Do your Arithmetic of your Electricity Bill!

Talk sense about electricity costs and prices - by Dr. Tilak Siyambalapitiya

Eectricity Costs and Prices.
Many articles appear in your paper, quoting among others, the Secretary Ministry of Finance, Chairman and officials of the Public Utilities Commission (PUC), Pathfinder Foundation and various chambers, about electricity costs and prices.

None of them give any hint as to what the power industry costs and expenses are. Above all, you recently quoted the minister as having said that the government does not want to burden the poor consumers, by raising electricity prices.

None of these individuals and institutions talk about what the costs are, whether they are reasonable, and what the income is. They talk about bringing competition to the industry, efficiency, building renewable energy generators, gas fired power plants, private sector power plants, PPP, etc. Let us do some simple arithmetic.

The Regulator (PUC) Approved a Cost 
The regulator (PUC) approved a cost of Rs. 2.56 for distributing a unit of electricity for 2012. This is the cost of investment and maintenance of the distribution network and the supply of electricity, including metering and billing. Is this reasonable? Yes, it is in the correct range, and comparable with international norms. Can it be brought down? Yes, we should ensure that it decreases by 1% in real terms each year, pushing five distributors to be more efficient each year. Each one of the four CEB distribution divisions (if they care to publish their accounts independently), and Lanka Electricity Company (they do publish the accounts), should be reporting (even marginal) profits from 2011 onwards.

Then the regulator also approved a cost of Rs. 0.73 per unit, for the CEB’s Transmission Division to transmit power from power plants to the distributors. Is this reasonable? Yes, it is well within international norms. Any room for improvement? Yes, by 1% every year, pushing the CEB Transmission Division to be more efficient in managing their expenses, and in the management of the network.

So, now we have learned that to take power from power plants to your doorstep, it costs Rs. 2.56+0.73 = Rs. 3.28 for each unit of electricity. In regulatory jargon, we call it the wires and supply business.

The Total Income by Selling Electricity
The total income by selling electricity collected by both the CEB and LECO in 2012 would be about Rs. 15.50 per unit sold. As the regulator (PUC), did not publish the expected income of the CEB and LECO, we can only make an informed guess. So, here we go with arithmetic. Income = 15.50, distribution = 2.56, transmission = 0.73. So, the production cost to be paid to power plants (both CEB and private), should be = Rs. 15.50 -2.56-0.73 = 12.21 per unit. Adjustment for losses (12%). Now is that reasonable? Yes, we have already exceeded the target given in the national energy policy, but we must now aim at 10%), requires electricity to be produced at 12.21x0.88 = Rs. 10.74 per unit.

So, now we have to look at the production costs. Look at all the power plants and you will see that only the CEB hydropower generators and the coal power plant in Puttalam produce electricity below Rs. 10.74 per unit. The CEB’s own oil burning power plants, too, produce at double that cost.

You like the private sector to generate electricity? Show a single private power plant that produces electricity below Rs. 10.74. There are none. PPP is the buzz word, meaning, private public partnerships. So, tell us how can a PPP produce electricity below Rs. 10.74 per unit?

You like electricity to be produced from small hydro, solar, wind, biomass, dendro, etc, don’t you? Nice, isn’t it? Very environment friendly.

Fine. Then show one power plant of that kind producing electricity below Rs. 10.74 per unit. Alas, there is not even one. Newspapers are full of articles ranging from statements by Minister Sarath Amunugama to the Small Power Developers’ Association, asking for more and more renewable energy power plants, and higher and higher prices to be paid to them. Recently, the regulator (PUC), also increased the prices paid to such renewable energy power plants.

Where is the money to pay them? There isn’t, unless we also agree to a substantial increase in customer prices. Otherwise, the statements by the Treasury, Energy Ministry, Public Utilities Commission, and other ministers, and the Pathfinder Foundation and chambers are nothing but rhetoric, to please various parties, as it suits the situation.

Show how private power, or PPP as they say, can reduce prices!

Show how private renewable energy power plants can reduce prices!
Summary
In summary, generation = 10.74, transmission = 0.76, distribution = Rs. 2.56 per unit. Total = Rs. 15.50 per unit. So, now say how (1) gas fired power plants, (2) oil power plants, (3) private power plants, (4) wind, solar, mini-hydro, biomass, and all other exotic resources, (5) PPP, (6) privatization of CEB, (7) competition, can reduce any one or more of the above cost components.

Do your arithmetic!

Source : The Island

Space-Based Solar Power : 144% more powerful than on earth

A Science Fiction concept brought to reality 

When you first hear the phrase “Space Based Solar Power” images of a James Bond villain, spring to mind, as he plots to take over the world with his evil scheme of “Space Solar Power”. However, harvesting solar power in space and sending it to Earth as a renewable energy source, is a dream that will soon be realized. So, let’s ask the BIG question - How is this possible? How is this almost science fiction sounding technology becoming a reality?

First of all, let’s start with the definition. Space-based solar power or space solar power is a way to collect the solar energy, from our Sun, before this energy hits the Earth’s surface. The energy is literally captured and collected in space. Not only does the location of where the solar energy collection takes place, make it different from how we collect solar power here on Earth, but the satellites which collect the Sun’s rays are dynamic, they are actually orbiting the Earth. Here on Earth, our method of collecting solar energy is with a physically fixed solar panel, that is normally on the roof of our home or office or fixed to the ground.

Now you are thinking: But what are the benefits of collecting solar power in space versus here on Earth? The World Radiation Centre estimates that rays collected in space are 144% more powerful than those collected on earth. Why? The short answer has two parts:

1. Our atmosphere or ozone layer
2. Our rotating planet 

Our ozone layer blocks, or protects, our planet from several forms of radiation. So the radiation received by a satellite in space will have a different radiation profile, a more powerful one, than what we receive here on Earth. Like our planet, the satellites set up in  space, to collect solar rays, will orbit the Earth so they can collect sun 24 hours a day. Locally, our solar panels can only collect sun, at most, 12 hours a day. Half the time a space-based collector can. Us earthlings are also challenged with the weather that will reduce our ability to collect the sun, all those rainy day can be so cumbersome. We are also challenged with the varying strength of sun, even on even the brightest days of the year, the strength of the Sun’s rays’ is reduced near sunset and sunrise. The space ray collectors can collect a more uniform strength of sun. So there is a huge benefit to being able to collect solar power from space, it is stronger and there is the ability to collect more of it each day.

So we can see that we can collect the rays with orbiting satellites outfitted with solar panels and we see the benefits to collecting the rays in space. Now, how do we get the energy collected back down to Earth? Now here is where the James Bond stuff comes into play. The solar energy, collected in space, would be converted into electrical energy that would power a microwave emitter and would in turn beam this energy towards the Earth’s surface where a collector, here on Earth, would receive the energy. So now, you are imagining a beam of light hitting the Earth from space, and you are theoretically correct. 

Now there are a whole set of issues around how the electricity gets put into the grid, paid for and who owns it, and this is a larger discussion that has a huge political background that we can explore in another column. What we are more interested with in this article is: How does this new way of collecting a renewable resource impact the environment?

The National Security Space Office (NSSO) estimates that, in theory, one kilometer of solar collectors can collect a supply of energy ,on an annual basis, “equal to the energy contained in all of the known recoverable conventional oil reserves on Earth today.” 

Wow! But...    

The size of a single solar-power satellite, the one that orbits the Earth collecting solar power, would be 15 times the size of the current international space station. What about the size of the collecting station and where would it be housed? The NSSO suggests the collecting station on Earth would be in a desert. The result of the beam on this eco-system is that it would turn into a lush landscape. This sounds great, don’t we want more lush rain forrest like areas in the world? But changing one eco-system changes them all, especially one as large as Sahara. We are all connected and we really cannot predict the ramifications of such a drastic change.

We then need to factor in the production of these big satellites and receiving stations. Are they made out of recycled materials? How many times do we need to send crews up into space to maintain these solar collectors, what debris do we leave in space to do this? 

With so many factors still up in the air and the pros and cons so vast, this is a technology that will challenge us all as it finds its place in the future. For now, at least you are in the know as to what this new technology could is, enjoy the current hot discussion going on around this topic!

Source : http://www.greenlivingonline.com/

Net Metering in Sri Lanka

All electricity customers in Sri Lanka now have the opportunity to produce electricity using renewable sources of energy. A customer can "sell" that electricity to the grid at any time of the day.

What is "net" metering?

Imagine your electricity meter is replaced with a two-way meter. The meter will have two registers: the "import" register and the "export" register. You can produce electricity (using a renewable source of energy), and first use that electricity for your own requirements, and send the surplus back to the grid. Such "exported" electricity units will be registered in the "export" register of your meter.

During certain times of the day, your own electricity production may not be adequate for your requirements. Then your consumption will be recorded in the "import" register.

When the electricity meter is read once a month, you will pay only for the difference between the "import" and the "export". If in any month you have exported more than what you imported, your bill will only carry the monthly fixed charge (no charge for the units of electricity), and the excess exported units will be credited to your next month’s bill.

No financial transactions

As the term implies, in "net" metering, there is no "payment" by your electricity supplier for what you produce. LECO or CEB only agrees to let you "bank" your surplus electricity with them, and let you take it back whenever you want, at any time in the future. The transaction is "in kind", not in Rupees and cents. You get effectively paid for at the same rate you pay for your electricity, because you avoid purchasing from your electricity supplier.

You must use only a renewable source of energy to produce electricity. Therefore, power plants run on petrol, diesel, kerosene and gas are not allowed, and they would be too expensive any way. Those who have such oil-burning power plants, are free to use them for their own consumption, but cannot apply for "net" metering to "sell" the surplus to the grid.

Bank your surplus energy with LECO and CEB

LECO/CEB will require certain new protection equipment and a new meter to be fixed, for which there will be a one-time cost. After all, electricity distribution wires were designed to supply electricity to you, and not to let you send electricity on the same wires back to the supplier. However, this thinking has changed over time, and LECO (and CEB) are now providing a facility for you to bank your surplus energy with them, and take them back later on. There is no charge by LECO (or CEB) for banking your surplus energy, but would not want to risk the safety of their workmen in case you send the electricity back when their maintenance staff is working on the line.

The equipment you have to purchase and fix will not allow you to send power back on the line, when the supplier has switched-off the lines for maintenance.

Sri Lanka is among the first few developing countries to introduce "net" metering, and that too free of charge, except for the initial charge for a one-time charge for a new meter and protection equipment. Total flexibility is allowed to the customer to choose the type and size of his renewable energy facility, and the customer is free to switch on and off whenever he likes. LECO (and CEB) would always standby to provide your electricity supply, in case your renewable energy facility goes out of order or if you simply give-up using it. There will obviously be a loss of income to LECO and CEB, which they have obviously resolved to put up with, to support the cause of renewable energy development in Sri Lanka.

In 2007, Sri Lanka produced 40% of her electricity requirements of the grid, using renewable energy, which too places the country high on the world ranking. With the new large coal power plants being built to meet the growing demand at a lower cost, this share of renewable energy may drop to 25% within a decade from now. Sri Lanka’s national energy policy released in 2008 has declared that by 2015, the country would endeavor to achieve a 10% contribution to grid electricity from small non-conventional renewable energy sources. By end 2007, the country has achieved 3.5%, and the net metering facility would certainly help to further improve this renewable energy contribution.

An excerpt of an article by Dr. Tilak Siyambalapitiya, published in The Island 

Like it or not,Sampur coal plant necessary – Engineers

If the government failed to speed up and add 500 MW from the proposed Sampur coal-fired power plant in Trincomalee by 2018, the country would have to pay Rs. 42 billion annually to generate power from other sources, a senior engineer said.

Ceylon Electricity Board (CEB) Engineers’ Union (CEBEU) President Nandika Pathirage told The Island that the CEB would have to incur a loss of about six billion rupees due to teething problems. However, he stressed that it would become zero after three years.

If the CEB missed the opportunity to produce 500 MW from coal, it would have to depend on costly gas turbines, diesel plants etc, the senior engineer said.

Meanwhile, The Island reliably learns that the Public Utilities Commission of Sri Lanka (PUCSL), the energy sector’s regulatory authority, is in the process of requesting the CEB to submit a copy of power purchasing agreement and other documents prior to giving the go ahead to the construction of the plant in Trincomalee.

Despite claims by the energy sector officials that Sri Lanka would lose between Rs. 10 to 14 billion annually due to the alleged unfair power purchase agreement that the Indian joint venture partner, the National Thermal Power Corporation, was insisting on, the government would go ahead with the controversial PPA for the 500 MW plant.

Some senior CEB engineers said that a unit of electricity produced at Sampur would cost Rs. 18.00 as against Rs. 13.00 from the first coal fired plant at Norochcholai built by the Chinese.

"Even the price of Rs. 13.00 per unit at Lak Wijeya in Norochcholai is high, but if we could stick to that amount it would be better for the country in rupee terms and the fuel efficiency in Sampur would be much lower than at Norochcholai," a senior engineer said.

NTPC and the CEB, on Sept. 5, 2011, signed the joint venture and shareholder agreement to set up a USD 500 million 500 MW (2X250 MW) coal power station in Sampur, Trincomalee.

By Ifham Nizam

Source : http://www.island.lk

Middle income earners to pay a third more for electricity

Middle-income earners using between 61 and 300 energy units will see their power bills shoot up by more than a third with the new tariffs, the Public Utilities Commission (PUCSL) says. Ceylon Electricity Board (CEB) Chairman W.P.Ganegala defended the new price structure, saying the increase over all sectors amounted to 20 per cent and that the Board was compelled to increase rates in order to provide round-the-clock supplies.

PUCSL statistics show that if a consumer exceeds 60 units of electricity then the charges will be doubled: the bill for 60 units will be Rs.371 while 61 units would be charged at Rs.763.20 a month. This will squarely hit middle income earners but also affect low income earners.

Consumer rights group say prices needed to be increased to cover the losses sustained by the CEB over the last decade due to high dependency on thermal energy generation, mainly from fuel combustion and the low dependency on hydro and other energy resources due to changes in the weather.

Mr Ganegala said the power failures were caused due to the adverse weather conditions. CEB Joint Trade Alliance spokesman Ananda Nimalaratne said, however, that with the current inclement weather conditions, the CEB will be able to use hydro energy for 35 per cent of its power requirement, up from an estimated 20 – 23 per cent for this year. This would allow the CEB to recover some of its losses.

Mr Nimalaratne said rains had filled almost every dam. Campaign for Free and Fair Elections Executive Director Keerthi Tennakoon said 88 per cent of the CEB’s estimated budget would be drawn from the increased prices charged to domestic users.

Public and Private Trade Union Confederation co-convenor Saman Rathnapriya pointed out that the Ceylon Petroleum Corporation could allow the CEB a concession of Rs.20 for a litre of a diesel as the price of crude oil had decreased from $US105 to $US85 a barrel, and such a move would allow the CEB to cover its losses.

A CEB engineer speaking on condition of anonymity said one reason for the CEB’s financial losses was that, to meet the country’s energy needs, previous governments had signed agreements to buy energy from private power plants at a high rate and had sold the same energy to these plants at a cheaper rate.

Source : http://www.sundaytimes.lk/

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.