Sri Lanka mini-hydropower unviable without rate hike, developer warns

ECONOMYNEXT – Developing more mini-hydropower plants in Sri Lanka is becoming increasingly difficult since costs have increased sharply in recent years while rates at which electricity is sold have not, Resus Energy has warned.

The Resus Energy group has operational minihydro power plants in the regions of Kandy, Kegalle and Nuwara Eliya and has begun building solar power plants in eastern Amparai.

Managing Director G A K Nanayakkara said the sharp depreciation of the rupee against the US dollar and euro made imported equipment costly.

While the group had previously bought equipment from Europe, more recently it was buying from China, he told shareholders in the company’s annual report for 2018-19.

The rupee depreciation means European equipment is “prohibitively expensive” and Chinese equipment was becoming increasingly expensive although still cheaper than European ones, Nanayakkara said.

Furthermore, long term bank loans at fixed rates are prohibitively expensive, he said.

“The increase in exchange rates have made most projects economically unviable, particularly in the hydropower segment, given that the NCRE (non-conventional renewable energy) tariff applicable was last revised in 2013 and are based on cost parameters of 2012 and before,” Nanayakkara said.

“Yet, as a long-term player, we remain resilient and hopeful of an economic turnaround.”

This was because of the anticipated increased consumption including that of electricity which is comparatively low compared with south Asian countries.

Nanayakkara said electricity feed-in-tariffs had not been raised since 2013.

“The major cost factors, including exchange rates, inflation rates and tax holidays assumed in tariff determination for new hydro projects have substantially changed,” he said.

“Since the tariff is by and large fixed for the tenure of the Power Purchase Agreement, if the tariffs are set on non-reflective parameters, the development of financially viable projects will be challenging.”
 (COLOMBO, 17 June, 2019)