"The CEB had been given strict guidelines to negotiate much lower charges if they are needed," power ministry secretary M M C Ferdinando said at the sidelines of a meeting of media heads with Sri Lanka's president.
"Their capacity charges should be 75 percent of the previous level or less. They have paid back all their loans."
The power purchase contracts of ACE Power Matara, ACE Power Horana and Lakdhanavi had expired.
The plants ran into controversy when they were scheduled for dispatch by CEB in costs filed for 2013 apparently on the same terms as earlier.
Sri Lanka's Public Utilities Commission, the regulator struck them down and asked the utility to generate up to 800 GigaWatt hours of scheduled energy from hydro instead.
A top energy sector expert called both moves 'irresponsible'.
The three plants acquired through competitive bidding were among the cheapest thermal plants in the Ceylon Electricity Board system.
At a recent public hearing power consumers asked the CEB to have transparent procedures to renew the contracts of any expiring plants, with competitive bidding being the best solution following bad experience with 'negotiated' plants.
Ferdinando said competitive bidding would be best, the government policy was to avoid taking on any new independent power plants if that was possible.
The three plants could also form the start of a truly competitive spot market for power, other analysts have said.
Sri Lanka is scheduled to commission two 300MW coal fired power plants in October 2013 and early 2014 reducing the need for new thermal plants.
But furnace oil driven plants running reciprocating engines have the advantage of quick and cheaper start up and are cheaper to start up than CEB's own combined cycle plants and cheaper to operate than gas turbines or some combined cycles.
A combined cycle, which takes several hours to start, burns up large volumes of fuel and have start up fees running into millions of rupees, depending on the size and whether the start up is hot or cold.
Even now Sri Lanka needs some capacity when large plants trip. Earlier this month there were unofficial load shedding when two large thermal plants tripped out of the system.
Sri Lanka needs about 300 MegaWatts of new capacity a year on average, though new time of day tariffs introduced by CEB from this year may help flatten the demand curve, reducing the growth of additional capacity.
Sri Lanka has also increased renewable energy capacity, especially mini-hydro and wind which are not 'firm' and depend on the vagaries of weather gods.
Except for sources such as biomass, they also cannot be dispatched (started and stopped as needed by demand), requiring stand by capacity to kept when their supply dry up during parts of the year or day.
The system already about 180 MegaWatts of non-conventional renewable energy and the state policy is to increase them to about 20 percent of total capacity. A part of Sri Lanka's high generation cost is due to high prices paid for newer renewable plants.
The energy charges of some types of renewable are higher than furnace oil plants which can be dispatched. Biomass plants however could be dispatched a peak demand, being more valuable.