Economic case for Adani’s original Mannar wind project rate

• Sri Lanka could save $ 280 m annually with Adani’s wind project despite rate concerns

A comprehensive analysis of Adani Green Energy’s proposed wind power project in Mannar reveals that the initially agreed tariff rate of $ 0.0826 per kWh is economically justified and potentially beneficial for Sri Lanka’s energy sector in the long run.

According to reporting by the Daily Mirror1 , despite concerns raised by Sri Lankan authorities including President Anura Kumara Disanayake about the price being too high, industry experts suggest the rate would ‘significantly undercut the country’s current oil and coal-based generation, which averages over $ 0.14 per kWh.’

The 484 MW wind and transmission project, which was approved under the ‘fast tracking of investments’ scheme during the previous Government, has undergone scrutiny following Adani’s selection to implement the initiative. The Cabinet Appointed Managing Committee on Investment (CAMCI) had previously approved the project, and Cabinet approval was granted before agreements were formalised between Government entities and Adani Green SL Ltd.

Economic analysis indicates that implementing Adani’s wind project would reduce Sri Lanka’s annual power generation costs by approximately $ 80 million. Furthermore, the country stands to save $ 200 million in annual foreign exchange outflows, a significant benefit given Sri Lanka’s ongoing economic challenges, resulting in a potential total of $ 280 million savings.

The tariff rate determination involves multiple factors, including capital costs, financing charges, land lease expenses, power purchase agreement (PPA) terms, and operational and maintenance costs. Notably, the PPA tenure for Sri Lanka is 20 years, offering extended asset ownership and operation stability.

Financial risk assessments also favour the project’s implementation. While Sri Lanka’s credit rating by Moody’s and S&P is ‘SD’ (Selective Default), indicating high risk for foreign lending or investment, Adani’s proposed risk premium is only 5%, substantially lower than Sri Lanka’s standard equity risk premium of 22.18%.

The Daily Mirror reports that Sri Lanka’s credit rating by Moody’s and S&P indicates significant risk for foreign lending or investment in the country. The equity risk premium for Sri Lanka stands at 22.18%, a reflection of the lending and risk environment. Despite these challenging conditions, Adani has proposed a much lower risk premium.

Adding context to the investment framework, in a recent interview, former President Ranil Wickremesinghe clarified the approval process for renewable energy projects during his administration. He explained that while some companies such as Hayleys benefitted from Government-funded environmental studies and land allocations, Adani was required to independently finance these preliminary aspects. Wickremesinghe emphasised that all projects, regardless of the investor, underwent thorough evaluations by designated committees through official channels. He dismissed allegations of improper influence, noting the importance of maintaining transparent processes, particularly with Indian investments, ahead of Prime Minister Narendra Modi’s visit to Sri Lanka.

When considering the broader economic impact, the integration of Adani’s wind energy into Sri Lanka’s power grid could potentially save millions of dollars in annual foreign exchange outflows while significantly enhancing energy security and promoting environmental sustainability.

As discussions continue between Adani Green Energy and Sri Lankan authorities, the economic data suggests that the originally agreed tariff structure may represent a strategically sound long-term investment for the country’s energy sector, particularly when considering Sri Lanka’s current energy costs and future generation needs outlined in the Long-Term Generation Expansion Plan 2023-2042 approved by the Public Utilities Commission.

1https://www.dailymirror.lk/breaking-news/Adani-not-ready-to-budge-on-original-tariff-rate-for-Mannar-wind-project/108-305084#