Features

The correct method of costing electricity

Published

2 years ago

2023/01/9

By Dr Tilak Siyambalapitiya

At a time the entire society is confused about who does what in determining electricity costs and prices, it would be useful for the learned and intelligent Sri Lankans to examine the correct procedure. What is written here is practiced across the civilized world, in countries where electricity generation is not a monopoly but electricity supply is still a monopoly. That includes India.

Five activities to get electricity to customer

Electricity industry comprises five businesses: electricity production, transmission, bulk supply, distribution, and retail supply. Transmission and distribution are natural monopolies, since there cannot be several companies building their own lines in the same geographic area to facilitate competition. However, electricity production, bulk supply and retail supply can be open for competition. Competition in generation can be at the initial procurement (as in Sri Lanka) or through short-term competitive contracts. They can be day-ahead competitive procurements (eg: India) or real-time competition. In Sri Lanka, electricity generation is open for private investments. If the investment is private, what is procured competitively is a “power purchase agreement. If the power plant is to be CEB’s own”, then what is procured is “a turnkey contract” to supply, install and commission a power plant. If the power plant is based on renewable energy up to 10 megawatt and private, electricity is purchased on feed-in-tariffs (some are competitively procured, too). For bigger renewable energy power plants, the law previously said it must be procured competitively, but a few months ago, the government changed the law to imply competition is not required.

Procurement is not the theme of this article. Once a power supply system is in place, how does one calculate the costs and then pass it down to customers in the form of tariffs?

Just like any other industry, electricity supply industry costs, too, can be divided into fixed costs and variable costs.

Fixed Costs

Fixed costs relate to the “capacity” of electricity production and delivery. A power plant built with a loan requires the loan principal and interest to be paid. The equity investment on the power plant should yield a return on investment. If the power plant is a private investment, its fixed cost are called “capacity charges” stated in the power purchase agreement in which the investors commitments to his banks and co-investors are included. Transmission and distribution lines, and various equipment at substations, too, require investments. There will be debt repayments and return on investments, too, required for such investments.

Fixed costs are independent of the amount of electricity produced. Supply of electricity requires a certain level of reliability of service to be assured. Investments on power plants, transmission lines and distribution lines should ensure the required capacity (amount of current), reliability (no power cuts, blackouts) or quality (no brownouts) are available to electricity customers.

Electricity regulators in most countries in the world review fixed costs submitted by electricity suppliers, compare with norms, examine opportunities to be progressively “cost efficient” and then approve the fixed costs. Fixed costs so approved include depreciation, interest costs, maintenance costs, spare parts, and staff salaries, and profits. Since electricity industry cost regulation includes a pre-defined profit, a return on investment is also included in the fixed costs. Since fixed costs do not vary rapidly, they are approved, upfront, for three years or five years. This time-interval, for which fixed costs are approved, is called the “tariff period”. Sri Lanka, from 2011 to 2020, followed a five-year tariff period, and since 2021, follows a three-year tariff period. Presently, the active tariff period is 2021-2023.

So, fixed costs are totally independent of how much of electricity is produced. Fixed costs are incurred anyway, literally, even if a single unit of electricity is not produced or purchased by customers.

Variable costs

Variable costs are proportional to the energy delivered. Energy is measured in kilowatthour (commonly called units of electricity). Fuel costs are incurred when a thermal power plant, or a biomass power plant, is operated. For renewable energy power plants, such as hydropower, wind and solar energy, there are no fuel costs. Their variable costs, that mean costs that depend on the quantity of energy delivered, if any, are very small.

When a thermal power plant operates, there will be costs on fuel, lubricating oil and other maintenance expenses. These costs are expressed, based on one unit of electricity (a kilowatt hour). If the power plant is private, the price paid per unit of electricity is based on the price of fuel, as stated in the respective agreement. Almost all agreements do not carry any mark-up on production costs. Investor’s profits are built into the fixed costs. For renewable energy power plants that sell electricity to the grid, without any storage, their costs, too, is based on electricity produced to the grid. Since generation costs depend heavily on hydrology and fuel prices, variable costs are required to be submitted for approval, once in 12-months, but represented in two six-monthly intervals, i.e. January-June and July-December.

Regulatory procedure and timetable to approve costs and prices

The Electricity Act 2009 specifies that a “tariff methodology” must be established by the regulator, PUCSL. This “tariff methodology” is available in the public domain for anyone to study. Electricity transmission and distribution license holders (currently CEB and LECO) must submit their costs, based on a specific format, which are then reviewed and approved by PUCSL. Submissions for transmission and distribution must be once in three years. These formats, too, are available on-line for public to view. This has been done for the window 2021-2023.

The timetable for cost and price review and who submits what, in which format, are all defined in the “Electricity (Procedure for Review and Adjustment of Tariffs) Rules No. 03 of 2016”, published in Gazette No. 1978/21, dated 2nd August, 2016. For example, the rules say “On or before the last working day of April, the Licensee shall submit to the Commission the following (using the templates approved by the Commission)” and provides a list of documents. It goes on to say “On or before the last working day of May of each year the Commission shall prepare the Draft Tariff Estimates using the Tariff Methodology and post the Draft Estimated Tariffs in its Website.” None of these happen on schedule.

The timetable has been largely ignored by CEB/LECO as well as by PUCSL itself who issued the timetable. However, delayed submissions and delayed decisions have been published from time to time, about costs and prices.

Most recent Published costs

Cost estimates for 2023 have not been submitted by CEB+LECO to PUCSL, as it has been widely stated in the media. Apparently, costs have been submitted to the Ministry. Thus, we have to go by the costs approved by PUCSL for the first half and second half of 2022. Sri Lanka’s national average price of electricity, right now, is Rs 30.13 per unit, which is closer to the costs approved by PUCSL and included in electricity prices announced in August 2022. However, it is clear that the costs of the second half of 2022 of Rs 48.45 per unit, published by PUCSL, would not be covered by charging the present price of Rs 30.13 per unit.

We do have to remember that “fixed costs” include depreciation, interest payments, staff, spare parts and a fixed return on investment (i.e. profit). If CEB and LECO agree to forego the profits, the “fixed costs” will be lower. Depreciation allowed is expected to finance debt repayments related to investments and for equity for ongoing or future investments. If debts are not being repaid, what happens to the cash set aside for depreciation is a question.

Even if depreciation, interest payments and return on equity are taken out of the calculation of pure cashflow requirements, still the following questions require answers:How much of electricity is planned to be produced, in 2023, from diesel and other petroleum fuels? Actual production from these expensive oils, in 2021, was 21%. Seven years ago, the long-term plan stated that only 13% of electricity will be produced from oil in 2021. So, what happened and where did it go wrong? For 2023, the plan of 2015 said only 9% will be produced from oil, but how much does CEB plan to produce from oil and who is responsible for the gap?

At what price is oil bought to produce electricity. A barrel of diesel is now about USD 100 delivered to Colombo, and a barrel has 160 litres. A small calculation yields that a litre of diesel should be Rs 231, since there are no delivery or retail costs to be added to the import costs. Electricity production does not get oil at these actual international prices. Fuel oil should be still cheaper.

However, it is clear that the delay in getting the full quantity of coal for the Norochcholai power plant (2022-23), the absence of Sampur (was due 2021-22) and Norochcholai No 4 generator (due 2024-25) all cancelled by politicians, and numerous renewable energy power plants delayed or cancelled by various people, and the absence of a gas terminal, may require at least 28% of next year’s electricity to be produced, using the killer fuel, oil.

Once the costs are reviewed and approved, they must be converted to a price schedule. The theory of pricing is taught to all electrical engineers, and it is not too complicated to be learned by anyone.PUCSL’s own approved costs for the second half of 2022 are Rs 48.45 per unit, or about 15 US cents per unit. Internationally, 15 US cents is considered a “high” cost of electricity. If CEB was “private”, the entire Rs 48.45 would have to be paid, even for the past six months. Thus what is important first, is to get the generation costs down, which for the past six months, was an exorbitant Rs 37 or 10 US cents per unit.

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Features

SL urged to use GSP+ to the fullest to promote export development

Published

21 hours ago

2025/04/10

Sahan Weerasooriya

Ambassador of the EU to Sri Lanka and the Maldives, Carmen Moreno and Chairman, Pathfinder Foundation Ambassador Bernard Goonetilleke

Sri Lanka needs to take full stock of its current economic situation and use to the maximum the potential in its GSP+ facility for export sector growth. In the process, it should ensure that it cooperates fully with the European Union. The urgency of undertaking these responsibilities is underscored by the issues growing out of the recent US decision to sweepingly hike tariffs on its imports, though differentially.

These were principal ‘takes’ for participants in the Pathfinder Foundation’s Ambassadors’ Roundtable forum held on April 8th at the Colombo Club of the Taj Samudra. The main presenter at the event was Ms. Carmen Moreno Raymundo, Ambassador of the European Union to Sri Lanka and the Maldives. The forum was chaired by Ambassador Bernard Goonetilleke, Chairman, Pathfinder Foundation. The event brought together a cross-section of the local public, including the media.

Ms. Moreno drew attention to the fact Sri Lanka is at present severely under utilizing its GSP+ facility, which is the main means for Sri Lanka to enter the very vast EU market of 450 million people. In fact the EU has been Sri Lanka’s biggest trading partner. In 2023, for instance, total trade between the partners stood at Euros 3.84 billion. There is no greater market but the EU region for Sri Lanka.

‘However, only Sri Lanka’s apparel sector has seen considerable growth over the years. It is the only export sector in Sri Lanka which could be said to be fully developed. However, wider ranging export growth is possible provided Sri Lanka exploits to the fullest the opportunities presented by GSP+.’

Moreno added, among other things: ‘Sri Lanka is one among only eight countries that have been granted the EU’s GSP+ facility. The wide-ranging export possibilities opened by the facility are waiting to be utilized. In the process, the country needs to participate in world trade in a dynamic way. It cannot opt for a closed economy. As long as economic vibrancy remains unachieved, Sri Lanka cannot enter into world trading arrangements from a strong position. Among other things, Sri Lanka must access the tools that will enable it to spot and make full use of export opportunities.

‘Sri Lanka must facilitate the private sector in a major way and make it possible for foreign investors to enter the local economy with no hassle and compete for local business opportunities unfettered. At present, Lanka lacks the relevant legal framework to make all this happen satisfactorily.

‘Sri Lanka cannot opt for what could be seen as opaque arrangements with bilateral economic partners. Transparency must be made to prevail in its dealings with investors and other relevant quarters. It’s the public good that must be ensured. The EU would like to see the local economy further opening up for foreign investment.

‘However, it is important that Sri Lanka cooperates with the EU in the latter’s efforts to bring about beneficial outcomes for Sri Lankans. Cooperation could be ensured by Sri Lanka fully abiding by the EU conditions that are attendant on the granting of GSP+. There are, for example, a number of commitments and international conventions that Sri Lanka signed up to and had promised to implement on its receipt of GSP+ which have hitherto not been complied with. Some of these relate to human rights and labour regulations.

‘Successive governments have pledged to implement these conventions but thus far nothing has happened by way of compliance. GSP+ must be seen as an opportunity and not a threat and by complying with EU conditions the best fruits could be reaped from GSP+. It is relevant to remember that GSP+ was granted to Sri Lanka in 2005. It was suspended five years later and restored in 2017.

‘The importance of compliance with EU conditions is greatly enhanced at present in view of the fact that Sri Lanka is currently being monitored by the EU with regard to compliance ahead of extending GSP+ next year. A report on Sri Lanka is due next year wherein the country’s performance with regard to cooperating with the EU would be assessed. The continuation of the facility depends on the degree of cooperation.

‘A few statistics would bear out the importance of Sri Lanka’s partnership with the EU. For example, under the facility Sri Lanka benefits from duty free access in over 66% of EU tariff lines. The highest number of tourist arrivals in Sri Lanka in 2023 was from the EU’s 27 member states. Likewise, the EU’s 27 member states rank second in the origin of inflows of foreign exchange to Sri Lanka; with Italy, France and Germany figuring as the main countries of origin. Eighty five percent of Sri Lanka’s exports to the EU market benefits from GSP+. Thus, the stakes for the country are high.’

Meanwhile, President, In-house Counsel & Legal Advisor, The European Chamber of Commerce of Sri Lanka, John Wilson said: ‘GSP+ should be seen as not only an opportunity but also as a necessity by Sri Lanka in the current international economic climate. ‘Implementation of local laws is what is needed. Considering the pressures growing out of the US imposed new tariff regime, a good dialogue with the EU is needed.

‘Sri Lanka’s level of business readiness must be upped. Among the imperatives are: An electronic procurement process, Customs reforms, a ‘National Single Window’, stepped-up access to land by investors, for example, a clear policy framework on PPPs and reform of the work permits system.’

It ought to be plain to see from the foregoing that Sri Lanka cannot afford to lose the GSP+ facility if it is stepped-up economic growth that is aimed at. It would be in Sri Lanka’s best interests to remain linked with the EU, considering the aggravated material hardships that could come in the wake of the imposition of the US’ new tariff regime. Sri Lanka would need to remain in a dialogue process with the EU, voice its reservations on matters growing out of GSP+, if any, iron out differences and ensure that its national interest is secured.

Features

SENSITIVE AND PASSIONATE…

Published

21 hours ago

2025/04/10

Sahan Weerasooriya

Chit-Chat
Chiara Tissera

Mrs. Queen of the World Sri Lanka 2024, Chiara Tissera, leaves for the finals, in the USA, next month

I had a very interesting chat with her and this is how it all went:

1. How would you describe yourself?

I am a sensitive and passionate individual who deeply cares about the things that matter most to me. I approach life with a heart full of enthusiasm and a desire to make meaningful connections.

2. If you could change one thing about yourself, what would it be?

Actually, I wouldn’t change a thing about myself because the person I am today, both inside and out, is the result of everything I’ve experienced. Every part of me has shaped who I am, so I embrace both my strengths and imperfections as they make me uniquely me.

3. If you could change one thing about your family, what would it be?

If there’s one thing I could change about my family, it would be having my father back with us. Losing him six years ago left a void that can never be filled, but his memory continues to guide and inspire us every day.

4. School?

I went to St. Jude’s College, Kurana, and I’m really proud to say that the lessons I gained during my time there have shaped who I am today. My school and teachers instilled in me values of hard work, perseverance and the importance of community, and I carry those lessons with me every day. I was a senior prefect and was selected the Deputy Head Prefect of our college during my tenure.

5. Happiest moment?

The happiest moment of my life so far has been winning the Mrs. Sri Lanka 2024 for Queen of the World. It was a dream come true and a truly unforgettable experience, one that fills me with pride and gratitude every time I reflect on it.

6. What is your idea of perfect happiness?

Happiness is a deeply personal and multifaceted feeling that often comes from a sense of contentment, fulfillment and well-being. For me, perfect happiness is in moments of joy, peace and accomplishments … and also being surrounded by my loved ones.

7. Are you religious?

Yes, I’m a very religious person. And I’m a firm believer in God. My faith guides me through life, providing strength, dedication and a sense of peace in every situation. I live by the quote, ‘Do your best, and God will do the rest.’

8. Are you superstitious?

I’m not superstitious. I believe in making my own decisions and relying on logic and faith rather than following superstitions.

9. Your ideal guy?

My ideal guy is my husband. He is compassionate, understanding and is always there to support me, no matter what. He’s my rock and my best friend – truly everything I could ever want in a partner.

10. Which living person do you most admire?

The living person I admire the most is definitely my mummy. Her strength, love and unwavering support has shaped me into who I am today. She is my role model and she inspires me every day with her wisdom and kindness.

11. Your most treasured possession?

My most treasured possession is my family. They are the heart of my life, providing me with love, support and strength. Their presence is my greatest blessing.

12. If you were marooned on a desert island, who would you like as your companion?

I would like to have my spouse as my companion. Together, we could make the best of the situation, supporting each other, sharing moments of laughter and finding creative ways to survive and thrive.

13. Your most embarrassing moment?

There’s quite a few, for sure, but nothing is really coming to mind right now.

14. Done anything daring?

Yes, stepping out of my comfort zone and taking part in a pageant. I had no experience and was nervous about putting myself out there, but I decided to challenge myself and go for it. It pushed me to grow in so many ways—learning to embrace confidence, handle pressure, and appreciate my own uniqueness. The experience not only boosted my self-esteem but also taught me the value of taking risks and embracing new opportunities, even when they feel intimidating.”

15. Your ideal vacation?

It would be to Paris. The city has such a magical vibe and, of course, exploring the magical Eiffel Tower is in my bucket list. Especially the city being a mix of history culture and modern life in a way that feels timeless, I find it to be the ideal vacation spot for me.

16. What kind of music are you into?

I love romantic songs. I’m drawn to its emotional depth and the way they express love, longing a connection. Whether it’s a slow ballad, a classic love song or a more modern romantic tune these songs speak to my heart.

17. Favourite radio station?

I don’t have a specific radio station that I like, but I tend to enjoy a variety of stations, depending on my mood. Sometimes I’ll tune into one for a mix of popular hits, other times I might go for something more relaxing, or a station with a certain vibe. So I just like to keep it flexible and switch it up.

18. Favourite TV station?

I hardly find the time to sit down and watch TV. But, whenever I do find a little spare time, I tend to do some spontaneous binge – watching, catching whatever interesting show is on at that moment.

19 What would you like to be born as in your next life?

Mmmm, I’ve actually not thought about it, but I’d love to be born as someone who gets to explore the world freely – perhaps a bird soaring across continents.

20. Any major plans for the future?

Let’s say preparing and participating in the international pageant happening in the USA this May. It’s an exciting opportunity to represent myself and my country on a global stage. Alongside this, I am dedicated to continuing my social service work as a title holder, striving to make a meaningful difference in the lives of others through my platform.

Features

Fresher looking skin …

Published

21 hours ago

2025/04/10

Sahan Weerasooriya

The formation of wrinkles and fine lines is part of our ageing process. However, if these wrinkles negatively impact appearance, making one look older than they actually are, then trying out some homemade remedies, I’ve listed for you, this week, may help in giving your skin a fresher look.

* Banana:

Bananas are considered to be our skin’s best friend. They contain natural oils and vitamins that work very perfectly to boost our skin health. Skincare experts recommend applying the banana paste to the skin.

Take a ripe banana and mash a quarter of it until it becomes a smooth paste. Apply a thin layer of the banana paste on your skin and allow it to sit for 15 to 20 minutes before washing it off with warm water.

* Olive Oil:

Olive oil works as a great skin protector and many types of research suggest that even consuming olive oil may protect the skin from developing more wrinkles. Olive oil contains compounds that can increase the skin’s collagen levels. Yes, olive oil can be used as a dressing on your salads, or other food, if you want to consume it, otherwise, you can apply a thin layer of olive oil on your face, neck and hands and let it stay overnight.

* Ginger:

Ginger serves to be a brilliant anti-wrinkle remedy because of the high content of antioxidants in it. Ginger helps in breaking down elastin, which is one of the main reasons for wrinkles. You can have ginger tea or grate ginger and have it with honey, on a regular basis.

* Aloe Vera:

The malic acid present in Aloe Vera helps in improving your skin’s elasticity, which helps in reducing your wrinkles. Apply the gel once you extract it from the plant, and leave it on for 15-20 minutes. You can wash it off with warm water.

* Lemons:

Lemons contain citric acid, which is a strong exfoliant that can help you get rid of your dead skin cells and wrinkles. Also, as an astringent and a cleansing agent, it helps to fade your wrinkles and fine lines. You can gently rub a lemon slice in your wrinkled skin and leave it on for 10-15 minutes. Rinse afterwards and repeat this process two to three times a day.

* Coconut Oil:

Coconut oil contains essential fatty acid that moisturises the skin and helps to retain its elasticity. You can directly apply the coconut oil, and leave it overnight, after gently massaging it, for the best results.