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