Engineers warn electricity costs may increase up to 50%, blackouts by 2018

The Power and Energy Committee of the Institution of Engineers Sri Lanka (IESL), has warned that that immediate action was necessary to expedite the implementation of the coal power project in Sampur. 

Expert also warned that the country was in danger of going back to an era of power cuts as well as experiencing a hike in electricity prices. 

These issues as well as others transpired at the recently organised a seminar titled ‘Generation Options - Sri Lanka for a Reliable and Economical Power Supply’ at the Wimalasurendra Auditorium of the institution.

A large number of eminent engineers experienced in the planning and operation of power systems made several presentations at the event. the country’s premier engineering institution, 

The growth in electricity sales has recovered from 1% in 2013 to reach 7% in 2015. Growth indications for 2016 are even higher. The engineers stated that against this backdrop it was worrying that currently there were no major power plants being built to meet growing demand.

It was revealed that work on the 500 MW Sampur coal power plant, which is vital to meet growing demand, has been suspended. The project was supposed to be completed in 2016 but it has already suffered several delays and has been scheduled for completion by 2020. 

The summary decision by the Government to change its fuel to Liquefied Natural Gas (LNG) can cause inevitable delays, they claimed. This change will result in fresh feasibility studies, the preparation of bankable project documents, the need to obtain necessary approval and renegotiate agreements. The change of fuel to LNG would cause electricity production costs to increase by 40-50%. 

The group of engineers also revealed that the delay in the completion of the Sampur coal power plant was already dragging the country toward a power crisis, possible blackouts and potential heavy electricity costs. This, they said, would result in a loss of confidence among investors, leading to the country’s economic paralysis.

It was also observed that the competitive bidding round for two wind power plants, scheduled to close in April 2016, has been repeatedly extended and now effectively suspended owing to Government intervention, with no plausible reason given. 

With investor confidence low, the engineers said that the move undermines the competitive processes established by the Electricity Act to purchase electricity. Sri Lanka reportedly pays a very high price for electricity produced from wind power plants developed by the private sector. 

For solar power too, the country pays a very high price of Rs. 23.00 per unit. Recent reductions in prices of both wind and solar equipment internationally, the availability of sites with better wind regimes and favourable terms of investment will enable wind and solar power to be produced up to 50% below the prices paid at present. 

Price discovery can only be achieved through competitive bidding. 

LNG prices have recently declined owing to a surplus in production and decreased oil prices, to which most LNG contracts are linked. Recent contracts to supply LNG are reported to be as low as 8.5 USD/million BTU. This is considered to be a temporary phenomenon. 

The engineers call upon the Government to carefully scrutinise historic prices and pricing formulae and forecast quantities required through expert studies before rushing to build large LNG terminals. Such terminals require significant investment roughly exceeding $ 500 million. They should also be located where prospective customers for gas are already present. Such large investments cannot be made in haste and will require 5-8 years to study, design, secure approvals, finance and build. The engineers said that they would not relieve Sri Lanka from the grave power crisis expected by 2018.

The process of making decisions over power plants and the responsibility to build such capacity on time legally remains with the CEB, the Transmission Licensee under the Act, subject to approval by the Public Utilities Commission of Sri Lanka (PUCSL). PUCSL is responsible for ensuring that the Transmission Licensee adheres to least cost principles and competitive bidding requirements stipulated in the Electricity Act.

The Engineers called upon the Government to follow the procedures laid down in the Electricity Act and reiterated the need to commence the construction of the Sampur coal power plant without further delay. 

They also suggested that the procurement of power from private wind and solar developers should be carried out strictly on a competitive basis. It was predicted that the cost of electricity production would otherwise increase by about 50%. With Sri Lanka’s electricity prices being already high compared with other countries in the region, any further price increases resulting from higher production costs would have a crippling effect on the economy and the people, the engineering experts revealed.

All of the presentations made at the seminar can be viewed on the IESL YouTube channel - iesl_media.