The government of Sri Lanka has been providing over decades, subsidies on
electricity to uplift the living conditions of Sri Lankans. This research project scrutinizes whether the
objectives of providing electricity subsidies have been fulfilled. Furthermore, both positive and
negative impacts of the electricity subsidy are descriptively discussed. Appropriate remedial actions
are proposed to lessen the effects of indirect negative impacts that are identified. Through the
analysis, it was found that some of the primary objectives of the electricity subsidy have not been
achieved. One of the most subtle negative impacts of the electricity subsidy is the encouragement it
provides to subsidized consumers to use energy inefficient equipment. A case study was conducted in
Ratnapura district to investigate the energy inefficient equipment usage and to quantify the resulting
electricity wastage. The findings of the study were used to estimate the amount of electricity wasted in
the entire country through the use of inefficient equipment. Furthermore, it was found that the
existing tariff structure encourages energy inefficient equipment usage and that it therefore acts in
contradiction to the fundamentals. The replacement of incandescent lamps by energy efficient
equipment is analyzed as a means of saving electricity and meeting the demand during peak times in
the night, and resulting savings estimated. Moreover, the investment on replacing incandescent lamps
by energy efficient equipment is estimated and its financial returns evaluated.
It is also revealed that there are many loopholes in the criteria used for selecting consumers for
receiving the subsidy. The major shortcoming is that it allows unwanted people to enjoy the subsidy.
It is seen that modifications are needed for the electricity subsidy eligibility criteria to ensure that only
needy people receive the subsidy.