The Asian Development Bank (ADB) is lending US$130 million to expand the reach and quality of electricity supply, with a focus on former conflict affected areas in the north and east.
The loan will also help to improve transmission and distribution network efficiency and develop renewable energy in other parts of the country.
ADB's Board of Directors has approved financing for the Clean Energy and Network Efficiency Improvement Project, which will fund transmission and distribution upgrades, and pilot solar rooftop power generation investments, the ADB said in a release Thursday.
Yongping Zhai, Director of the Energy Division of ADB's South Asia Department has said that the project will support those goals, aid poverty reduction, and provide new economic opportunities in post-conflict areas.
"Long-term, Sri Lanka's challenge is to cut dependence on costly and polluting fossil fuels, and to make its power network more efficient," he said.
The work will include new transmission and distribution lines, the construction and improvement of substations, and other network upgrades to reduce system losses.
A solar power generation trial will install rooftop panels in a number of locations including the capital, Colombo, and the Jaffna Peninsula in the far north, with total generating capacity of 1 megawatt by 2014.
The solar initiative will be developed as a public-private partnership with a US$1.5 million credit line for private developers, as well as a US$1.5 million grant from the multi-donor Clean Energy Fund under the Clean Energy Financing Partnership Facility, administered by ADB.
The project will support the government's target of increasing national electrification from 91% in 2011 to 100% by 2015. It will also help increase the share of renewable energy in the national grid from 4.1% in 2007 to about 20% by 2020 and reduce network system losses from more than 14% in 2009 to 12% by 2020, as per the Government's targets.
Connecting solar power to the grid and lowering technical losses will enable Sri Lanka to avoid emissions of tens of thousands of tons of carbon dioxide a year, which otherwise would have been released under the current generation system.
The project will run for four years, with an expected completion date of December 2016.