30th March 2013, www.lankabusinessonline.com
Sri Lanka's combined cycle power plants which are supposed to be efficient and cheaper have turned out to be more expensive than internal combustion plants, published data show.
According to a consultation document released by the Public Utilities Commission, Sri Lanka's power regulator, private plants running IC engines including Heladanavi and ACE Embilipitiya cost a little over 20 rupees to generate a unit of electricity.
The data was released ahead of a public consultation to be held on April 04.
But combined cycle plants including the West Coast Plant in Kerawalapitiya, AES Kelanitissa and CEB's own plant in the Kelanitissa Complex cost, costs nearly 30 rupees or more per unit of electricity produced.
Combined cycle plant uses a gas turbine and the exhaust is used to produce steam, generating more power with the same fuel, which is expected to off-set the capital investment of additional equipment.
A private producer is paid by the grid operator, Ceylon Electricity Board, based on two criteria; a fixed monthly capacity charge, which covers the cost of building the plant and gives the firm its profit, and an energy charge.
The energy charge is a pass-though based on the amount of power delivered to CEB as the plant is operated on its instructions (dispatched). A plant is expected to be run efficiently enough to use the least amount of fuel which is called the heat rate.
Under a competitive bidding process, bidders will compete to offer a plant on the capacity charge (minimizing their profits) and also the heat rate (maximizing efficiency).
If plants can be operated more efficiently than the promised heat rate, a power producer can make a profit on the energy charge as well. In a highly competitive bidding process, a producer may even lose money on energy towards the end of their contracts as plants age.
The real profits however are made on the capacity charge.
Diesel-type plants such 99 MegaWatt Helandanavi and Aitken Spence plants which seem among the least expensive (see graphic) have come on competitive bidding, industry analysts say, while the West Coast plant in Kerawalapitiya for example was 'negotiated'.
These generators however helped avoid power cuts before the coal plant came on stream.
The controversial Kerawalapitiya 270MW combined cycle plant was built by the Lanka Transformers group, which is affiliated to the CEB with equity from state entities as well as Treasury guarantees.
Consultation documents released by the regulator now show that capacity charges of 630 million rupees a month are being paid on the plant.
This compares to 271 million rupees for a 165MW capacity plant operated by AES, which was built earlier.
A 2011 document by the power regulator calculated capacity charges at 4.12 rupees per unit generated by Kerawalapitiya based on the dispatch at that time.
This compared to 2.36 rupees a unit for Aitken Spence Embilitiya and 1.72 rupees for Heladanavi, built by Lanka Transformers, both of which are internal combustion engines.
Some analysts have also raised queries about the heat-rates or efficiency, details which are not easily available. The efficiency of some of the combined cycle plants, appear to be as low as 42 percent according to some estimates.
The best plants in temperate countries (where intake air is cooler) achieve efficiencies of 50 percent or more, but a plant in Sri Lanka could achieve rates a little less, industry analysts say.
2013 Generation cost per plant determined by PUCSL In the 2012 document energy charges per unit for Heladanavi (IC engine) which runs on furnace oil is 21.34 rupees in May after prices are raised in April 2013, to 90 rupees a litre.
The AES combined cycle which uses auto diesel - the most expensive fuel at 115 rupees a litre- costs 26.60 rupees a unit.
Kerawalapitiya, needing a special low sulfur fuel to run (blend of fuel oil and diesel), which costs 100 rupees a costs 26.06 rupees to generate a litre, despite using a fuel which is 10 percent or more cheaper than AES.
In the case of Kerawalapitiya, which was a somewhat obscure type of plant, the rate was to be renegotiated in the second year, but that appeared not to have been done, according to some sources.
Some critics believe there may be merit in re-negotiating contracts which were not taken on competitive bidding. Renegotiating plants however could hit investor confidence, which had already been dented through expropriation of some firms by the state.
To make the CEB system more efficient analysts say audit of heat rates and dispatch of plants may also be needed.
The CEB is trying re-negotiate the power purchase agreement with India's state-run NTPC on a coal plant yet to be built, after discovering unfavourable heat rates in initial agreements, according sources familiar with the matter.
Industry analysts say negotiated plants based on secretive power purchase agreements must be avoided in the future to prevent abuse and costs being loaded to the consumer, as there is no competitive bidding for energy in Sri Lanka on a daily basis.
In another startling revelation, the consultative document showed that, three plants ACE power Horana, ACE power Matara and Lakdhanavi whose contracts had expired had been included for dispatch for 2013 in the tariff proposal apparently on the same terms as before.
"Total generation scheduled for already retired ACE power Horana, ACE power Matara and Lakdhanavi power plants were removed and added to hydro generation, since their licenses are expired," the consultative document said.
The regulator instead said a forecasted 800 GigaWatt hours of energy should be produced from hydro, which would save about 15 billion rupees.
Though the independence of Sri Lanka's power regulator has been questioned in the past, analysts say lot of information about the power sector that was not available in the past is now coming out.
Sri Lanka also has other problems, including steep night peak, which needs demand management and peak tariffs which the CEB has addressed to some extent in the 2013 proposal.
Sri Lanka now charges as much as 50 rupees per unit for higher end domestic customers.
In Singapore which has a system run almost entirely of natural gas based combined cycles, domestic users are charged 27.60 Singapore cents a unit which is about 28 Sri Lanka rupees.
Singapore however has a completely competitive market involving electronic bidding in a spot market.
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