over the long term.
Response to the proposed Tariff Change
The Solar Industries Association (SIA), Electricity Consumers Association (ECA), and the Federation of Renewable Energy Developers (FRED) have all raised serious concerns regarding the abrupt changes to the solar tariff policy, warning that it could have detrimental effects on the future of sustainable development in Sri Lanka and the broader economy.
A key concern highlighted by all three organizations was the significant impact on employment, with estimates suggesting that nearly 40,000 jobs within the industry could be at risk. They emphasized that the short-term fallout from this policy shift would be substantial. Furthermore, they warned that the change could undermine the government’s long-term objective of reducing overall energy costs by 30%, as solar has consistently provided clean, low-cost energy.
Criticism was also directed at the CEB and the government for their ongoing failure to implement crucial grid-stabilizing infrastructure, which has further compounded the challenges facing the renewable energy sector.
Several of the organizations have also formally written to the government, including direct appeals to the President, urging a reversal of the decision and calling for a more thorough evaluation of the potential impacts this policy could have on the industry and the broader economy.
However, a response to these appeals is yet to be seen.
A silent block through Clearance ?
Over the past few months, there’s been a noticeable increase in rooftop solar clearance denials by the CEB. I personally faced this when I applied to expand our current 5.5 kW system to a 15 kW system back in early March — and was promptly denied. The reason?
“Transformers have reached max capacity.”
Interestingly, when I asked around, I found that several others had been given the exact same explanation. I can’t say with 100% certainty that every application has been rejected, but it’s pretty clear that a large majority are being denied — all for the same reason.
It’s a reason that’s conveniently hard to argue against, especially since consumers have zero access to any real information about transformer capacities before applying for approval.
I’ve even heard stories of people managing to get transformer capacity data through a lawyer and the Right to Information Act — and then successfully pushing through their solar installations. Whether you want to go down that road is entirely up to you (and your lawyer).
Now, here’s my personal take:
I believe clearances will open up — but only after the upcoming tariff revision is finalized.
That’s why I strongly suggest you run some quick numbers on your returns based on the new tariffs. (I’m planning on making a post on this soon – it’ll be linked below when its up)
What to Expect in the Coming Months
Here’s what I think we’re looking at:
- Electricity prices will rise.
No question about it. How much? I’m expecting roughly a 10% hike on average.
- The tariff revision will happen, despite any noise from institutions.
(Just like it did last year in July — quietly, and without much opposition.)
- A new feed-in tariff plan for nighttime solar (with batteries) could be introduced.
The numbers haven’t been released yet, so it’s hard to say if it’ll be a worthwhile investment.
Keep in mind: batteries usually need replacing every 10 years or so, which adds to your costs.
- Potential rise in solar equipment prices.
Solar prices in China have been creeping up recently. Based on past trends, we’ll likely start seeing the effects here in a few months.
While the immediate future for rooftop solar doesn’t look amazing, it’s definitely not all doom and gloom for the country overall.
The economy is bouncing back, and personally, I think now is one of the best times to get into the stock market — if you’re playing the long game.
At the end of the day, it’s up to you to weigh your options and make the best decision for your future investments.
Thanks for reading!