Norochcholai failures and stalled renewable energy development: Can electricity tariffs be reduced i

Thursday, 2 January 2014 00:00 -     - {{hitsCtrl.values.hits}}

By Anil Cabraal The Norochcholai Coal Power Plant failed again. Norochcholai has been out of commission since 13 December due to problems with its water supply. It came back online at half its capacity on or about 30 December. With Norochcholai back online at half capacity, on 30 December, expensive oil thermal power contributed 56% of electricity – a 10% reduction from 26 December. Reportedly, Norochcholai has broken down about 30 times so far. The Norochcholai Power Plant has been operating below par, even by PUCSL expectations – up to 30 December, the coal plant utilisation was 56% for 2013. PUCSL expected about 73% in the PUCSL report, ‘Decision on Electricity Tariffs 2013,’ issued in June 2013.         Not a big concern? CEB AGM Bandula Tilakasena has said that Norochcholai failures are not a big concern, as the Norochcholai plant is still in its defects liability period, according to a report in a newspaper. Despite his assurances, there are significant negative consequences due to Norochcholai failures during the defects liability period. Sri Lanka is still liable to service the debt while the CEB has a non-productive asset on its hands. During the failure periods, the CEB has been getting expensive oil thermal electricity incurring much higher generation costs.       Hydro power under pressure? CEB seems to be also running its large hydro plants to offset Norochcholai loss of power. Hydro reservoir storage capacities as of 27 December were down to under 53%. This remaining water plus inflows has to last till next major rains replenish the reservoirs (see In both 2011 and 2012, hydro reservoir storage levels were steadily improving from September to December (See Figure 1). But, in 2013, the storage levels have steadily dropped since July 2013. The 27 December capacity is similar to its value on 27 December 2011. If the below-average rainfall in catchment areas in 2012 were to reoccur in 2014, CEB may have to use more expensive oil thermal power unless Norochcholai Phase 2 is commissioned soon and is operating reliably.         Bleak prospects Unfortunately, the prospect for timely commissioning of Norochcholai Phase 2 is bleak. The second 300 MW of coal power was supposed to be operating by now, but it is not. The third 300 MW is expected to be operating in May 2014. However, a newspaper reported 23 December: “The second phase scheduled to commence this week would be further delayed, informed sources said. Some engineers claim that they won’t be in a position at least to think about it until the latest problem in the first plant is solved.”         Non-Conventional Renewable Energy With Norochcholai failures and delays to its phase II, future lower rainfall will mean higher costs for electricity and further excellent revenues to oil thermal power producers. This is more so as Non-Conventional Renewable Energy (NCRE) development has stalled for the past two years by CEB not accepting the NCRE tariff order issued by the regulator, PUCSL, in December 2011. Further exacerbating the problem for Sri Lanka and NCRE plant operators is that the negotiation of tariff for older NCRE plants is stalled. These plants are unable to sell their electricity to CEB as their power purchase agreements have lapsed. As such some of these older mini-hydro power plants have been stopped, thus depriving Sri Lanka of very low cost electricity (even cheaper than fuel cost of coal power). The issue appears to be that the plant owners are seeking a tariff of Rs. 7/kWh (approx), while a tariff of only Rs. 5/kWh has been proposed. In the meantime CEB is incurring much higher costs for operating their own oil thermal plants or buying more expensive power from IPP oil thermal power producers. See Figure 2 from the PUCSL Consultation Document for the 2013 tariff revision, which shows that NCRE (renewable) electricity had the lowest average cost next to large hydro and Norochcholai. All oil thermal power plants were more expensive at Rs. 20-80/kWh. In fact, PUCSL assumption for the cost of electricity from NCRE in 2013 seems to be high as the actual average cost of electricity from NCRE was under Rs. 13/kWh in 2011 and 2012. In both 2011 and 2012, CEB saved a considerable amount of money buying NCRE power as its average cost was significantly less than its overall average cost of power. In 2011 CEB saved nearly Rs. 400 million in buying power from NCRE sources. In 2012 the savings were far greater – CEB saved over Rs. 1,500 million buying power from NCRE sources. So, in conclusion, is there a logical reason for not supporting wholeheartedly the use of Sri Lanka’s own natural and renewable resources to generate electricity that is also profitable to CEB, and preferring to lose money and to spend scarce foreign exchange to purchase oil thermal electricity? Don’t expect a tariff reduction any time soon unless for political reasons while further damaging CEB’s financial situation. I am beginning to believe in conspiracy theories! (The writer is an Energy Consultant.)