Economic impacts of delaying
decisions on generation options
Tilak Siyambalapitiya
20 June 2016
Contents
• Legal process to procure generation
• Policy and the Planning Code
• Procurement
• Status of power plants for base and intermediate
duty
• Sampur Project, other coal-fired projects
• Proposed LNG-fired Power Plants
• Renewable energy developments
• Status of wind and solar power developments
• Outlook
• Growth in demand and Sales
• Past experience with project delays
• Most-likely scenario, costs and blackouts
Generation
Options
for
Sri
Lanka
for
Reliability
and
2
Economy
Status of Key Power Generation Projects
Sampur 500 MW: was due 2016, was resch. to 2020;
now indefinitely delayed
Wind 20 MW: Competitive bidding round, scheduled
to be closed in April 2016, now suspended
Solar ?? MW: No sign of any competitive process
All other projects scheduled in the plan are either
delayed, or no specific actions installed to proceed to
construction
Generation
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Reliability
and
3
Economy
Developing a project and getting it
implemented is a million times more
difficult than sitting in a room, and
cancelling a developed project
Generation
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4
Economy
Cancelling a project is a further 100
times easier, if you do not know the
subject, and in any case, would not
be responsible for the consequences
Generation
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5
Economy
Legally Established Sector Structure
Go vernment / Cabinet of Ministers
Minister of Finance and Planning
Minister of Power and Renewable Energy
Sustainable En ergy Authority
Public Utilities Commission of Sri Lanka (regulator)
IPP
Corporate CEB
Generation
Transmission
CEB
Region 1
CEB
Region 2
CEB
Region 3
CEB
Region 4
LECO
Customers
CEB - Ceylon Electricity Board
LECO - Lanka Electricity Company (Pvt) Ltd
IPP - Independent Power Producer
Generation
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Lanka
for
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and
6
Economy
How to Establish Policies and Convey (1)
Electricity Act: 2009
Generation
Options
for
Sri
Lanka
for
Reliability
and
7
Economy
How to Establish Policies and Convey (2)
Electricity Act: 2009
Generation
Options
for
Sri
Lanka
for
Reliability
and
8
Economy
Legal Obligation to Procure Generation
Electricity Act: 2009
Generation
Options
for
Sri
Lanka
for
Reliability
and
9
Economy
Legal Process to Procure Generation (1)
Electricity Act (amendment): 2013, Section 43
Generation
Options
for
Sri
Lanka
for
Reliability
and
10
Economy
Legal Process to Procure Generation (2)
Electricity Act (amendment): 2013, Section 43
Generation
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Lanka
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Economy
•Status of power plants for base and
intermediate duty
•Sampur Project due 2020, other coal-fired
projects due after 2020
•LNG-fired Power Plants proposed by the
Government
Generation
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Economy
• Power plant locations or fuel cannot be changed just like
flipping a light switch: it takes decades. Now the circus
round 2 has begun
1987-1989
Round 2: 2005-2016
1995-2005
Built: 2006-2016
Circus No 2 begins here,
with fuel change as well
1990-1994
Generation
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•Various Switches
Competitive
Pricing
Trincomalee
Trincomalee
Coal
Other sites
LNG
World’s highest
price for wind, solar
Hambantota,
Colombo
Fuel type Switch
Renewable Switch
LNG terminal Switch
Siting Switch
Generation
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•RLNG-fired power plants can be justified
on one or many of the following basis:
• Flexibility in system and plant operations
• Ability to covert some existing diesel power
plants
• Environmental benefits
• Fuel diversity
• Relatively lower prices in the recent past
• Possibility of serving gas to other users,
especially
• “High temperature” industries
• City public transport
Generation
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15
Economy
… but LNG delivery requires a terminal, but the Govt is
going round and round with that project idea too ….
• Trincomalee
Justification: We can “convert” the Sampur and other
power plants to R-LNG !!! No other visible users
• Colombo
Justification: Existing power plants converted, other
prospective users nearby
Costs: Effectively a new harbor has to be built (Colombo
North)
• Hambantota
Justification: Harbour available, no specific plans for power
plants, but those scheduled after 2020 can be located
Costs: Existing Colombo diesel power plants can receive RLNG, but need a H-C pipeline (USD 200 million +)
Generation
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Circus for the LNG terminal has just begun
Some say we
should have
three LNG
terminals
(the whole of
India so far has
only three
terminals !)
Generation
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However, a plan with LNG has not been
approved according to the Electricity Act
So the circus is actually around a power
plant/fuel combination that is not legal
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Economy
So, who is running the power sector now ?
The “art” of running the power sector with
“committees” external to the sector has begun

1992-1995: Power Committee
Main achievements: Rotated the coal power plant 1800 around
the country, Issued a LoI to a one-man company to build the
Trinco USD 500 million power plant, delayed the only power
plant that was on track (which finally caused the major blackouts
of 1996)
1995-2001:
Power Committee (enhanced)
Main achievements: Got CEB to sign four (4) new oil PPAs,
crippling blackouts of 2000-2001, cancelled and approved the
coal power plant about ten times
Generation
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So, who is running the power sector now ?
The “art” of running the power sector with
“committees” external to the sector continues

2001-2004: Energy Supply Committee
Main achievements: Cancelled the coal power plant again,
signed 3 more oil PPAs, New Electricity Act, PUCSL Act
2005-2015:
No such committee visible
Main achievements: New, diluted Electricity Act implemented,
PUCSL empowered to regulate, 1 more oil IPP signed, 900 MW
coal power plant implemented, energy policy published, new
renewable energy share reached 10%, Fuel costs lowest in 2016
2015-
?? : Committee on Economic Affairs ?
All power generation projects, especially those that would
reduce costs, are presently cancelled or suspended
Generation
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Disaster is not too far !!!
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Economy
On 31st March 2002
The PM called the Japanese Ambassador to his residence and
said “we do not need Japanese Funds to build the Norochcholai
power plant. Result: USD 4 billion paid to oil
Within a few weeks ….
Ordered CEB to call for bids for 2 x 100 MW oil power plants
In May 2016 (14 years later)
The (same) PM suspended the Sampur power plant,
which was about to go for bidding, with a target
operation date of year 2020
Within a few weeks you will hear….
Some Committee orders CEB to purchase 300 MW of
diesel power plants
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Economy
Growth in Peak Demand had Slowed Down,
but picked-up in2016:
Embedded (renewable) Generation Serves a Portion
Total Installed Capacity and the Peak Demand
3500
3000
2016
MW
2500
2000
1500
1000
Total Installed Capacity in the Grid
500
System Peak Demand
2014
2013
2012
2011
2010
2009
2008
2007
2006
2005
2004
2003
2002
2001
2000
1999
1998
1997
1996
1995
1994
1993
1992
1991
1990
0
Year
Generation
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for
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Lanka
for
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Economy
Sales Dominated by Households:
Sales growth to industry: slow, Sales growth to commercial: high
Market Share of Electricity
100%
Market Share (%)
80%
60%
40%
20%
2014
2013
2012
2011
2010
2009
2008
2007
2006
2005
2004
2003
2002
2001
2000
1999
1998
1997
1996
1995
1994
1993
1992
1991
1990
0%
Year
Domestic
Generation
Options
Religious
for
Sri
Industrial
Lanka
Commercial
for
Street Lighting
Reliability
and
24
Economy
Sales Growth Increasing
Growth in Electricity Sales
14%
Until
31 May 2016
12%
10%
8%
6%
4%
2%
0%
2012
2013
2014
2015
2016
Source: Sri Lanka Energy Balance 2014, www.energy.gov.lk, data for 2016 from PUCSL
Generation
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Economy
Sales Growth Increasing
2011
Households
7.6%
Religious
7.5%
Industrial
7.4%
Commercial
12.0%
Total Utility Sales 8.5%
Generation
Options
for
Sri
2012
3.5%
7.0%
4.4%
5.0%
4.2%
Lanka
2013
-1.3%
5.2%
1.8%
5.3%
1.4%
for
2014
1.0%
8.3%
4.7%
8.5%
4.2%
2015 2016
9.7%
6.0%
3.3%
6.5%
6.7% 11.7%
Reliability
and
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Economy
The Load Profile is Changing for Better
However, growth in off-peak demand is slow
Per unit of Maximum Demand
1.0
0.8
0.6
0.4
0.2
0:00
22:00
20:00
18:00
16:00
14:00
12:00
10:00
8:00
6:00
4:00
2:00
0:00
0.0
Time
2002
2005
2011
2014
Day-time demand grows faster owing to growing commercial customers
Generation
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Economy
Generation Mix is 40% Renewable
• Electricity Generation in 2014
Plant Type
Total Installed Capacity
(MW)
Generation (GWh)
% Share in
Generation
Major Hydro
Thermal-Oil
Thermal-Coal
NRE
Total
1,377
1,215
900
440
3,932
3,632
4,306
3,202
1,217
12,357
29%
35%
26%
10%
100%
National Energy Policy
Target: 10% by 2015
achieved, New target:
20% by 2020 ?
• NRE Power Plants Serving the Grid (end 2014)
Type
Number of
Plants
Installed
Capacity (MW)
Generation
(GWh)
Share in NRE
Generation (%)
Hydro
140
287.5
902.2
74.2
Biomass
6
20.0
41.4
3.4
Solar
3
1.4
1.5
0.1
Wind
15
131.5
270.3
22.2
Total
164
440.4
1,215.4
100
Generation
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Economy
Network Losses Declining
Achieved: 11.5% of net generation (2014), New Target: 7.5% (2020)
Allowed Loss as a Share of Net Generation
12%
10%
8%
6%
4%
2%
0%
2016
2017
2018
Transmission Techncial
Distribution Technical
2019
2020
Trasmission non-technical
Distribution non-techncial
Source: Results of a recent study by PUCSL
Generation
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Economy
Renewable Energy for Electricity
Production
Generation
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and
30
Economy
Renewable Energy Initiatives
• The Small Power Producer (SPP) Program
• Introduced Standardised, non-negotiable PPA and Tariffs in 1996
• Tariffs moved from “avoided costs” to “cost-reflective” for new
contracts from 2007
• Over 200 such SPPs in operation, provided about 11% of energy
in 2015
• Outlook: New small hydro, biomass and waste to energy
projects in progress, policy debate on new wind and solar PV
since 2013, not resolved as yet.
• Net metered renewable energy at customer
premises allowed from 2010
• about 25 MW already in operation (solar roof tops)
• economics widely misunderstood
Generation
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Economy
Costs are again on the Increase
Cost Component
Cost of Supply (LKR per kWh Sold)
2010
Generation Capacity
2011
2013
2014
2016
3.20
2.64
3.06
2.77
4.05
10.54
8.23
15.28
10.29
8.62
Transmission
0.45
0.77
0.75
0.75
1.10
Distribution
2.71
2.73
2.72
2.72
3.70
-
0.59
0.32
0.32
0.79
14.96
22.12
16.84
18.27
Fuel
Short-term Debt repayment
Total cost
16.91
Source: Summarised from regulatory publications by PUCSL
Generation
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and
32
Economy
Cost Structure of Operations
2016
Primary Source
Hydro
Small Renewables
Coal
Oil
Average
Ownership
Energy Share
CEB
Private
CEB
CEB and Private
Business
Generation
34%
14%
40%
12%
100%
Cost
component
Capacity
Fuel
Transmission
Distribution
Network Loss Adjustment
Short-term Debt repayment
Total cost
Energy Cost
Rs/kWh
20.08
5.63
22.22
7.68
LKR/kWh
delivered ex
licensee
3.61
7.68
1.01
3.70
1.47
0.79
18.27
Source: Summarised from regulatory publications by PUCSL
Generation
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Economy
Look at the generation costs again
2013
Primary Source
Hydro
Small Renewables
Coal
Oil
Average
Ownership
CEB
Private
CEB
CEB and Private
2016
Primary Source
Energy Cost
Rs/kWh
Hydro
CEB
34%
Small Renewables Private
14%
20.08
Coal
CEB
40%
5.63
Oil
CEB and Private
12%
22.22
Average
100%
7.68
Source: Summarised from regulatory publications by PUCSL
Generation
Options
Ownership
Share
Cost Rs/kWh
30%
7%
18.00
15%
8.30
48%
23.41
100%
13.74
for
Sri
Lanka
Energy Share
for
Reliability
and
34
Economy
Problems Requiring Immediate Solutions
from Country Perspective
•Generation Capacity Shortages Expected
• Sampur Coal Power Project (was due 2016, 500 MW, now
due latest 2020) is currently on hold, no other significant
power plant being built to meet the growing demand
• Sampur project is already delayed by 4 years
•An LNG power plant at Trincomalee cannot be
built by 2020
• Requires large investments for a LNG terminal
• Re-do project agreements, EIA, PPA
• Finally pay at least 20% more for electricity produced
•And the winner in the game will be ……………
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Economy
• And the winner will be ……………More diesel power
plants (IPPs) all over the country, run existing diesel
power plants more and more
• …….. and the history repeats
• Announcements by the Govt expected:
• By 2018 when indication of the crisis comes-in, typically
February-April period
• “The Govt will pay the fuel bill for diesel, the customer will
not be burdened!!!”(story of 1999-2000 repeats)
• “Renewables can solve the crisis”
• When large fuel bills burden the Treasury:
• “No option but to conduct limited load shedding” (2001
story repeating)
• “My Govt has decided to cancel the Norochcholai coal-fired
power plant” (2002, consequent economic loss = LKR 420
billion, ie approx. USD 4 billion)
Generation
Options
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Lanka
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36
Economy
• Possible reasons why the Govt is backtracking, when
the country is in grave need for new generating capacity
• The belief that LNG will be of similar cost, more
environment friendly: Solution- Let that be the next
power plant
• The PPA is unfavourable: Solution – Renegotiate
with India, over a limited time frame
• The Govt simply does not understand power system
engineering and economics: Solution- Learn from its
own history of cycling power plants and fuel options
Generation
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Economy
The Strategy of “Committees” is obviously to:
2020 Plan
Share
Hydro
27.9%
Small Renewables 19.5%
Coal Puttalam
27.7%
Coal Trincomalee 12.4%
Oil
12.5%
Total
100.0%
Energy Achievable cost
(GWh)
(LKR/kWh)
4,891
3,410
12.00
4,853
5.63
2,163
5.63
2,195
22.22
17,512
7.38
2020, the Committees are taking the sector to …..
Energy Achievable cost
Share (GWh)
(LKR/kWh)
Hydro
27.9%
4,891
Small Renewables 19.5%
3,410
20.00
Coal Puttalam
27.7%
4,853
5.63
Coal Trincomalee
0.0%
5.63
Oil
24.9%
4,358
22.22
Total
100.0% 17,512
10.98
Generation
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for
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Lanka
for
Reliability
and
Economy
•Have these “committees” done these
calculations. No ! Otherwise, they would
know the consequences of their decisions,
or indecision.
•Do they know how to do these calculation.
No !, but it is easy to learn, if there is a will.
•Do they have a power sector financial
model? Do not seem to have.
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Economy
THANK YOU
Generation Cost Refelcted in
Customer Bill (LKR/kWh)
.. but get ready to pay higher electricity bills
18
16
14
12
10
8
6
4
2
0
2010
Generation
High cost path, now that power
plants are decided by committees
Least cost path, also has
20% small renewables
2012
Options
2014
for
Sri
2016
2018
Lanka
for
2020
Reliability
and
40
Economy