Friday, 2 May 2014 00:41
A call for a valid national economic assessment of the comparisons between renewable and conventional energy sources
By Eng. Parakrama Jayasinghe
It is encouraging to note that the 2013 Central Bank report has addressed the renewable energy sector, particularly for the power generation, with a greater emphasis than in the previous years. However, the report is restricted to general statements, especially in the case of the cost of electricity generation from renewable resources in comparison to the conventional sources (which for Sri Lanka reads as imported fossil fuels including coal).
These comparisons appears to be sourced from CEB reports and do not represent the valid economic cost. As the most competent and qualified body it would have been of significance if the Central Bank in its report made a comparative assessments of the national economic cost of the different energy resources. Another aspect of importance for consideration is the historical back ground of the process of determining the feed in tariffs of the Non Conventional Renewable Energy (NCRE) generation fed to the national grid, which the report has neglected.
Unfortunately this lapse has given an opening for those opposed to the renewable and indigenous energy development in the country, and thereby leading to misconstruing the contents of the report. All this will lead to impeding the development as distorted facts will result in misleading the authorities and the general public.
The recent article in a newspaper on 21 April titled ‘Lanka Cautioned on Rising Renewable Energy Costs’ clearly indicates the growing calculated attack on the growth of renewable energy sector. This article reflects a negative picture with unsubstantiated statements that renewable will cost billions of dollars of tax payer money.
On the contrary, the fact is that it is the fossil fuel sector which is using up public funds with the massive investments coming from the state sector and the subsidies granted on fuels used with tax and duty free benefits. The renewable energy sector is being developed entirely by the private sector investors using their own funds and with absolutely no access to the low cost debt funding that the government generates for the development of the fossil fuel based power generation projects.
The total bias and lack of knowledge of the author of the above article is clearly seen in the statement that the renewable energy sector has benefitted by the ‘Climate Change’. The Kyoto protocol is practically dead with the potential carbon credits offered not even covering the cost of CDM project registration costs. The author is highly recommended to peruse the latest report of the IPCC on climate change as he seems not to believe in global warming, when even the USA which openly criticised the previous IPCC reports has accepted the grim reality as commented recently by the Secretary of State.
As such the above article is patently initiated by those promoting the untrammelled development of the fossil fuel based power generation with scant regard to the long term interests of the country and its energy security, let alone the adverse effects on the economy and environment.
The recent long term generation plan proposed by the CEB projects the coal based power generation to reach 77% by the year 2025. No doubt the coal lobby may feel threatened by the growth of the renewable energy sector impacting on their vested interests. While the bias and the lack of authority and authenticity of the statements in of the above article will be recognised by those with adequate knowledge of the energy sector, it will create a totally false impression in the general public , who needs to be educated on the true situation.
The rise of renewable energy costs
The above statement in the CBSL report needs careful assessment. Firstly the cost increase is compared with that of other conventional energy sources. While this may be true in the recent short period where the state of stagnation of the world economy has kept the rise of fossil fuel prices static, the Fig 1 below based on world bank data clearly indicates the rising trend of the price of conventional fuels.
An aspect of greater importance to Sri Lanka is the fact that while coal power from the Lak Vijaya plant at Norochcholai was touted as low as Rs. 3.50 per kWh by its promoters, the cost published in the CEB statistics is now Rs. 13.50 per kWh. This is not surprising as the international price of coal has risen from relatively stable levels of $ 20.00 per ton to over $ 120.00 per ton and Sri Lanka pays about $ 150.00 per ton. As such the CBSL statement in the present form has been pounced upon by the detractors of renewable energy, which is most unfortunate.
The development of feed in tariff methodology for renewables
It is also necessary to examine the back ground on which the feed in tariff for renewable energy has risen to the present levels.
The CEB is the sole buyer of the energy generated and had been the sole authority for the fixing the purchase tariffs. The method adopted since the beginning of the renewable energy (RE) industry in early 1990 with the first mini hydro power plant, was determined as the avoided energy cost, as determined by the CEB. This method and particularly the calculations of same came under heavy fire as being non-transparent, by the mini hydro developers, with no independent audit permitted.
Accordingly, the Ministry of Power and Energy introduced a new methodology termed ‘Cost Reflective Technology Specific Feed in Tariff Scheme’ in 2008, recognising the growing interest in other forms of renewable energy development, such as wind, biomass and municipal solid waste. The cost elements for such technologies were clearly different from that of mini hydro development and this methodology was welcomed by the RE industry in spite of some deficiencies.
It has also been stated by some, that this method was proposed as the correct calculation of the avoided energy cost would have yielded tariff levels even higher, with rising oil prices. This intervention of the Ministry of Power and Energy and the concurrent establishment of the Sustainable Energy Authority provided the long awaited encouragement for the development of the renewable energy sector. Thus any increases in the feed in tariff since then was not an ad hoc upward revision due to lobbying by the industry as the said article alludes, but a recognition of the true cost, which if compared in the correct economic cost basis, is still lower than even the stated price of coal power.
Since the year 2010 the Public Utilities Commission of Sri Lanka was given the task of determining the feed in tariff structure, which they did in a most transparent manner with wide stake holder consultations. However there was a gap in this process with no tariff published till October 2012.
For reasons best known to themselves the CEB objected to this tariff structure and went as far as to contest it in the courts. This process resulted in a two year hiatus during which many developers were scared away and no projects were implemented for two years much to detriment of the country. The additional loss to the CEB by having to depend on oil based power during this period has not been disclosed.
The importance and the value of the RE sector to the electricity generation in the country is borne out by the fact that the CEB saved more than Rs. 6.7 billion in the year 2012, as per the published CEB statistics, due to the contribution of the RE projects. This saving will definitely be much greater in 2014, with all signs pointing towards a dry year. The hydro contribution during the past months was as low as 14%.
More over as per year 2012 data, the generation cost of cost of 59% of the power plants were still higher than that of RE power generation as illustrated in Figure 2.
While, the sector has been dominated so far by the mini hydro power plants, the future renewable energy generation will come more and more from other technologies such as wind and biomass. The relatively higher tariff offered to dendro projects takes into account the firm nature of such power plants equal in all respects as a fossil fuel plant, but with none of the economic or environmental deleterious impacts. The spin off benefits to other sectors of the economy are immense which is not a factor taken in to consideration in the tariff fixing methodology.
It is interesting to study the projected cost forecast based on the three tier feed in tariff published by PUCSL in Oct 2012, which clearly indicates that all indigenous renewable energy technologies will be less expensive than even coal power in a short time span, even though they appear to be more expensive at present. What is often ignored by those touting coal power is that the price of coal will go up inexorably in the future, not only due to the price escalation in the international market but also due to the pressure on the Sri Lanka Rupee by the ever increasing import cost of fossil fuels. At present 26% of the import bill is devoted to the import of fuel. The band of coal price forecast shown in the graph below is from the Department of Energy and Climate Change in the UK.
The starting tariffs of the three tier tariff structure reportedly approved by the Cabinet recently is even lower than the PUCSL tariff values used in the chart above, which will make RE power even more attractive. Needless to say that the cost of generation using oil is already much higher than even that of biomass,
The basis for comparison of costs
In spite of the inevitable future cost escalation of coal power, the CEB and those promoting coal as the means of reducing generation costs, choose to ignore the true cost of use of coal for power generation, viewed as an economic and environmental cost for the country. The trend world over even by those countries with significant oil and coal resources is to recognise these externalities and are strategising to increase the contribution by renewables.
A case in point is the pollutants emitted by the coal power plants and their adverse environmental and health impacts. While the Lak Vijaya coal power plant is expected to have gone through an EIA process, the Central Environmental Authority has no enforceable emission standards and there is no evidence of any environmental reporting from Lak Vijaya. Moreover the more virulent pollutants such as toxic heavy metals particularly mercury and the extent of radioactive nucleods in the ash is not considered at all, let alone being controlled.
There is no data on the extent of the emissions of these pollutants which have been freely emitted to the Sri Lankan environment since 2011. However it is interesting to note the recently enacted standards on these pollutants in the USA compared with the current levels from typical coal power plants as shown and reported in the article in a newspaper on 21 April, by Dr. Janaka Ratnasiri. These new regulations are expected to come into force in April 2015.
The coal power plant should have the equipment and the means to keep the emissions within these standards in Sri Lanka too, as we are importing the pollution in addition to the coal, believing it to be cheap. If such economic assessment is included, then there is absolutely no basis for the selection of coal as an energy resource for Sri Lanka, with no indigenous coal.
Even ignoring the cost of externalities, the basis for comparison of cost of generation using coal and the renewables, as stated in the CBSL report is totally unfair, by not taking into consideration the different cost parameters and circumstances under which each sector is developed.
Primarily, the renewable energy is developed by the private sector which does not have access to low cost finance, where as the Government obtains government-to-government funds for coal power at low interest and also underwrites such loans. The CEB does not have to worry about how such loans are to be paid back, or even contribute to the repayment of the principal. Clearly, many of the reasons for higher renewables costs are policy or governance related: for example:
high interest costs increases initial capital costs;
costs and delays in approvals, clearances and high transaction costs, increases project costs and risks;
inability of obtaining land, or long delays in getting land for growing biomass crops increases fuel costs and fuel access risks.
Considering the perilous nature of the CEB’s own balance sheet and their status as the monopoly single buyer, is a grave element of risk to the potential developer. Even though this risk is not factored into the tariff calculation, the level of tariff needs to be at a level to attract the potential developers in spite of such risks.
Since the feed in tariff is in Rupees, the investor has to bear the total risk of rupee depreciation in case of any foreign capital funding
Under these circumstances, the CBSL is best placed to adopt a level playing field when comparing the economic cost of power generation, rather than the financial cost evaluation done by the CEB with all the subsidies and other benefits enjoyed by them. Once the true comparison is available they would be in a much better position to advise the government on policy initiatives that could further bring down the cost of generation using the indigenous renewable resources.
It is interesting to note that while the CBSL advocates the use of advanced technologies to improve the cost effectiveness of renewable energy, Sri Lanka has committed to build the Sampur coal power plant which is reported to be having a lower efficiency than even the Lak Vijaya plant at Norochcholai. The cost of generation is reported to be about Rs. 18.00 per kWh Vs the Rs. 13.50 per kWh from Lak Vijaya. The Treasury is expected to cover the difference on cost to the CEB.
What is the justification for such munificence of the Treasury to perpetuate the myth of cheap power from coal? Whose money is used for this? Moreover, the more relevant question will be the extent of Treasury cover needed to cover the even higher difference in cost that would inevitably occur at the time of commissioning of this plant, judging from the experience at the first coal power plant. These have to come from the public funds, which could have better utilised for other development works.
The role of solar power
The CEB has initiated the net-metering system, which is a most progressive step. It has already generated valuable inputs to the national energy needs, particularly by the use of abundant solar energy. With the recent drastic reduction of the cost of solar panels and accessories, there would be increased attraction for more and more participants for this scheme. While there are people objecting to this scheme on the basis of the reduction in incomes to the CEB by weaning away the high end consumers, the CEB should come up with the necessary strategies to enhance this contribution, considering the fact that every unit of solar energy generated during the day time hours, saves the equivalent unit of hydro power capacity and thus the need for using oil for generating that unit during the peak times. The cost to CEB of such peak power is much more than the revenue loss by roof top generation. Moreover, to supply each unit to the consumer CEB has to generate 12% more to cover the transmission and distribution losses. As such each unit of roof top generation is worth 1.12 units to the CEB.
The peak load on 19 April was 1745.6 MW (www.ceb.lk) and the daily generation was 28.04 GWh. Of this only 14.4 % was generated using the hydro resources. Out of the balance, 41.8 % was generated using expensive oil power plants, the rest being generated using coal. The CEB advocates energy savings during the peak hours to reduce the use of the oil power plants as quoted below in their website:
“During the night peak, CEB is running almost all its generators, including the very expensive gas turbine units. The cost of generating a unit from a gas turbine can be as much as four times that of generating a unit from a coal power plant. Thus, when you switch off a bulb during the night time, CEB reduces their generation too from the most expensive power plant that is generating at the time. As a result, at night time, a unit saved by you saves more money to the country than during rest of the time.
“There is another reason why the CEB asks you to avoid the night peak. The generators that the CEB uses to provide the peak demand called the peaking units are operated only for a few hours of the day. They remain shut down during the rest of the time. Thus, it is in a way idling investment. If consumers help the CEB by curtailing the electricity use during the night peak, it not only helps the CEB to stop generation from an expensive plant. That may even help them to avoid the investment of a complete peaking unit in the future.”
While the ideal option would be to encourage the high end consumers to install solar panels with adequate storage so that they can be independent of the grid power during the peak hours, the current usage of very expensive oil based power can be reduced by saving the water in the reservoirs during the day by wide spread use of the roof top solar. This will indeed be a significant saving to the CEB contrary to the opinions expressed by some with scant knowledge of the reality.
Scope for renewable energy in Sri Lanka: Potentials and present use
It is important for those in authority to recognise the true potential of renewable energy of Sri Lanka. This is illustrated in the table based on well-recognised sources.
The potentials for the development of major renewable energy sources and the present (2011) consumption in Sri Lanka are given in table 2 (for comparison purposes all values are converted into GWh/a of electrical energy).
It should be noted that together with imported fossil fuels, the total annual energy consumption at present is around 30,000 GWh/a. The national total renewable energy potential is more than 20 times the present consumption. Hence, there is no shortage of indigenous renewable resources.
We have the added advantage that all our indigenous energy sources are renewable and thus are best placed to achieve the ultimate goal of near elimination of all imported fossil fuels. Such an opportunity is inconceivable for most countries.
We look forward to the CBSL to recognise this nascent potential in the national interest and conduct an independent and unbiased evaluation, which would help them the advice the government on the truly progressive policies to be adopted.
There are many national minded experts who do not subscribe to the hidden agendas of the oil and coal lobby who will be more than willing to share their knowledge and experience towards this end.
[The writer is the President of the Bio Energy Association of Sri Lanka (www.bioenergysrilanka.org). He can be reached via firstname.lastname@example.org.]