Energy disaster worsened because of CEB favouring oil and coal energy over lower-cost renewable power
On 27 April 2022, the Renewable Power Associations introduced that 1,251 MW of Non-conventional Renewable Power (NCRE) crops must stop working, because the CEB owes them Rs. 22 billion. NCRE consists of mini-hydro, wind, photo voltaic, biomass and others that use renewable power for energy era. The implications will likely be extreme – better oil-fired era, increased oil imports, elevated CEB monetary losses, depletion of overseas reserves, job losses for NCRE plant workers, default danger to banks holding Rs. 60 billion in NCRE debt and NCRE investor losses.
In the meantime, the CEB has blocked over 4,000 MW of recent NCRE plant investments. In keeping with the Auditor Common’s 8 February 2022 report, the CEB had rejected signing energy buy agreements for 1,374 NCRE initiatives with an combination capability of 4,015 MW, which the Sustainable Power Authority (SEA) had authorized from 2017 to 2019 [https://bit.ly/3rYiVPD]. Had these initiatives been authorized by CEB and constructed, they might have provided electrical energy on the prevailing Rs. 16.07 to 25.09 per kWh tariff, far lower than the price of diesel electrical energy at present.
On 30 April 2022, CEB Chairman said that CEB is in search of a 100% tariff improve to pay for workers salaries, gasoline imports and different liabilities [https://bit.ly/3s4ZWTv]. Whereas in search of a tariff improve, is it not incumbent on the CEB to verify they receive electrical energy from the bottom value suppliers?
Tariff replace wanted to revive NCRE growth
Regardless of the potential for NCRE in Sri Lanka, the NCRE tariff supplied by CEB, underneath their Small Energy Buy (SPP) program, has remained unchanged since 2012, thereby miserable the monetary viability of such initiatives. A Cupboard-appointed Committee really useful a brand new NCRE tariff regime in December 2021 to the accountable State Minister. To replace the tariffs to at present’s financial actuality, the creator recalculated the tariffs utilizing 2022 parameters for 4 pattern NCRE applied sciences, utilizing the 2012 PUCSL-approved methodology. For brand spanking new NCRE energy crops, Desk 1 exhibits a comparability of the prevailing 2012 tariff, the 2021 Tariff Committee’s proposed tariff, and the creator’s 2022 tariff for mini-hydro, photo voltaic, wind and biomass dendro (sustainably harvested biomass).
Notably, the Tariff Committee’s proposed 2021 NCRE tariff is decrease than the prevailing 2012 tariff, regardless of alternate charge and different elements deteriorating from 2012 to 2021. On a optimistic word, US greenback funding prices of photo voltaic and wind applied sciences did decline considerably. NCRE that are financially nonviable in 2022 on the prevailing 2012 tariff, will likely be worse off underneath the 2021 tariff.
The extreme financial shocks of 2022 are the principal the explanation why the calculated 2022 tariffs are increased. Calculated increased tariffs in 2022 are because of: (a) The sharp rupee depreciation which makes investments costlier in rupee phrases, as 70-80% of NCRE funding is overseas content material. Nonetheless, not like oil or coal-powered era, NCRE era is resistant to imported gasoline rupee-price will increase; (b) Credit score has turn out to be costlier. Even the creator’s assumption of 18% rate of interest could also be too low. (2021 Tariff Committee assumed 9.85% curiosity). The one-year T-Invoice charge is now greater than 25%; (c) Inflation is increased; and (d) Within the case of biomass-fuelled era, fuelwood costs have risen sharply because of oil and LPG shortages and their value will increase.
Whereas the 2022 tariff could appear excessive, they’re more cost effective than electrical energy from oil and coal at present, as mentioned under.
Is NCRE funding in 2022 worthwhile at these increased tariffs?
The reply is a Sure, as illustrated in Determine 1 which compares the flat (“levelized”) electrical energy value, from NCRE, coal and oil underneath varied situations. Conservatively, the evaluation assumed extra beneficial financing phrases for CEB-owned coal and oil energy plant investments, than for personal sector NCRE or emergency diesel (Diesel IPP) investments.
NCRE electrical energy is cheaper than that from new oil-fired era, even from environment friendly mixed cycle crops. At at present’s coal costs, NCRE electrical energy prices may be lower than that from a brand new coal plant. The outcomes are unsurprising as, as soon as constructed, foreign money depreciation solely marginally impacts NCRE crops, not like oil and coal plant operations. NCRE potential may be very excessive in Sri Lanka.
What are the financial savings to CEB and to Sri Lanka from unblocking NCRE investments?
The financial savings may be appreciable to CEB by avoiding paying for increased value electrical energy, and to the nation from decreased gasoline imports. For instance, implementing 800 MW (or 20% of the blocked initiatives) may provide about 1,800 GWh of NCRE electrical energy yearly. Compared, in 2020, oil thermal IPPs provided 2,717 GWh of electrical energy and CEB oil thermals generated 1,462 GWh. Subsequently 1,800 GWh of NCRE electrical energy may displace costlier oil thermal era, particularly the costlier IPP diesel era. CEB might, nevertheless, must improve its system management and operations to accommodate elevated era from variable photo voltaic and wind energy.
The 800 MW of NCRE era may offset about 400 million litres of diesel gasoline yearly. The web monetary financial savings to CEB is Rs. 37 billion per 12 months (assumes paying flat 2022 tariff for NCRE, whereas avoiding paying for diesel gasoline at $ 0.75/litre, the worth CEB paid for 40,000 MT in April 2022). The saving to Sri Lanka by avoiding diesel imports is about $ 300 million for the 12 months from these 800 MW of NCRE investments. The NCRE funding required is about $ 1,000 million, giving a easy payback of three.3 years in imported diesel gasoline financial savings.
Particular case of current biomass energy crops
Even when CEB pays the excellent invoices for NCRE-supplied electrical energy, the prevailing biomass energy crops (37 MW) are presently going through an existential menace to their monetary survival as a result of sharp rise in fuelwood costs (from about Rs. 7/kg to Rs. 12/kg for chipped fuelwood in 2022). Until the Cupboard takes mitigatory actions instantly and approves an modification to the prevailing Biomass Dendro Energy Buy Settlement to allow the next tariff, these crops will stop operations and Sri Lanka will lose entry to those 37 MW. Even at a fuelwood value of Rs. 12/kg, electrical energy from these current crops is way cheaper than CEB paying for diesel gasoline. Paradoxically, not like these biomass crops, oil-fired IPPs can pass-through the gasoline value to CEB and keep away from the gasoline value danger.
What should the Authorities and CEB do?
Given the numerous advantages from investments in NCRE, the Authorities should direct the Ministry of Energy and Power, CEB, PUCSL and SEA to instantly undertake the next:
- Most urgently, CEB should settle its arrears of Rs. 22 billion to NCRE producers
- Tariff Committee should replace the NCRE cost-reflective tariffs to 2022 situations in session with expertise and venture finance specialists
- PUCSL should approve, and CEB should undertake the tariff as quickly as attainable. The CEB and PUCSL should decide to updating the tariffs at the least each 2 years
- CEB should decide to accepting over 1,000 NCRE initiatives that they’ve hitherto blocked and invite different NCRE proposals
- SEA ought to invite corporations to revise feasibility research and replace their NCRE purposes. Firms should reply rapidly. SEA ought to, with out delays or further charges, assessment and approve the compliant proposals
- CEB should situation letters of intent and signal Energy Buy Agreements immediately for compliant NCRE proposals
- n CEB should decide to offering obligatory infrastructure and management methods upgrades required to attach these NCRE services to the CEB grid
- n SEA, with Ministry of Finance help, may mobilise financing from industrial banks and worldwide financiers, significantly climate-friendly buyers
As Manjula Perera, CEO of Windforce Ltd., representing the renewable power neighborhood, said not too long ago: “If the Power Ministry, CEB, SEA, and PUCSL work hand in hand and get the necessary policies in place, adding 1,000 MWs from NCRE within the next two years by local RE developers will not be a challenge.”
In conclusion, efficiently engaging in these actions will allow NCRE applied sciences and the personal sector to assist Sri Lanka deal with its near-term energy-sector and steadiness of cost challenges and to realize the Authorities’s aim of 70% RE era by 2030.
(The author is a former Lead Power Specialist on the World Financial institution with specialisation in renewable power venture growth and financing in Asian and African nations, together with in Sri Lanka. This text relies on his paper “Mobilizing Renewable Energy to Overcome the Energy and Financial Crisis: The Need for a Credible Renewable Electricity Tariff” [https://bit.ly/3Ltabsx]. The views, information, assumptions, analyses, outcomes interpretations, and opinions expressed within the textual content belong solely to the creator, and never essentially to another group or particular person, together with these cited within the article.)