Electric Revenue – Sri Lanka

February 2005

Fossil-fuel-powered electricity production and its dissemination via a central electricity board are becoming increasingly expensive in Sri Lanka. Decentralised, renewable energy production is therefore becoming more acceptable and widely used. In Sri Lanka, ITDG’s village micro-hydro projects are helping to deliver decentralised hydro-powered electricity to marginalised communities that have no access to grid-supplied electricity.

Energy in Sri Lanka

Sri Lanka has a population of 19 million people, of whom approximately 75 per cent live in rural areas. It is estimated that only about 54 per cent of the population has access to electricity, meaning that around 2 million households lack access to electricity from the grid. The household electrification rate in Sri Lanka ranges from 28 per cent to 36 per cent despite the fact that rural electrification programmes began over half a century ago. Meanwhile, power demand in Sri Lanka is growing at over 8 per cent per year and the central electricity board is unlikely to be able to keep up with demand. There are 300,000 off-grid households who use power from car batteries that are charged from grid supplies, and this gives some indications of the large amount of unmet demand for electricity. The use of traditional grid-based approaches to meet the rural electricity demand has become increasingly expensive as lines are extended to dispersed populations and fossil fuel costs have continued to increase.

© Zul/ITDG
© Zul/ITDG

Over the past twenty years, several institutions have attempted to address the issue of rural energy supply with a particular emphasis on renewable energy technologies. These attempts have seen both success and failure, with many failures stemming from a bias towards hardware research over an understanding of underlying social, cultural and economic issues. The Intermediate Technology Development Group (ITDG) in Sri Lanka recognised the need to assist in rural electrification as part of its focus on strengthening the livelihoods of marginalised communities. The micro-hydro project was therefore introduced to demonstrate and exploit the potential of off-grid energy systems as an option for rural electrification.

Principles of Micro-hydro

‘At the beginning, no one believed that micro-hydro could be used for rural village electrification. We had a struggle to convince all the people concerned. But now, everybody knows that micro-hydro is one of the famous subjects in electrification.’ Jayantha Gunasekera, ITDG

The technical aspects of micro-hydro projects have been covered in recent Hands On case studies: ‘Green Currents: Pico-Hydro – Vietnam’ (http://www.tve.org/ho/doc.cfm?aid=1636) and ‘Fuel For Thought: Stream Line – Kenya’ (http://www.tve.org/ho/doc.cfm?aid=871). Technical information on micro-hydro is also widely available: for example, in the ITDG Technical Brief ‘Micro-Hydro Power’ (http://www.itdg.org/?id=technical_briefs), so these aspects of micro-hydro power are not covered here. This section explores the technical, social, economic and organisational context of micro-hydro projects.

© Gregory Wishart/ITDG
© Gregory Wishart/ITDG

In certain circumstances micro-hydro can be profitable in financial terms, while in other circumstances, unprofitable plants can have strong positive impacts on the lives of local people and the local environment. Micro-hydro projects can achieve a wide range of objectives and each project should be considered independently. Much confusion and misunderstanding arises when all micro-hydro plants are treated as the same. It is important to judge the viability of each project in terms of its specific objectives. Generally, the objectives of micro-hydro projects are often technology, socially or financially motivated. Many projects have been driven by ‘technology push’, with micro-hydro developing into a mature technology greatly improved by electronic load controllers, low-cost turbine designs, and the use of plastics in pipework and penstocks. Other projects have been driven by their contributions to social justice, quality of life improvements, and the environment. In Sri Lanka, hydro plants have often been installed to ‘improve the quality of life by providing electric lights’. Micro-hydro as ‘social infrastructure’ encompasses schemes for the supply of drinking water, health clinics and schools. Micro-hydro as ‘physical infrastructure’ is that which applies to more general electric power generation. More recently, micro-hydro has been seen in terms of small and medium enterprise development, for the role it can play in improving livelihoods.

Within the objectives that are laid out for a micro-hydro project, decisions must be made between the two extremes of financial profitability and social impact. There is likely to be a middle ground where social impacts can be achieved profitably. To ensure that micro-hydro investments are successful both financially and socially, a wide range of actions have to be brought together. These actions take place at various levels: a particular investment in a micro-hydro plant; policy formulation; and in the design and implementation of support programmes and mechanisms.

Financially, a package needs to be put in place to build and operate a micro-hydro plant. This covers:

  • Transaction costs of assembling the equity and securing loans;
  • Obtaining subsidies;
  • The assessment and assurance of the financial viability of schemes;
  • The management of guarantees;
  • The establishment of collateral;
  • The management of loan repayment and dividends to equity holders.

The technical aspect involves work in improving options through technology research and development and importing know-how to supply the necessary goods and services. Hardware and engineering skills are highly important, as there is a great need to get the technology right, and to develop the technical skills necessary to build, install, operate and maintain the equipment locally. Organisation is required for the initiation and implementation of the programme and to construct an environment for regulation and support in which micro-hydro and those involved can thrive. Socially, owners and beneficiaries of projects and the resulting community development need to be identified. This includes enabling a group of people to acquire the capabilities to take on and run each individual project.

Within the first six years of its inception in 1991, ITDG’s micro-hydro project had implemented 27 micro-hydro schemes in the Southern and Sabaragamuwa provinces. One example is the micro-hydro scheme in Katepola, Ratnapura District.

Katepola Micro-hydro

Katepola is a village with a population of 350 families situated in Ayagama secretarial division in the Ratnapura District. Inhabitants of Katepola are generally in the low-income category, earning their living from rubber, cinnamon and paddy cultivation, or by employment at the Dumbara Estate. The neighbouring village of Katepola, Umangedara, is home to the first village micro-hydro project established by ITDG in Sri Lanka.

© Peter Crawford/ITDG
© Peter Crawford/ITDG

The Katepola village hydro plant uses the flow of the Thundola stream and has a capacity of 25 kW. The plant consists of a stand-alone synchronous generator with an electronic load controller (ELC), supplying power to 106 houses and a rice-mill. Each household consumer is supplied with 200 watts of power at a monthly charge of US$1.43 (Rs.63) per household. The power supplied to the rice mill was supported through a grant from ITDG, and the plant is operated solely during the daytime. The mill is supplied with electricity free of charge while the income from rice milling is credited to the Electricity Consumer Society (ECS) after paying the operator. The rice mill is a good example of an income-generating end-use of micro-hydro generated electricity. The net profit for the mill for the year 1996-97, its first full financial year, was Rs.25,632 (now equivalent to US$588).

A significant part of the project cost was born by the ECS, while technical assistance and financial co-ordination was facilitated by ITDG. The management, financial control and load regulation is carried out by ECS, which was established at the conceptual stage of the project. The society was formed by the villagers who consume the electrical power delivered by the village hydro plant. The office bearers, selected at an annual general meeting, are responsible for the management of the society, which includes taking necessary action during breakdowns and any disputes arising from electricity usage within the community.

ITDG’s micro-hydro projects in Sri Lanka, including the one in Katepola, were initially backed by the National Development Trust Fund, which is the main arm of the Government of Sri Lanka’s nationwide poverty-alleviation programme. In 1997, the Government of Sri Lanka entered into a contract with the World Bank and the UN’s Global Environment Facility for the provision of renewable energy to rural households through the Energy Services Delivery project.

Energy Services Delivery Project

The Energy Services Delivery (ESD) project is a combined venture between the World Bank and the Global Environment Facility (GEF). In March 1997, the Government of Sri Lanka signed an agreement with the World Bank and GEF for an ESD, which includes a credit programme to provide medium- and long-term financing for renewable energy projects. The ESD has three long-term objectives:

  • To incorporate environmentally sustainable renewable energy technologies within the planning framework for grid-connected power generation (wind and mini-hydro) and pre-grid rural electrification (solar home systems and village micro-hydro);
  • To achieve acceptance by consumers, project developers and financial institutions of the viability of grid and off-grid renewable energy systems for electricity production and delivery; and
  • To incorporate demand-side management and energy efficiency measures in standard construction design practices.

According to the World Bank, the ESD in Sri Lanka is the only project of its kind in operation. It is a pioneering scheme for renewable energy delivery using a market-based approach coupled with a credit line. The ESD applies a multi-stakeholder approach in overcoming the financial, institutional and market barriers traditionally associated with the implementation of small-scale renewable energy options. The ESD has three principal components:

  • Credit, designed to provide support for the medium- and long-term financing of private sector firms, NGOs, and co-operatives for off-grid village hydro projects and grid-connected micro-hydro investments;
  • The pilot grid-connected wind farm component;
  • Capacity component, designed to provide training and technical support for renewable energy initiatives by both the public and private sector.

The ESD project has supported the installation of 574 kW village hydro systems serving 2897 households. This is above the original target of developing 250 kW and serving 2000 rural households. This success has been partly due to the active involvement of the ESD project working in partnership with NGOs, such as ITDG, and community-based organisations (CBOs) to identify, organise and develop the village micro-hydro projects.

Assessing the Impact

ITDG’s micro-hydro projects in Sri Lanka have been established with the objective of improving the quality of life of marginalised groups. To this end, one of the major achievements of the Katepola project has been the self-confidence it has generated among the often-marginalised rural communities. Their ability to access priority infrastructure requirements through their own efforts has substantially increased. This has resulted from the involvement of beneficiaries in planning, implementation and management of the village hydro scheme. Active participation has also created a sense of belonging, responsibility and ownership of the project.

Overall, the introduction of a micro-hydro scheme in Katepola has benefited the marginalised communities in the following ways:

  • Providing a means for peoples’ participation and empowerment;
  • The provision of an energy source that leads to wider opportunities (e.g. domestic purposes and industries);
  • Presenting an opportunity to contribute to the further development of the village;
  • Establishing a functioning social organisation in the registered ECS;
  • Improved use of local resources, skills and knowledge for village development;
  • Building community confidence and its capacity to undertake further activities;
  • Appropriateness of the technology and the service;
  • Increased capacity for the laying of transmission lines, civil works, management, operation and the maintenance of schemes.

Further Information


Begg, K. G. (2000). Initial Evaluation of CDM type projects in Developing Countries. Guildford: Report for DFID by University of Surrey Centre for Environmental Strategy.

Caron, C. M. (2002). “Examining alternatives: The energy services delivery project in Sri Lanka. Energy for Sustainable Development. 6(1): 38-46.

Gunarante, L. (2002). Rural Energy Services Best Practices. Report for USAID.

International Resources Group. (2003). Impacts Assessment and Lessons Learned: World Bank: Sri Lanka Energy Services Delivery Project.

Khennas, S. and Barnett, A. (2000). Best Practices for Sustainable Development of Micro-Hydro in Developing Countries. Rugby: ITDG.

Sector and Thematic Evaluation Group Operations Evaluation Department. (2004). Project Performance Assessment Report. World Bank: Energy Services Delivery Project.

Participating Organisations

Energy Services Delivery Project

Global Environment Facility (GEF) www.thegef.org

Hatton National Bank www.hnb.net

World Bank: ASTAE www.astae.net/content/asia-sustainable-and-alternative-energy-program

Donor and Supporting Organisations

Department for International Development (DFID) www.dfid.gov.uk

USAID www.usaid.gov

World Bank www.worldbank.org


ITDG Technical Briefs answers.practicalaction.org

Related Hands On case studies

Pico-Hydro – Viet Nam
Stream of Life – Zimbabwe
Stream Line – Kenya