Electricity price hike imminent as costs escalate

From left: Sri Lanka Sustainable Energy Authority Deputy Director General Harsha Wickramasinghe, Power and Energy Ministry Secretary Prof. K.K.Y.W. Perera, Colombo University Economics Department Head Ven. Prof. W. Wimalaratana, Sri Lanka Economic Association President Dr. Upananda Widanapathirana, Ceylon Electricity Board Chairman engineer Anura Wijayapala and energy consultant Tilak Siyambalapitiya 
Pic by Nisal Baduge

Sri Lanka’s electricity consumers are likely to be in for a rude shock again as another round of price increase is expected anytime soon amid shortages in generation capacity and increasing transmission and distribution costs, according to a leading energy sector expert in the country.
Sri Lanka has been in a state of indecision for many years over its second coal power plant planned in Sampur, which was originally expected to be commissioned by 2020, adding 500 megawatt to the national grid. 
Coal is considered the cheapest energy source costing less than Rs.6.00 to generate a kilowatt-hour, after hydro. It takes a minimum of 10 years to build a power plant.  

The current stalemate situation with regards to the Sampur coal fired power plant raises serious questions about the future generation capacity as the electricity sales have been growing at a faster pace in recent times despite electricity generation having been grown steadily. 
In 2015, electricity generation rose by 5.9 percent while the provisional data showed in 2016 growth has accelerated to 11.2 percent. During the first two months in 2017, electricity generation has grown by an even higher rate of 12.0 percent.
“Await an electricity price increase soon,” energy consultant Dr. Tilak Siyambalapitiya told a recently held seminar that discussed the emerging challenges in the power sector in Sri Lanka. The event was organised by the Sri Lanka Economic Association in collaboration with the Colombo University’s Economics Department.          
Unlike in most of the developed economies, Sri Lanka’s households consume a bigger share of the electricity produced, but the consumption by the industrial sector has been declining causing some concern as to whether the sector is contracting or becoming energy efficient.  
According to the data cited by Dr. Siyambalapitiya, who is currently Managing Director of RMA Energy Consultants— a consultancy specialising in energy sector— Sri Lanka’s household sector consumes at least 40 percent of the electricity generated, whereas in other countries this is around 20 percent.  Dr. Siyambalapitiya’s analysis also showed that the day-time demand for electricity, which was less in the past, has been growing at a faster rate. This, he attributed to the commercial customers, who use electricity for comfort purposes.    
Currently Sri Lanka incurs between Rs.16.84 to Rs.18.27 to supply a kilowatt-hour of electricity shared between generation, transmission, distribution cost and debt servicing cost of the Ceylon Electricity Board (CEB)– all four are on the rise.  Sri Lanka in 2015 incurred around Rs.3.14 to distribute a kilowatt-hour of electricity, the highest in the region, while the cost steadily increased from Rs.2.72 in 2014 to Rs.3.70 in 2016. 
Meanwhile, the transmission cost also rose from 75 cents in 2014 to Rs.1.10 in 2016. 
However, Sri Lanka’s electricity prices are not the highest in the world as claimed by certain parties, Dr. Siyambalapitiya said.  Dr. Siyambalapitiya, who also worked at the CEB on generation planning estimates, said the generation costs could go up by as much as 50 percent, pushing the cost of electricity by at least 30 percent by 2020, due to wrong decisions and indecision on right decisions on the part of the government, regulator 
and CEB. 
“So, if no more coal fired power plants are done, definitely the next step is to have LNG-fired power plants, which will be 50 percent more expensive than coal. So, we will have to be ready to pay higher bills. Whether we pay it through higher bills or whether you pay it through VAT is a decision that the government will have to take. 
Finally, the cost of electricity will go up and my estimate is that it will go up by 30 percent by 2020,” he explained.          
While the abandonment of the Sampur plant is one such wrong decision, the energy regulator, the Public Utilities Commission of Sri Lanka (PUCSL), is yet to approve the CEB’s long-term generation expansion plan for 2015-2034. The PUSCSL has only approved the diesel power plants. 
Meanwhile, after back-to-back blackouts experienced in 2015 and early 2016, the CEB renewed the power purchase agreements of some of the privately-owned diesel 
power plants.
Diesel/thermal power plants have the highest cost and in 2016 the CEB paid Rs.28.37 on average per unit of electricity purchased from private power producers. 
Speaking at the same forum, CEB Chairman Anura Wijayapala said the CEB could be paying up to Rs.35 to Rs.40  a unit at its highest cost of generation but the cost to the economy of not generating a unit of electricity is estimated at a high of Rs.60.
In 10 years, hydropower was generated lowest in 2016.     
According to power sector analysts, the option of all diesel power plants in place of coal is the most myopic alternative that could be considered by anyone. 
The global crude prices are expected to rise as the OPEC and non-OPEC member countries have more or less agreed on production cuts to address the supply gut and stabilise the prices.  It was only last week Central Bank Governor Dr. Indrajit Coomaraswamy said Sri Lanka is operating with an extremely thin margin of gross official reserves as an import cover and any global shock such as increase in oil prices could lead to an economic crisis. 
According to 2015 data, Sri Lanka’s energy market is estimated at Rs.811 billion, out of which oil accounted for Rs.500 billion.   
In 2016, the CEB-owned coal power plants generated 36 percent electricity, hydro 24 percent, thermal 17 percent, IPP thermal 15 percent and other renewable energy sources 
8 percent.