The Electricity Tariff Hike - A great salutary step forward

During the last decade Japan, a country with no oil or hydro-power strongly subsidized  roof-top solar panels for public and corporate  buildings and homes. However, with the new tariffs in Sri Lanka, no such subsidies are needed. It is now just good business to install solar panels on buildings for air conditioning and other domestic needs, while the main power-grid is the steady source.

The government’s decision to raise the electricity price to realistic values, and its decision on May Day to bring down the price for those consuming less than 60 units may not have been policy decisions that were arrived at in a rational manner. However, these happen to be exactly the right decisions in the context of Sri Lanka’s development trajectory.

At a talk I gave at the presidential secretariat in July 2009, (and also to a number of learned societies in Sri Lanka) I pointed out that the cost of electricity was too low in terms of the mode of utilization of power in Sri Lanka. More details can be found in that talk which is available on the internet (dh-web.org/place.names/posts/dev-tech.ppt/). Many of the new installations  are hotels, airports, offices etc., that use large amounts of electricity for air-conditioning and comfort, rather than for manufacturing and production.

 Electricity is one of the most efficient forms of energy (compared to heat energy whose efficiency is controlled by Carnot’s theorem, as discussed in simple language, e.g.,  in my recent book - A physicist’s view of Matter and Mind). Electricity should be reserved for high-end purposes, and other energy sources should be used for low-end non-productive purposes.

 Why is the rise in electricity tariffs such a blessing in disguise? Will it not slow down our industrial sector? The blessing comings from the fact that the new tariffs make solar energy  (and new types of jobs), an attractive competitor among the available energy sources. The current usage pattern of 0.3-0.4 kWh per household will increase an order of magnitude within a decade, and future energy bills would be quite horrendous.

Solar energy becomes even more sensible

During the last decade Japan, a country with no oil or hydro-power strongly subsidized  roof-top solar panels for public and corporate  buildings and homes. However, with the new tariffs in Sri Lanka, no such subsidies are needed. It is now just good business to install solar panels on buildings for air conditioning and other domestic needs, while the main power-grid is the steady source. Solar energy becomes even more sensible when we note that in India today, solar electricity has fallen to about 8-9 Indian  rupees per kilowatt-hour compared with 18-20 rupees for diesel-power. This is not due to improvements in the efficiency of ordinary solar panels (15 to 20 per cent efficiency). The inefficiency is outweighed by their new low price.

Luxury hotels think nothing of installing expensive marble, Jacuzzis and many high-end items in their construction. However, most architects and urban planners, unaware of solar technology simply dismiss it out of hand as `too expensive’. Similarly, given the equipment costs that go into building an airport, covering its roof with solar panels is in fact a negligible budget increment. Given today’s energy tariffs, and anticipating future tariffs, not installing solar panels is stupid. Unlike diesel or coal-power installations, solar panels need no further fuel as the fuel is delivered by the sun’s rays. The maintenance is much less costly and produce no pollution compared to traditional power generation,  as we can see from the horror stories coming from the Lakvijaya powerstation in Horagolla (Horagolla is the traditional name of Norochchollai - see http://dh-web.org/place.names/).

Another technological development that cuts the cost of lighting by a factor of 10 is the use of light-emitting diodes (LEDs) for ceiling illumination panels. The cost of LEDs has gone down, while their efficiency has increased substantially.

Unfortunately, in Sri Lanka, instead of doing the obvious technological solution to a technological problem, we convert it to a political problem and quote Marx or Friedman, hold meetings or go on demonstrations. So at last, the force of circumstances have forced our policy makers to do what should have been done many years ago. The turn of events is like the removal of rice subsidy by the UNP government, and will have similar benefits.

It is now up to the engineers, architects and  construction managers in the private and public sectors to include solar panels and LEDs as integral parts of their design practice. The garment manufacturing industry can become energy self-sufficient with such installations. A private home designed with solar panels on the roof, and a heat pump which uses the cool  underground water table to cool the house can easily sell energy to the main grid. Everyone cannot afford the additions to the construction bill, but here the banks can give installation loans, to be paid up from future electricity savings.

So let us have a round of applause to high electricity tariffs for grid-based electricity. Keep them up and UP.

[The authors is a researcher in nano-technology, quantum theory and foundations of physics.]

by Chandre Dharmawardana in Canada
Source : http://www.island.lk/

Sri Lanka should push harder to cut peak power demand: think tank

Sri Lanka should push harder on cutting peak power demand as ‘average’ costs are meaningless and trimming the most expensive 5.0 percent of energy has the potential to eliminate losses at Ceylon Electricity Board, a think tank has said.

About 17 percent of the generation costs of state-run Ceylon Electricity Board went towards the most expensive last five percent of energy purchased, LirneAsia, a regional think tank said in public consultation called by the Public Utilities Commission of Sri Lanka.

The CEB also spent 17 percent of its costs on the least expensive energy, which amounted to 50 percent of the total energy purchased.

"Thus, if energy purchases could be reduced by 5 per cent, it is possible that the losses of the CEB could be eliminated," LirneAsia chair Rohan Samarajiva said.

"This is the importance of managing demand. Not all the demand needs to be reduced in absolute amounts. Shifting it to off-peak, (when the sole base load coal plant, producing inexpensive energy is asked to back down) could also provide substantial relief.

"If peak demand is lowered, the overall costs of supplying electricity will be reduced."

‘Average’ Cost

Costs range from less than 5.0 rupees a unit of electricity for hydro to around 30 rupees for thermal energy. Average costs have been determined by the regulator at around 20 rupees based on a tariff proposal filed by the CEB, after disallowing at least three thermal plants.

In a power grid where different sources of energy have different costs, ‘average’ costs are meaningless and are simply driven by peaks and which types of plants are used and for how long.

"The cost models that underlie the tariff proposal are based on assumptions of levels of use that may change because of the radical redesign of the tariff structure," Samarajiva said.

"If demand is lower than projected, especially at the peak, it is possible that the proposed tariff will yield excessive earnings."

Some of the most expensive power is used during the late evening peak from around 7.00 to 9.00 pm local time, when households light up and demand goes up to 2000MegaWatts

The cheapest large hydros are also used during that time as peaking plants. Hydro is also vital as load following plants to balance generation with fluctuating demand, but the most expensive energy including gas turbines are switched on at that time.

The cost of delivering power at different times therefore is radically different.

Off-peak

But from around midnight to early morning, when Sri Lanka’s power demand plunges to about 1,000 MegaWatts, a 300MW coal plant is operated below full output to accommodate a rule that says a single plant should not be more than 20 percent of total load.

The rule has been put in place to prevent the grid from failing when a large plant goes out of the system. But sources at the CEB say the floor could now be improved to 25 percent or more with load management techniques which has been already developed.

Samarajiva said CEB could also set up a pump storage system, where late night and early morning coal power (where the incremental energy charge is around 8.30 rupees, compared to average costs of 20 rupees) water is pumped back to a reservoir.

Selling energy to India through a proposed cable could also achieve the same effect.

Sri Lanka has cascade reservoirs where such a pump storage system could be set up.

A flatter daily demand curve could substantially cut overall costs, bringing down average costs even with the existing plants.

Samarajiva says investments should be made in demand management. Investments in demand management could be the same as building completely new plants.
 

Smart Metering

Samarajiva said the proposed tariffs for 2013 where, households are charged at the highest rated block instead of slabs will give an incentive to conserve energy but CEB should communicate better through mass media and text messages to tell people how to save energy.

"In particular, targeted messages printed on the electricity bill of high-consumption households stating that they are paying X rupees more than similar households have proven to be effective in several countries," Samarajiva said.

"A redesigned and more informative electricity bill appears a necessity."

Smart meters where even domestic customers could benefit by shifting activity to off-peak cheaper power (such as running a washing machine cycle), should be promoted.

"For example, it should be mandated that CEB/LECO install smart meters in all new condominium towers with immediate effect," Samarajiva said.

"Next, it should be mandated that the distributors should install smart meters in at least 50% of currently-high-consumption households (possibly defined as those using above 180 units per month) within the next 24-36 months.

"Such metering would enable subtle, yet sophisticated programs that change consumer consumption patterns."

"More importantly, such meters would also enable more sophisticated policy solutions, such as time-of-day pricing and other alternative tariff structures that enable cost-reflective pricing in the future."

CEB has already proposed low rates for the late night off-peak especially for industries, who could potentially operate a late night to morning production run.

Samarajiva said subsidies could be directed at those who most needed them, perhaps by increasing payments to the poorest Samurdhi receivers.

Source : The Island

Electricity Tariffs vs Efficiency

The Public Utilities Commission (PUC) is currently considering a proposal for an electricity tariff increase. The Ceylon Electricity Board (CEB) has proposed an increase in tariffs to defray the loss of Rs. 59bn from the cost of producing electricity in 2013. The CEB proposal to increase electricity tariffs has brought to the forefront several economic issues with respect to the efficiency of power generation and the fiscal burden of CEB losses.

Is the increase in electricity tariffs necessitated by increasing costs of electricity generation or the fiscal problems due to losses in public enterprises? Are these losses due to increasing production costs or due to inefficiency of the CEB? Are electricity costs higher in Sri Lanka than neighboring Countries? Should electricity tariffs be based on a cost plus formula or one determined with a view to conserving electricity use so as to reduce the fuel import bill that constituted 26 percent of the import expenditure and absorbed over 50 percent of the country’s export earnings last year? Should electricity be subsidized for those who consume less electricity by reduced rates?

These are all valid questions that must be addressed in determining a pricing policy for electricity. A national electricity pricing policy that ensures efficiency in power generation, reduces the fiscal burden, conserves electricity usage and is equitable to consumers should be determined without undue haste.

Hydro electricity

For about three decades after independence the country relied almost solely on hydroelectricity. The cost of electricity generation from water was low, especially as the capital costs are generally not considered in the estimate of such costs. This was so till the middle 1970s when there was an increase in electricity consumption in the post liberalisation era. In the 1980s, even though there was new hydro generation capacity after the Accelerated Mahaweli Development program, the rate of increase in electrify consumption increased more rapidly than the increase in power generation. In the 1990s power shortages resulted in power cuts that disrupted economic production, especially in the industrial and services sectors.

To the credit of the present government, it has decided to not introduce power cuts that disrupt economic activities and weaken social wellbeing. Several power plants have augmented the power supply and increased thermal generation that have enabled uninterrupted power even in a year of low rainfall, as last year.

In the last decade hydroelectricity has accounted for only about 40 to 50 percent of total electricity generation. With the decrease in the proportion of electricity generated by hydro power plants, and increased thermal generation of electricity the unit costs of power generation has risen sharply. This is particularly so in years of low rainfall, as last year when at the beginning of the year drought conditions reduced hydro generation sharply. The increase in costs of generating electricity has been further increased owing to the higher costs of petroleum imports owing to the ban on Iranian exports of oil.

Increasing costs

In spite of this the government continued providing uninterrupted electricity despite the higher costs. This is in contrast to our neighboring countries that have introduced power cuts to reduce electricity consumption. While increased thermal generation of electricity is undoubtedly one reason for the proposal to increase electricity tariffs, there are questions of efficiency in the administration and policy options adopted by the CEB in the use of fuels.

Quite apart from the usual inefficiencies of public enterprises such as the higher number of employees than needed, inefficiency of workers and staff and issues of the work ethics of CEB employees, there are more technical issues that have been pointed out by energy specialists from time to time. In these circumstances the proposal to increase tariffs must be considered after a thorough study of the CEB’s costs of producing electricity.

It appears that CEB has not operated in the most cost-effective manner. For instance experts claim that the hydro electricity plants have not been operated in an optimum manner even in years of normal rainfall when there has been a lower than potential use of hydro power plants that  have resulted in greater dependence of thermal power than needed. This would have increased the average costs of production of a unit of electricity. It has been pointed out that there is potential to save billions of rupees during years of normal rainfall if the hydro plants are operated in an optimum manner.

Furthermore, the operation of CEB’s key thermal plant at low efficiencies for long periods without taking prompt remedial measures has increased costs of electricity generation. Further, there is potential to save several billions of rupees annually by switching from auto-diesel to imported naphtha for the operation of CEB’s Combined Cycle Gas Turbine (CCGT) plant. Similarly, the Kerawalapitiya CCGT plant it is suggested could switch from furnace oil to naphtha for cheaper and cleaner operation while improving the plant factor and complying with environmental regulations.

In addition to these proposals, it is suggested that another way of improving the efficiency of the system is to break the present monopoly vested with the CPC for importing petroleum fuel for bulk users and the freedom given them to handle the import of fuel they need by themselves.

Conclusion

A revision of electricity tariffs should be adopted only after all the issues regarding cutting down losses, improving plant efficiencies and switching to more economic fuels are considered. The foregoing discussion makes it clear that there is a need for a full fledged technical commission to determine the country’s energy pricing policies so achieve desired national objectives. As there is an immediate need to revise tariffs due to fiscal problems of the government, such a revision should be valid only for a short period of a few months till a comprehensive report is published by duly appointed energy commission.

Source : The Nation

Why is Electricity Tariff Increase Needed..? Part 2 of 2

Why is Electricity Tariff Increase Needed..? Part 1

Basis for a decision

This is the context within which the CEB has proposed a tariff revision and the PUCSL has to make a decision. No government can afford to pump LKR 59 billion into a bottomless pit. The ad hoc way in which pricing has been decided all these years has yielded a tariff structure that is wildly out of line with costs. Unless they are aligned and the government adopts a rational approach to supplying the electricity this middle-income country needs, no progress can be made.

The National Energy Policy of Sri Lanka gazetted on 10 June 2008 lays out the principles that must guide the PUCSL in its decision:

3.5 Adopting an Appropriate Pricing Policy

• The PUCSL will be empowered to regulate the energy sector including electricity and petroleum sub-sectors, to ensure effective implementation of the pricing policy.
• Appropriate pricing strategies will be formulated and implemented by PUCSL, which will prepare and regularly update plans to achieve a cost-reflective pricing policy for all commercial energy products (electricity, petroleum products, LPG) and implement them. These prices will include elements such as a reasonable return on equity, internal cash generation for capital investment and debt service.
  
  
• Necessary steps will be taken by PUCSL to ensure that the optimal energy supply expansion plans are implemented in time so that the cost reflective prices will be based on these optimal plans.
  
  
• A mechanism will be established by PUCSL to identify target groups of consumers that deserve special consideration owing to social needs or commercial realities.

Subsidies must be separated from tariff design.

In sum, prices must be cost-reflective. The question of subsidies must be separated from tariff design. Instead of throwing away LKR 59 billion on ad hoc bailouts and irrational subsidies, the government should focus subsidies on the families with the greatest difficulty in making ends meet, for example, by giving energy vouchers to Samurdhi households. It will take some time to set up such a system, while the new tariff must come into effect in April. This year’s tariff determination must include conditions for CEB to cooperate with the PUCSL to develop a better way to target and deliver subsidies as required by the National Energy Policy.

But interim relief is needed to cushion the impact for those who cannot easily afford the increase. The only quickly implementable solution is to give a credit, say of LKR 100, on the electricity bills of all households consuming less than 90 units a month (this should actually be pegged to average daily consumption for the billing period) may be implemented. A household consuming 30 kWh will pay an extra LKR 75 a month if the tariff proposal is implemented as proposed; a household consuming 60 kwh will pay LKR 174.15 more and a household consuming 90 kwh will pay LKR 432.60. The LKR 100 credit for this entire group will cost in the range of LKR 4.3 billion, which is way less than what the government pays to keep the government airlines afloat.

How do we get out of the hole?

Tariff design must contribute to bring down peak demand by around five percent. This is a policy objective pursued in many countries, especially in light of climate-change concerns. In our case, it is a necessity because that last five percent is busting the budgets of the government, the CEB, the CPC and of each household in the country.

If something is really important, one does not take half-hearted measures. One uses all the tools at one’s disposal. The most powerful tool is the price signal. The new tariff design that increases the unit price of electricity depending on level of consumption (e.g., a household with consumption below 90 units a month will pay LKR 8.50 per unit for all units, while a household with a consumption of 91 units will pay LKR 15 per unit, again for all units consumed), creates powerful incentives to reduce consumption. This must be supplemented by targeted messages reminding people to shift consumption from peak hours.

Demand side management can succeed if the price signals built into the new tariff structure are supplemented by incentives to high users. This will require additional investment in smart meters, ICT based feedback mechanisms are so on.Ideally, investment in smart meters for a specified number of high-volume users could be condition of the tariff approval.

The window of opportunity created by a tariff design that approaches cost-reflectivity and the likely cutover of Norochcholai Stage 2 next year must be used to implement a serious demand side management program that will allow all our people to use more energy as befits citizens of a middle-income country, but more intelligently than now.Until the core problem of unaffordable electricity can be solved, all other reforms become meaningless. The 2013 tariff approval is the place to start.

Why is Electricity Tariff Increase Needed..? Part 1

 Source : Lanka Business Online

Rohan Samarajiva heads LirneAsia, a regional think tank. He was also a former telecoms regulator in Sri Lanka.

Why is Electricity Tariff Increase Needed..? Part 1 of 2

Average household expenditure per month in Sri Lanka

 So I thought it would good to gain some perspective. The Department of Census and Statistics conducts a large-sample representative survey called the Household Income and Expenditure Survey (http://www.statistics.gov.lk/page.asp?page=Income%20and%20Expenditure).

According to the last one conducted in 2009-10, the average household expenditure per month was LKR 31,331. Of this, the average spend on electricity was LKR 532 (1.7%). Surprisingly, this was considerably lower than average household expenditures on transportation (LKR 2,317 or 7.4%), education (LKR 1,018 or 3.2%), and even communication (LKR 755 or 2.4%).

The below 30 kWh group spent....

With regard to electricity there is an assumption that the households that use the least electricity (less than 30 kWh) are the poorest. According to another representative-sample survey conducted by researchers at the University of Colombo for the Public Utilities Commission of Sri Lanka (PUCSL), the below 30 kWh group spent....

• LKR 1,140 on education
• LKR 1,000 on transportation
• LKR 453 on communication 
• and only LKR 120 on electricity. 

It is noteworthy that this “poor” segment of the population spent more on “free” education than on not-free transportation. The amounts spent on electricity among the entire population as well as the “poor” subset were among the lowest.

Why is a tariff increase needed? Government decides; we pay.

“LKR 59 billion” is the short answer. 

This enormous amount, higher even than the subsidy of LKR 29.8 billion (LKR 29,800,000,000) spent on giving almost-free fertilizer for all crops in 2011, is represented by the inability of the CEB as well as the Petroleum Corporation to pay their bills on time. Money is owed to the Peoples’ Bank. The loss appears in multiple forms and is patched up using ad hoc methods. In the end, we all pay: through inflation and directly. CEB is broke and as a last resort, government pays with our money. Government decides; we pay.

Why is the CEB in such horrendous financial shape? 

According to our analysis, many factors contribute. Our consumption is increasing, with the country well on the way to connecting 100 percent of houses to the grid. We have a lot more appliances in our homes, as should be the case. In 2009-10, according to the Household Survey, 60 percent of households in the Western Province had refrigerators, with the country average being 40 percent (four in ten households). Television ownership was even higher, with 80 percent of all households owning one.

The increasing consumption can only be supplied with very high-cost electricity. The last five percent of electricity used to meet peak demand is responsible for almost 50 percent of the costs. The alternative is load-shedding (blackouts) at peak times. While this is commonplace in neighboring India, we do not like blackouts. Therefore, CEB cannot pay its bills and has to be bailed out by the government with our money repeatedly.

We have ended up in this mess because our political leaders failed to build the necessary low-cost generating capacity over the last two decades or more. The Norochchalai Plant was delayed 15 years, at least. From the last five years we have been talking about commissioning a 500 MW coal-powered generating station in Sampur by 2016. It has been all talk; no action. Not one sod has been turned.

Coal is increasing in price and natural gas is coming down. Where the plans to build right-sized, right-fuel plants that are both economical and fit our energy use profile? What is the status of planning for the power cable connecting us to the South Indian grid so that we can make better use of the right-sized plants?

When there are no low-cost electricity sources left, there are only two ways peak demand can be met: blackouts or expensive diesel-based electricity. So we use extremely costly imported diesel to give us 24/7 power.

Thankfully, Norochcholai Stage 1 was built. Otherwise, we would be in a much bigger hole today. Hopefully, Norochcholai Stage 2 will be connected to the grid next year. With that, we should be able to dispense with the most expensive generators for a few years until the next crisis hits.

Why is Electricity Tariff Increase Needed..? Part 2

Source : Lanka Business Online

Rohan Samarajiva heads LirneAsia, a regional think tank. He was also a former telecoms regulator in Sri Lanka. 

Lanka could cut carbon emissions by 19% via green power

A new study from the Asian Development Bank (ADB)

Sri Lanka could slash its greenhouse gas (GHG) emissions by 19 percent of projected levels in 2020 at little or no long-term cost using an array of green power options, a new study from the Asian Development Bank (ADB) showed.

“Sri Lanka has the potential to avoid emissions of over 5.6 million tons of carbon dioxide equivalent in 2020 out of projected output of nearly 30 million tons by adopting green power technologies and improving energy efficiency,” said Mahfuz Ahmed, Principal Climate Change Specialist with the ADB’s South Asia Department.

“This course of action would really help to lessen the country’s reliance on imported fossil fuels which are currently used to generate over half its electricity.” The study, The Economics of Reducing Greenhouse Gas Emissions in South Asia, says without action to combat climate change, annual energy-related GHG emissions in Bangladesh, Bhutan, Maldives, Nepal and Sri Lanka are set to rise from about 58 million tons of carbon dioxide equivalent in 2005 to nearly 245 million in 2030.

In Sri Lanka, they will rise from about 10.5 million tons to over 57 million.

Carbon tax starting at $15 a ton, rising to $41


Replacing conventional coal-based power generators with cleaner burning equipment would contribute to the bulk of reductions in Sri Lanka, while switching to municipal solid waste-generated power instead of fossil fuels, would also be a major contributor.

Other emission reductions could come from adopting more energy-efficient refrigerators, air conditioners, boilers, electric motors, vehicles and other equipment. Sri Lanka also has ample scope for bio ethanol and biodiesel production as well as wind power.

Introducing a carbon tax under a globally practiced carbon market regime, starting at $15 a ton, rising to $41, would also have beneficial impacts by encouraging a switch to cleaner energy technologies.

Such an approach could see Sri Lanka’s cumulative GHG emissions from 2005 to 2030 drop by nearly 22 percent against business-as-usual output levels over the same period – the highest percentage drop across the five study countries.

Achieving these emission cuts however will involve overcoming long-standing challenges to clean energy development, which in the case of Sri Lanka, includes a national grid that has technical limitations in absorbing the total renewable energy potential and the absence of a subsidized consumer finance scheme to support the widespread adoption of home-based solar power systems. South Asia, home to half the world’s poor, is Asia’s most vulnerable region to climate change and reversing the alarming rise in GHG emissions is essential to prevent the potential displacement of hundreds of millions of people and massive economic damage. Sri Lanka, with much of its coastal land less than one meter above sea level, could see large areas submerged by rising oceans, while higher temperatures would have a serious impact on yields from its vital tea industry.

India, the biggest energy consumer and largest generator of greenhouse gases in the region, is not covered by the report.

Source : http://www.dailymirror.lk/

Economics of Reducing Greenhouse Gas Emissions in South Asia

 
World's carbon emissions hit record rise :
 

Energy and the impossibility of infinite growth on a finite planet

 There’s No Tomorrow : animated documentary about resource depletion

 There’s No Tomorrow is a half-hour animated documentary about resource depletion, energy and the impossibility of infinite growth on a finite planet.

Inspired by the pro-capitalist cartoons of the 1940s, the film is an introduction to the energy dilemmas facing the world today.

“The average American today has available the energy equivalent of 150 slaves, working 24 hours a day. Materials that store this energy for work are called fuels. Some fuels contain more energy than others. This is called energy density.”

“Economic expansion has resulted in increases in atmospheric nitrous oxide and methane, ozone depletion, increases in great floods, damage to ocean ecosystems, including nitrogen runoff, loss of rainforest and woodland, increases in domesticated land, and species extinctions.”

“The global food supply relies heavily on fossil fuels. Before WW1, all agriculture was Organic. Following the invention of fossil fuel derived fertilisers and pesticides there were massive improvements in food production, allowing for increases in human population.The use of artificial fertilisers has fed far more people than would have been possible with organic agriculture alone.”

 

Source :  http://topdocumentaryfilms.com