Sri Lanka’s coal power bounty has ended; costs shooting up
ECONOMYNEXT – Sri Lanka’s power generation costs are rapidly outpacing selling prices and a bounty from a 900 MegaWatt coal plant had now run out, and there is no relief on the horizon, executives at the island’s power utility warned.
"The last 300 Mega Watt plant was built in Norochcholai in 2014," Saumya Kumarawadu, President of the Ceylon Electricity Board Engineers Union said.
"After that no low cost power plant has been built. So costs can only go up."
Sri Lanka’s President Maithripala Sirisena cancelled a 500 MW coal plant in Sampur in Trincomalee in 2015 where land was cleared and the plant was on the verge of being tendered after delays for which the CEB itself was responsible.
With the help of the coal plant CEB’s average cost per unit sold plunged from 23.6 rupees a kilowatt hour (unit) in 2012 to 15.07 rupees a unit in 2015.
"This is how a 25 percent reduction in power prices was given in 2015 for the first time in the history," Manawadu said.
"But now all new plants since then are producing power at higher prices."
Average costs per unit sold (which includes all overheads of the CEB) had gone up to 18.09 rupees a unit in 2016 and 21.32 rupees in 2017 with higher cost liquid fuel plants being operated.
But the average selling price is now much lower. In 2017, the average selling cost was estimated at 17.54 rupees.
"The average selling cost is now lower than the generation cost," Manawadu said. "That is why last year the CEB made a 45 billion rupee loss."
The busting of the rupee by the central bank in a monetary debacle in 2015 and 2016 and preventing the rupee appreciating in 2017 as credit fell, is also inflating the costs of fuel.
When there is a drought, cheap hydropower also falls, adding to the problem.
Sri Lanka avoided power cuts during a drought with the help of the Chinese coal plants, which analysts say may be the highest return physical investment made by Sri Lanka since the Mahaweli hydro power complex.
The Chinese plants have come with some avoidable pollution problems because environmental and religious lobbies blocked a cleaner Japanese funded coal plant originally specified by the CEB.
In 2014 the coal plants produced 3,202 GWh out of a total of 12,357 generated with CEB hydros contributing 3,632.
In 2015 the coal plants produced 4,443 GWh as 13,090 GWh was produced to meet expanding demand with hydro also rising to 4,904GWh, helping CEB finances.
CEB fuel oil power fell from 1,696 GWh to 1,051 in 2015. Private power fell to 2,690 GWh from 3,882 GWh
In 2016 the coal plants produced 5,047 GWh of energy, while hydro fell to 3,481 and the CEB had to produce 14,149 GWh of energy for the year.
In 2017 coal energy rose a little to 5,103 GWh as total generation rose to 14,671 GWh. Coal plants are now operating at near full capacity with the night load also picking up.
In 2017 CEB hydro generation fell to 3,059 GWh.
CEB’s fuel oil production went up to 2,297 GWh in 2016 and to 2,529 to cope with rising demand.
Private sector power purchases rose to 3,322 GWh in 2016 and to 3,978 GWh in 2017.
"The benefit the country got from coal plants are now over," says Manawadu.
The savings that a single 300MW coal plant can make runs into tens of billions of rupees a year.
Unlike hydro plants, which operate about 30 percent of the time in a given year which is called plant factor and even less in drought years, a thermal plant can operate about 60 to 80 percent of the time available in a year.
All CEB’s major hydro plants built since inception generated only 3,059 billion units of electricity in 2017. But the three coals plants with 900MW generated 5,103 billion units of energy.
CEB engineers union says the utility’s hydro power costs are estimated at about 2.40 rupees per unit and coal at about 7.90 rupees a unit to produce.
LNG is estimated to be about 14.80 rupees a unit, the CEB Union said.
CEB said in December 2017, disputing inflated cost of the regulator, that with capital costs, coal cost about about 11.38 rupees a unit to produce.
LNG prices had fallen to unsually low levels in recent years with US production going up, amid a general fall in commodity prices, and usage taking time to catch up.
Other renewable energy is estimated at about 17.50 rupees a unit.
CEB now pays about 19 rupees to buy solar power from home rooftop units, Manawadu said.
On average CEB’s liquid fuel plants are estimated to cost abour 25 rupee per unit without capital costs. Gas turbines may cost up to 50 rupees a unit.
Private power is estimated on average to be about 27.50 rupees with capital costs.
Individual plant costs may vary based on whether they are driven from residual oil, furnace oil or whether they are reciprocal engines or combined cycles and the age of the plant.
Several private plants which were bought from competitive bidding are also more efficient and cheaper to operate than others. Some could be more efficient than CEB’s own plants.
CEB’s chronic delays in building cheap plants and the rush to build expensive plants, comes because it is state-owned. Even in a private company there is a moral hazard that management may not act for the benefit of the shareholders who invests money.
But in a case of the state, there is a third layer, who is the politician who plays with the money taken from the tax payers in a state enterprise. They have no real interest in running an enterprise at low cost or making profits.
Their incentive is to make money from procurement ‘deals’ or win votes by running losses and borrowing.
Unlike private companies which try to advertise and sell as much of the product as possible, a state firm is quite happy to deny goods or service to the customers. In the entire South Asia, only Mumbai in India, where the grid is run by Tata, a private company, has been able to avoid power cuts consistently. Tata Power also helped Mumbai establish itself firmly as the commercial capital of India as the Calcutta’s star fell, according to analysts.
In Sri Lanka, lack of permanent secretaries in ministries under the current constitution makes the government machinery even more susceptible to corruption.
The CEB has advertised for 300MW diesel combined cycle plant, which is capable of using LNG to cater to rising demand, which has also been delayed due to alleged corruption and tender rigging. It was needed to avoid power cuts even before the coal plant cancellation, due to delays.
A diesel plant can be three to four times as expensive as a coal plant to run.
In 2017, assuming coal plants were not there, and CEB had to produce 5,103 GWh of energy with liquid fuel at 25 rupees a unit, the total generation cost would have been about 172.5 billion rupees.
At 7.90 rupees per unit the coal energy cost is about 40.3 billion rupees. This is a saving of 87 billion rupees compard to the average energy cost of a CEB plant.
Assuming the power was bought from private developers at 27.5 rupees a unit including capital costs (capacity charge) the same energy would have cost 140 billion rupees.
Coal with capital costs at 11.38 rupees would total only 58 billion rupees, indicating a saving of 82.26 billion rupees or about 541 million dollars.
At that rate, in less than three years, the coal plants would have paid for themselves compared to the alternatives available.
Sri Lanka’s auditor general said recently that the the coal plants had paid for themselves several times over.
The CEB Engineers Union say the damage done to the country by cancelling the Sampur coal plant is massive.
The Union estimates the loss from Sampur plant scrapping to be about 200 billion rupees over five years.
"This could finance the construction of four more highways similar to Katunayake expressway," the Union said.
"Accordingly, it is clearly evident that unlike other sectors, the erroneous decisions taken by the top government authorities for the power sector can have massive impact on the nation’s economy."
The union says the Puttalam plant was built with a 15 year delay, which by one estimate cost the country 900 billion rupees.
"This amount is equivalent to the construction cost of eight more highways similar to the Southern Expressway." (Colombo/Mar20/2018 – Update II)