ECONOMYNEXT – Foreign and domestic institutional investors have been facing significant barriers to investment in Renewable Energy (RE) in Sri Lanka, which aims to have 100% of energy from renewable sources, according to an assessment of the island’s power sector.
Investments required for the 100 percent RE scenario need to be accompanied by a strong and robust investment climate, the joint assessment by the Asian Development Bank and United Nations Development Program has said.
Investors face numerous risks in the form of off-taker risk, currency risk, lack of intermediaries and liquid instruments as well as low credit rating of operational assets, amongst others.
“Even when these are resolved, land acquisition and regulatory risks are likely to be significant barriers to the establishment of the RE project,” the report said.
“There is therefore a need to study Sri Lanka’s current investment climate and devise ways to address these barriers to institutional investment.”
The report has classified potential investors in Sri Lanka’s renewable energy and power sectors into four broad categories – government; the private sector; financiers; and retail investors – with investments being debt or equity.
“These investor categories will play a pivotal role in bridging the gap between debt and equity enabling the country to meet investment targets required to increase the adoption of RE in the power sector,” it said.
While domestic institutional investors and multilateral agencies, who provide the lowest cost capital, could play a major role in debt financing, foreign institutional investors could also finance a significant portion of the equity required, it said.
“To mobilize more institutional investors, there is a need to address the various risks involved,” the report said.