When Electricity Prices Rise but Regulations Don’t

In the first quarter of 2026, the Ceylon Electricity Board’s plan of increasing electricity tariffs by 11.57% has understandably sparked public anxiety around affordability. In a shaky economy, electricity prices are top of mind to households, businesses and industry, and discussions about fairness are unavoidable. But tariffs are more than just prices. They are also signals. Yet, read side by side with the National Electricity Plan, the latest tariff proposal exposes something deeper than cost recovery. It reveals how the electricity system operates when times get challenging. The central question is not whether electricity should be cheap. The issue is whether at this stage in its history Sri Lanka has clearly defined what its power system will do when it is no longer reasonably capable of generating power.

Energy policy is frequently positioned through the “energy trilemma” of affordability, sustainability and security of supply. Most national plans, including Sri Lanka’s, aim to meet all three. The real test is not the aspiration itself but how priorities are set when the system comes under pressure. Scarcity is not an exception in hydro-dependent, climate-volatile systems like Sri Lanka’s. It is a design condition. Droughts, late into the week monsoons and hydrological variation are common experiences, not outliers. So any serious electricity plan needs to answer a simple question: What happens when supply is not adequate? The National Electricity Plan is noticeably cautious for this reason.

What the National Electricity Plan does and does not do

To be clear, the National Electricity Plan is not an article of neglect. It acknowledges the requirement to reinstate planning discipline after several decades of crisis and short term decisions. It makes a strong rhetorical case for the expansion of renewables and provides little instruction on the how of integrating and governing those resources under pressure. It also acknowledges limitations of hydro capacity and the long term struggle to manage variability. As a structural document, it reads like an effort to reconstitute order following collapse. What it does not do, then, is establish behaviour in times of scarcity. There is no explicit mechanism for declaring scarcity, no predetermined hierarchy of curtailment, no transparent explanation for how demand-supply reduction will be achieved and no transparent delegation of losses when hydro-output falls short. These omissions are not accidental. Putting such rules into writing is a painful form of accountability. What the plan offers instead is structure and aspiration with the implicit expectation that behaviour will follow.

The proposal of the tariff as a signal to governance

This avoidance is thrown into sharper relief by the proposed 2026 Q1 tariff increase. Both energy (Rs/kWh) charges are increasing, and fixed monthly charges are rising, in nearly every single category of consumer. This combination matters. Energy charges price usage. They influence behaviour. Fixed charges price connection. They achieve revenue regardless of how electricity is used. In systems that are confident about how scarcity will be managed, variable pricing is more efficient whereas fixed charges have a more accommodating role. If fixed and variable charges go up in tandem, then pricing is asked to do two jobs: condition behaviour and ensure revenue. This is not a neutral design choice. It is a signal of uncertainty. In many respects, the tariff structure is saying we are not so certain how the system itself will act during shortages and are compensating for this uncertainty with the bill.

Pricing uncertainty rather than defining control 

This is not a moral judgment on the intentions of planners or regulators. It is a systems observation. If clear and enforceable scarcity behaviour existed, including when scarcity is declared, who curtails first and how demand is reduced, pricing could reinforce those rules. Rather, pricing is serving as a proxy for governance. Less noted is one additional effect. With rising fixed charges, the marginal incentive to reduce consumption in shortage weakens. When the bill becomes heavier, there is less immediate behavioural impact, particularly for higher income households and commercial users. At the moments when responsiveness matters most, the system gets more expensive and less responsive. That is, the tariff is not simply a function of absent scarcity rules. It directly decreases the capacity of the system to adapt and respond to demand stimulus in response to stress.

Why this matters beyond the electricity bill

It is also why the tariff debate cannot be boiled down to whether the percentage increase is fair. Raise tariffs but there’s no behaviour under scarcity defined that shifts operational risk to consumers, reduces demand response and replaces fiscal restraint for system regulation. It also sits uncomfortably with words on the wall about conservation and efficiency. The best conservation incentives work when you have a known control structure. In the absence of these frameworks, price increases are much more like blunt instruments than precise tools. The end result is a system that stabilises cash flow but does not guarantee reliability.

What real reform would require

Real electricity reform does not start at prices. It begins with rules. At a minimum, electricity governance must explicitly provide a clarification on when the state of scarcity is declared, the priority in which demand is cut, the line between rule-based discipline and price-based incentives and what losses are allocated when supply fails to fully comply. Until these can be written down, tariffs will continue to do double duty by filling the gap created by uncertainty rather than executing a defined plan. This is not a technical luxury. It is the distinction between a system that manages scarcity and one that merely prices it.

The issue that Sri Lanka now faces is not whether electricity tariffs should rise. This has been a debate that will no longer hold in a constrained system with a warming climate. The more important question is why prices are being asked to make up for anything the system refuses to call out. The National Electricity Plan tries to rebuild the structure after collapse. The 2026 Q1 tariff proposal exposes what that structure continues to lack: an actionable solution to scarcity. Until behaviour under stress becomes clear, tariffs will just keep on the rise not as reform but as uncertainty priced from the start.