The Ceylon Electricity Board (CEB) has decided to offer by far the highest supplier tariff for mini-hydropower producers for a unit of energy purchased for 2016 with retrospective effect from 2015, according to a research arm of a stock brokerage.
Accordingly, the CEB has revised up the price of a unit of hydropower purchased during the dry season (February, March, April) by 5.3 percent to Rs.16.75.kWh, while the rate during the wet season (January, May to December) has been raised by 2.5 percent to 15.24/kWh.
These tariffs are the “all-time high” for renewable energy producers offered by the CEB, said Asia Securities (Private) Limited in a research note on the country’s hydropower sector.
However, CEB Chairman Anura Wijeyapala said, the supplier tariff, referred to as ‘avoided cost-based tariffs’, was only offered to those mini-hydropower projects started prior to 2007.
Payments to mini-hydro projects post-2007 will be on ‘cost-based technology-specific three-tier tariff’.
“However, for the mini-hydro projects started prior to 2007, the avoided cost-based tariff would continue to apply for the next 15 years,” Wijeyapala said.
When the mini-hydropower plants were initially commissioned in 1996 by independent power producers (IPPs), the original supplier tariffs were annually declared by the CEB based on the avoided cost-based tariff, which represents the maximum cost of generation avoided by the CEB as a result of any purchase of energy from sources outside the CEB system.
Ideally, this value should be the value of one unit of energy (kWh) displaced by a kWh of energy purchased from such sources.
Accordingly, the avoided cost of a kWh comprises fuel and variable operations and maintenance costs of generation displaced by a unit purchased. This is generally the cost of the most expensive unit (kWh) being generated at that instant, Asia Securities explained.
Meanwhile, Bartleet Religare Securities (Pvt.) Limited research arm forecasted the move by the CEB to have a positive impact on hydropower IPPs’ top lines and bottom lines.
In a note, BRS Equity Research projected a 15.9 percent upside on the share price of the mini-hydropower producer, Vallibel Power Erathna PLC, which operates three mini-hydropower plants with an installed capacity of 22 megawatts.
“It is also important to mention that the cost structure of hydropower companies is almost fixed and any increase will directly stream towards profits,” Asia Securities stated.
As of January 26, 2016, hydropower constituted of 31 percent of the country’s electricity generation mix. Coal power generation led the generation mix with a 34 percent share and the high-cost thermal oil constituted 33 percent. The balance was contributed by wind energy.
The country’s IPP sector comprised of over 120 producers with close to 90 players focusing on mini-hydropower.
Sri Lanka had to deregulate the power sector in mid 1990s when the country faced a power crisis with blackouts having to be imposed as the government’s generation capacity was not sufficient to meet the electricity demand.
Then the private sector invested in both mini-hydropower and high-cost thermal energy power plants with whom the CEB entered into power purchase agreements (PPAs) for up to 10 to 15 years.
But after the first coal power plant in Norochcholai was plugged into the national grid, the then government discontinued purchasing power form the high-cost thermal power producers.