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