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CEB Seeks 100% Tariff Increase but Blocks 4000 MW of Lower-Cost Renewable Energy Generation: What’s the Logic?

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by Anil Cabraal, PhD

Power crisis worsened due to CEB favouring oil and coal power over lower-cost renewable energy

On 27 April 2022, the Renewable Energy Associations announced that 1,251 MW of Non-conventional Renewable Energy (NCRE) plants will have to cease operating, as the CEB owes them Rs.22 billion. NCRE includes mini-hydro, wind, solar, biomass and others that use renewable energy for power generation. The consequences will be severe – greater oil-fired generation, higher oil imports, increased CEB financial losses, depletion of foreign reserves, job losses for NCRE plant employees, default risk to banks holding Rs.60 billion in NCRE debt and NCRE investor losses.

Meanwhile, the CEB has blocked over 4,000 MW of new NCRE plant investments. According to the Auditor General’s 08 February 2022 report, the CEB had rejected signing power purchase agreements for 1,374 NCRE projects with an aggregate capacity of 4,015 MW, which the Sustainable Energy Authority (SEA) had approved from 2017 to 2019 [https://bit.ly/3rYiVPD]. Had these projects been approved by CEB and built, they could have supplied electricity at the prevailing Rs.16.07 to 25.09 per kWh tariff, far less than the cost of diesel electricity today.

On 30 April 2022, CEB Chairman stated that CEB is seeking a 100% tariff increase to pay for staff salaries, fuel imports and other liabilities [https://bit.ly/3s4ZWTv]. While seeking a tariff increase, is it not incumbent on the CEB to make sure they obtain electricity from the lowest cost suppliers?

Tariff update needed to revive NCRE development

Despite the potential for NCRE in Sri Lanka, the NCRE tariff offered by CEB ,under their Small Power Purchase (SPP) Program, has remained unchanged since 2012, thereby depressing the financial viability of such projects. A Cabinet-appointed Committee recommended a new NCRE tariff regime in December 2021 to the responsible State Minister. To update the tariffs to today’s economic reality, the author recalculated the tariffs using 2022 parameters for four sample NCRE technologies, using the 2012 PUCSL-approved methodology. For new NCRE power plants, Table 1 shows a comparison of the prevailing 2012 tariff, the 2021 Tariff Committee’s proposed tariff, and the author’s 2022 tariff for mini-hydro, solar, wind and biomass dendro (sustainably harvested biomass).

Table Comparison of NCRE 2022 Tariff with Prevailing 2012 Tariff and Tariff Committee’s Proposed 2021 Tariff

Notably, the Tariff Committee’s proposed 2021 NCRE tariff is lower than the prevailing 2012 tariff, despite exchange rate and other factors deteriorating from 2012 to 2021. On a positive note, US dollar investment costs of solar and wind technologies did decline significantly. NCRE which are financially nonviable in 2022 at the prevailing 2012 tariff, will be worse off under the 2021 tariff.

The severe economic shocks of 2022 are the principal reasons why the calculated 2022 tariffs are higher. Calculated higher tariffs in 2022 are due to: (a) The sharp rupee depreciation which makes investments costlier in rupee terms, as 70-80% of NCRE investment is foreign content. However, unlike oil or coal-powered generation, NCRE generation is immune to imported fuel rupee-price increases; (b) Credit has become more expensive. Even the author’s assumption of 18% interest rate may be too low. (2021 Tariff Committee assumed 9.85% interest). The one-year T-Bill rate is now more than 25%; (c) Inflation is higher; and (d) In the case of biomass-fuelled generation, fuelwood prices have risen sharply due to oil and LPG shortages and their price increases.

While the 2022 tariff may seem high, they are less costly than electricity from oil and coal today, as discussed below.

Is NCRE investment in 2022 worthwhile at these higher tariffs?

The answer is a Yes, as illustrated in Figure 1 which compares the flat (“levelized”) electricity cost, from NCRE, coal and oil under various conditions. Conservatively, the analysis assumed more favourable financing terms for CEB-owned coal and oil power plant investments, than for private sector NCRE or emergency diesel (Diesel IPP) investments.

NCRE electricity is cheaper than that from new oil-fired generation, even from efficient combined cycle plants. At today’s coal prices, NCRE electricity costs can be less than that from a new coal plant. The results are unsurprising as, once built, currency depreciation only marginally affects NCRE plants, unlike oil and coal plant operations. NCRE potential is very high in Sri Lanka.

Figure Comparison of Levelized Electricity Cost of NCRE, Oil and Coal Power Generation

What are the savings to CEB and to Sri Lanka from unblocking NCRE Investments?

The savings can be considerable to CEB by avoiding paying for higher cost electricity, and to the Nation from reduced fuel imports. As an example, implementing 800 MW (or 20% of the blocked projects) could supply about 1,800 GWh of NCRE electricity annually. In comparison, in 2020, oil thermal IPPs supplied 2,717 GWh of electricity and CEB oil thermals generated 1,462 GWh. Therefore 1,800 GWh of NCRE electricity could displace more expensive oil thermal generation, especially the more expensive IPP diesel generation. CEB may, however, need to upgrade its system control and operations to accommodate increased generation from variable solar and wind power.

The 800 MW of NCRE generation could offset about 400 million litres of diesel fuel annually. The net financial savings to CEB is Rs.37 billion per year (assumes paying flat 2022 tariff for NCRE, while avoiding paying for diesel fuel at US$0.75/litre, the price CEB paid for 40,000 MT in April 2022). The saving to Sri Lanka by avoiding diesel imports is about US$300 million for the year from these 800 MW of NCRE investments. The NCRE investment required is about US$1,000 million, giving a simple payback of 3.3 years in imported diesel fuel savings.

Special case of existing biomass power plants

Even if CEB pays the outstanding invoices for NCRE-supplied electricity, the existing biomass power plants (37 MW) are presently facing an existential threat to their financial survival due to the sharp rise in fuelwood prices (from about Rs.7/kg to Rs.12/kg for chipped fuelwood in 2022). Unless the Cabinet takes mitigatory actions immediately and approves an amendment to the existing Biomass Dendro Power Purchase Agreement to permit a higher tariff, these plants will cease operations and Sri Lanka will lose access to these 37 MW. Even at a fuelwood price of Rs.12/kg, electricity from these existing plants is far cheaper than CEB paying for diesel fuel. Paradoxically, unlike these biomass plants, oil-fired IPPs can pass-through the fuel cost to CEB and avoid the fuel price risk.

What must the Government and CEB do?

Given the significant benefits from investments in NCRE, the Government must direct the Ministry of Power and Energy, CEB, PUCSL and SEA to immediately undertake the following:

* Most urgently, CEB must settle its arrears of Rs.22 billion to NCRE producers.

*Tariff Committee must update the NCRE cost-reflective tariffs to 2022 conditions in consultation with technology and project finance specialists.

*PUCSL must approve, and CEB must adopt the tariff as soon as possible. The CEB and PUCSL must commit to updating the tariffs at least every 2 years.

*CEB must commit to accepting over 1,000 NCRE projects that they have hitherto blocked and invite other NCRE proposals.

*SEA should invite companies to revise feasibility studies and update their NCRE applications. Companies must respond quickly. SEA should, without delays or additional fees, review and approve the compliant proposals.

*CEB must issue letters of intent and sign Power Purchase Agreements without delay for compliant NCRE proposals.

*CEB must commit to providing necessary infrastructure and control systems upgrades required to connect these NCRE facilities to the CEB grid.

*SEA, with Ministry of Finance assistance, could mobilize financing from commercial banks and international financiers, particularly climate-friendly investors.

As Mr. Manjula Perera, CEO of Windforce Ltd., representing the renewable energy community, stated recently: “If the Power Ministry, CEB, SEA, and PUCSL work hand in hand and get the necessary policies in place, adding 1,000 MWs from NCRE within the next 2 years by local RE developers will not be a challenge”.

In conclusion, successfully accomplishing these actions will permit NCRE technologies and the private sector to help Sri Lanka address its near-term energy-sector and balance of payment challenges and to achieve the Government’s goal of 70% RE generation by 2030.

03 May 2022

Disclaimer: The views, data, assumptions, analyses, results interpretations, and opinions expressed in the text belong solely to the author, and not necessarily to any other group or individual, including those cited in the article.

The author is a former Lead Energy Specialist at the World Bank with specialization in renewable energy project development and financing in Asian and African countries, including in Sri Lanka. This article is based on his paper “Mobilizing Renewable Energy to Overcome the Energy and Financial Crisis: The Need for a Credible Renewable Electricity Tariff,” https://bit.ly/3Ltabsx



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Features

Glimmers of hope?

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The newly appointed Cabinet Ministers leaves Cass un-uplifted. She need not elaborate. She wishes fervently that Dr Harsha de Silva will leave party loyalty aside and consider the country. Usually, it’s asking politicians to cast aside self-interest, which very rarely is done in the political culture that came to be after the 1970s. Thus, it is very unusual, completely out of the ordinary to appeal to Dr Harsha to forego party loyalty and do the very needful for the country by accepting the still vacant post of Minister of Finance. We are very sorry Eran W too has kept himself away.

Some of Cassandra’s readers may ask whether she is out of her right mind to see glimmers of hope for the country. She assures them she is as sane as can be; she does cling onto these straws like the dying man does. How else exist? How else get through these dire times?

What are the straws she clings to? News items in The Island of Tuesday 24 May.

‘Sirisena leaves Paget Road mansion in accordance with SC interim injunction.’ And who was instrumental in righting this wrong? The CPA and its Executive Director Dr Pakiasothy Saravanamuttu. It is hoped that revisions to the system will come in such as giving luxury housing and other extravagant perks to ex-presidents and their widows. Sri Lanka has always lived far beyond its means in the golden handshakes to its ex- prezs and also perks given its MPs. At least luxury vehicles should not be given them. Pensions after five years in Parliament should be scrapped forthwith.

‘Letter of demand sent to IGP seeking legal action against DIG Nilantha Jayawardena.’ Here the mover is The Centre for Society and Religion and it is with regard to the Easter Sunday massacre which could have been prevented if DIG Jayawardena as Head of State Intelligence had taken necessary action once intelligence messages warned of attack on churches.

‘CIABOC to indict Johnston, Keheliya and Rohitha’. It is fervently hoped that this will not be another charge that blows away with the wind. They do not have their strongest supporter – Mahinda R to save them. We so fervently hope the two in power now will let things happened justly, according to the law of the land.

‘Foreign Secy Admiral Colombage replaced’. And by whom? A career diplomat who has every right and qualification for the post; namely Aruni Wijewardane. If this indicates a fading of the prominence given to retired armed forces personnel in public life and administration, it is an excellent sign. Admiral Colombage had tendered his resignation, noted Wednesday’s newspaper.

‘Crisis caused by decades of misuse public resources, corruption, kleptocracy – TISL’.

Everyone knew this, even the despicable thieves and kleptocrats. The glaring question is why no concerted effort was made to stop the thieving from a country drawn to bankruptcy by politicians and admin officers. There are many answers to that question. It was groups, mostly of the middle class who came out first in candle lit vigils and then at the Gotagogama Village. The aragalaya has to go down in history as the savior of our nation from a curse worse than war. The civil war was won against many odds. But trying to defeat deceit power-hunger and thieving was near impossible. These protestors stuck their necks out and managed to rid from power most of the Rajapaksa family. That was achievement enough.

Heartfelt hope of the many

The newly appointed Cabinet Ministers leaves Cass un-uplifted. She need not elaborate. She wishes fervently that Dr Harsha de Silva will leave party loyalty aside and consider the country. Usually, it’s asking politicians to cast aside self interest, which very rarely is done in the political culture that came to be after the 1970s. Thus, it is very unusual, completely out of the ordinary to appeal to Dr Harsha to forego party loyalty and do the very needful for the country by accepting the still vacant post of Minister of Finance. We are very sorry Eran W too has kept himself away. As Shamindra Ferdinando writes in the newspaper mentioned, “Well informed sources said that Premier Wickremesinghe was still making efforts to win over some more Opposition members. Sources speculated that vital finance portfolio remained vacant as the government still believed (hoped Cass says) Dr Harsha de Silva could somehow be convinced to accept that portfolio.”

Still utterly hopeless

Gas is still unavailable for people like Cass who cannot stand in queues, first to get a token and then a cylinder. Will life never return to no queues for bare essentials? A woman friend was in a petrol queue for a solid twelve hours – from 4 am to 4 pm. This is just one of million people all over the country in queues. Even a common pressure pill was not available in 20 mg per.

Cassandra considers a hope. We saw hundreds of Sri Lankans all across the globe peacefully protesting for departure of thieves from the government. The ex-PM, Mahinda Rajapaksa’s answer to this was to unleash absolute terror on all of the island. It seems to be that with Johnson a younger MP stood commandingly.

Returning from that horror thought to the protesters overseas, Cass wondered if each of them contributed one hundred dollars to their mother country, it would go a long way to soften the blows we are battered with. Of course, the absolute imperative is that of the money, not a cent goes into personal pockets. The donors must be assured it goes to safety. Is that still not possible: assuring that donations are used for the purpose they are sent for: to alleviate the situation of Sri Lankans? I suppose the memory of tsunami funds going into the Helping Hambantota Fund is still fresh in memory. So much for our beloved country.

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Ban on agrochemicals and fertilisers: Post-scenario analysis

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By Prof. Rohan Rajapakse

(Emeritus Professor of Agriculture Biology UNIVERSITY OF RUHUNA and Former Executive Director Sri Lanka Council of Agriculture Research Policy)

There are two aspects of the ban on agrochemicals. The first is the ban on chemical fertilisers, and the second is the ban on the use of pesticides. Several eminent scientists, Dr Parakrama Waidyanatha (formerly the Soil Scientist of RRI), Prof OA Ileperuma (Former Professor of Chemistry University of Peradeniya), Prof C. S. Weeraratne (former Professor of Agronomy University of Ruhuna), Prof D. M. de Costa University of Peradeniya, Prof. Buddhi Marambe (Professor in Weed Science University of Peradeniya) have effectively dealt with the repercussion of the ban on chemical fertilisers which appeared in The Island newspaper on recently.

The major points summarised by these authors are listed below.

FERTILISER ISSUE

1. These scientists, including the author, are of the view that the President’s decision to totally shift to organic agriculture from conventional could lead to widespread hunger and starvation in future, which has become a reality. Organic farming is a small phenomenon in global agriculture, comprising a mere 1.5% of total farmlands, of which 66% are pasture.

2. Conventional farming (CF) is blamed for environmental pollution; however, in organic farming, heavy metal pollution and the release of carbon dioxide and methane, two greenhouse gases from farmyard manure, are serious pollution issues with organic farming that have been identified.

3. On the other hand, the greatest benefit of organic fertilisers as against chemical fertilisers is the improvement of soil’s physical, chemical and biological properties by the former, which is important for sustained crop productivity. The best option is to use appropriate combinations of organic and chemical fertilisers, which can also provide exacting nutrient demands of crops and still is the best option!

4. Sri Lanka has achieved self-sufficiency in rice due to the efforts of the Research Officers of the Department of Agriculture, and all these efforts will be in vain if we abruptly ban the import of fertiliser. These varieties are bred primarily on their fertiliser response. While compost has some positive effects such as improving soil texture and providing some micronutrients, it cannot be used as a substitute for fertiliser needed by high yielding varieties of rice. Applying organic fertilisers alone will not help replenish the nutrients absorbed by a crop. Organic fertilisers have relatively small amounts of the nutrients that plants need. For example, compost has only 2% nitrogen (N), whereas urea has 46% N. Banning the import of inorganic fertilisers will be disastrous, as not applying adequate amounts of nutrients will cause yields to drop, making it essential to increase food imports. Sri Lankan farmers at present are at the mercy of five organizations, namely the Central Department of Agriculture, the Provincial Ministry of Agriculture, the Private sector Pesticide Companies, the Non-Government organizations and the leading farmers who are advising them. Instead, improved agricultural extension services to promote alternative non-chemical methods of pest control and especially the use of Integrated Pest Management.

Locally, pest control depends mostly on the use of synthetic pesticides; ready to use products that can be easily procured from local vendors are applied when and where required Abuse and misapplication of pesticides is a common phenomenon in Sri Lanka. Even though many farmers are aware of the detrimental aspects of pesticides they often use them due to economic gains

We will look at the post scenario of
what has happened

1. The importation of Chemical fertilisers and Pesticides was banned at the beginning of Maha season 1 on the advice of several organic manure (OM) promoters by the Ministry of agriculture.

2. The Ministry of Agriculture encouraged the farmers to use organic manure, and an island-wide programme of producing Organic manure were initiated. IT took some time for the government to realize that Sri Lanka does not have the capacity to produce such a massive amount of OM, running into 10 tons per hectare for 500000 hectares ear marked in ma ha season.

3. Hence the government approved the importation of OM from abroad, and a Company in China was given an initial contract to produce OM produced from Seaweed. However, the scientists from University of Peradeniya detected harmful microorganisms in this initial consignment, and the ship was forced to leave Sri Lankan waters at a cost of US dollar 6.7 million without unloading its poisonous cargo. No substitute fertiliser consignment was available.

4. A committee in the Ministry hastily recommended to import NANO RAJA an artificial compound from India to increase the yield by spraying on to leaves. Sri Lanka lost Rs 863 million as farmers threw all these Nano Raja bottles and can as it attracts dogs and wild boar.

Since there is no other option the Ministry promised to pay Rs 50000 per hectare for all the farmers who lost their livelihood. It is not known how much the country lost due to this illogical decision of banning fertilisers and pesticides.

Recommendations

1. Judicious use of pesticides is recommended.

2. The promotion and the use of integrated pest management techniques whenever possible

3. To minimize the usage of pesticides:

Pesticide traders would be permitted to sell pesticides only through specially trained Technical Assistants.

Issuing pesticides to the farmers for which they have to produce some kind of a written recommendation by a local authority.

Introduction of new mechanism to dispose or recycle empty pesticide and weedicide bottles in collaboration with the Environment Ministry.

Laboratory-testing of imported pesticides by the Registrar of Pesticides at the entry-point to ensure that banned chemicals were not brought into the country.

Implementation of trained core of people who can apply pesticides.

Education campaigns to train farmers, retailers, distributors, and public with the adverse effects of pesticides.

Maximum Residue Level (MRL) to reduce the consumer’s risk of exposure to unsafe levels.

Integrated pest Management and organic agriculture to be promoted.

1. To ensure the proper usage of agrochemicals by farmers

All those who advised the Minister of Agriculture and the President to shift to OM still wield authority in national food production effort. The genuine scientists who predicted the outcome are still harassed sacked from positions they held in MA and were labelled as private sector goons. The danger lies if the farmers decide not to cultivate in this Maha season due to non-availability of fertilisers and pesticides the result will be an imminent famine.

The country also should have a professional body like the Planning Commission of

India, with high calibre professionals in the Universities and the Departments and

There should be institutions and experts to advise the government on national policy matters.

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Thomians triumph in Sydney 

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Nothing is happening for us, at this end, other than queues, queues, and more queues! There’s very little to shout about were the sports and entertainment scenes are concerned. However, Down Under, the going seems good.

Sri Lankans, especially in Melbourne, Australia, have quite a lot of happenings to check out, and they all seem to be having a jolly good time!

Trevine Rodrigo,

who puts pen to paper to keep Sri Lankans informed of the events in Melbourne, was in Sydney, to taken in the scene at the Sri Lanka Schools Sevens Touch Rugby competition. And, this is Trevine’s report:

The weather Gods and S.Thomas aligned, in Sydney, to provide the unexpected at the Sri Lanka Schools Sevens Touch Rugby competition, graced by an appreciative crowd.

Inclement weather was forecast for the day, and a well drilled Dharmaraja College was expected to go back-to-back at this now emerging competition in Sydney’s Sri Lanka expatriate sporting calendar.

But the unforeseen was delivered, with sunny conditions throughout, and the Thomians provided the upset of the competition when they stunned the favourites, Dharmaraja, in the final, to grab the Peninsula Motor Group Trophy.

Still in its infancy, the Sevens Touch Competition, drawn on the lines of Rugby League rules, found new flair and more enthusiasm among its growing number of fans, through the injection of players from around Australia, opposed to the initial tournament which was restricted to mainly Sydneysiders.

A carnival like atmosphere prevailed throughout the day’s competition.

Ten teams pitted themselves in a round robin system, in two groups, and the top four sides then progressed to the semi-finals, on a knock out basis, to find the winner.

A food stall gave fans the opportunity to keep themselves fed and hydrated while the teams provided the thrills of a highly competitive and skilled tournament.

The rugby dished out was fiercely contested, with teams such as Trinity, Royal and St. Peter’s very much in the fray but failing to qualify after narrow losses on a day of unpredictability.

Issipathana and Wesley were the other semi-finalists with the Pathanians grabbing third place in the play-off before the final.

The final was a tense encounter between last year’s finalists Dharmaraja College and S.Thomas. Form suggested that the Rajans were on track for successive wins in as many attempts.  But the Thomians had other ideas.

The fluent Rajans, with deft handling skills and evasive running, looked the goods, but found the Thomian defence impregnable.  Things were tied until the final minutes when the Thomians sealed the result with an intercept try and hung on to claim the unthinkable.

It was perhaps the price for complacency on the Rajans part that cost them the game and a lesson that it is never over until the final whistle.

Peninsula Motor Group, headed by successful businessman Dilip Kumar, was the main sponsor of the event, providing playing gear to all the teams, and prize money to the winners and runners-up.

The plan for the future is to make this event more attractive and better structured, according to the organisers, headed by Deeptha Perera, whose vision was behind the success of this episode.

In a bid to increase interest, an over 40’s tournament, preceded the main event, and it was as interesting as the younger version.

Ceylon Touch Rugby, a mixed team from Melbourne, won the over 40 competition, beating Royal College in the final.

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