The other power struggle

The biggest challenge the power sector is facing today is that there hasn’t been a single new power plant commissioned since 2014. Meanwhile, there have been issues in the form of delays in the generation plan approval, the Kerawalapitiya liquefied natural gas (LNG) power plant tender award is in the midst of legal proceedings and the Sampur coal power plant was cancelled in 2016. All these factors affect the consumer, who must bear the ultimate cost. 

Daily Mirror Business approached a few stakeholders, who have been in the news recently, to explore the present situation. Here are their opinions.  

Are we facing an energy crisis?

We don’t have an energy crisis per se because we are capable of supplying electricity to the pubic any time. The government’s vision is very clear, that the powers sector will achieve 100 percent renewable energy (RE) by 2050. We can do this because we have good potential for solar and wind energy. However, the only issue is the storage. Solar technology is even now stored in batteries but at the moment, the issue is the cost. But technology is improving. In this background, solar and wind power initiatives have been launched by the government to gradually increase the RE capacity over the coming years. ‘Surya Bala Sangramaya’ targets 400 MW by 2025, starting with 100 MW. ‘Sulang Bala Meheyuma’ is around 300 MW, of which we already produce 120 MW of power. 

What is the tender procedure for suppliers? 
At the moment we have a very transparent system, where we allow suppliers to register themselves and submit competitive sealed tenders with the quoted price. The bids are opened in front of everybody and the lowest price is ascertained and immediately awarded. This is working very smoothly. During my time, I will make sure there are no power cuts in the country and that future power programmes will be completed in sufficient time to ensure uninterrupted power for the next 10 years. These past four years have been most challenging with union issues and droughts, yet we didn’t have a single power cut. 

What are the issues we are facing?
We need all types of power generation, not one against the other. A broad-based holistic approach should be adopted for sector development. Issues in the power sector in Sri Lanka can be largely summarised as issues related to power generation and the costing and pricing of electricity. Problems within the transmission or distribution network are in fact secondary. There are other secondary issues related to the quality of electricity supply as well as the commercial quality, by which we mean the quality and service a customer gets. 

Are there problems in deciding on power projects?
There is a lot of debate whether we should go for coal, gas, oil or renewable, etc. Decisions makers have been taking various decisions from time to time and this is not new. But these finally cause a huge additional cost to the power sector. In any country, the Energy Ministry secretary is actually the adviser and decision maker and is provided with a decision-making team to support him. If it is a project properly formulated in the ministry, even if the secretary is gone, the project still continues. This has been the fundamental problem in our system. Committees are not legally answerable, being ad hoc committees.

What is better? LNG vs. coal?
I recommended that Sri Lanka must go for an LNG terminal, not at the expense of the renewables, coal or hydro, etc. but in parallel. With more renewables coming in, we need the power to efficiently meet consumer demand, as renewables are intermittent. Oil power is an expensive alternative. Next to coal, LNG is our next best option. LNG also has many other advantages such as providing energy for our manufacturing industry. But the problem is that the recent government-to-government (GG) LNG proposals are unsolicited. Only world-class companies are capable of doing these multi-million dollar projects. You need to issue a world-class tender to attract a world-class company, so that they have the confidence that Sri Lanka has properly studied the subject. Take Bangladesh for example. In 2015 they decided to go for LNG, same time as Sri Lanka. They followed the correct procedure and two plants were built on schedule. The first one started operation this October. Today gas is flowing into Bangladesh from their terminal. We are completely mishandling the procurement of LNG because the domain experts and a policy are both missing.

Renewable energy vs. fossil fuel – What is your opinion?
I have a balanced view. I don’t think we have to be the country with the world most environmentally friendly power sector. We can follow the rest of the world, shutting down our fossil fuel power plants together with the rest of the world, not ahead of them. Our electricity sector is already 50 percent renewable. We are the 15th in world rank. The debate is about the balance 50 percent. Last year it was around 42 percent because hydro was low. This year we will be 50 percent+ on hydro. So we don’t have to be ashamed of using fossil fuels to cushion the prices and stabilise the system. 

What is your opinion on coal power?
The argument in favour of coal is that the moment the U.S. stops generating gas, the energy prices will go up again. We have to keep our eyes open on what is happening in other countries in the region. Tamil Nadu is building three coal-fired power plants and one LNG terminal. They beautifully balance the power supply. Bangladesh is same and so is Pakistan. Bangladesh will be doing the third LNG plant in Payra and is about to do a feasibility study for the transmission line.

When will the battery technology for renewable energy be available?
Battery technology is improving and the costs are also coming down but not anywhere near to match what a conventional system would do. A live power/electricity system cannot be run on experiments. Only 5 percent of research actually comes into the product development stage. One publication in a scientific journal does not mean the technology is available commercially. It’s difficult to predict when the technology will mature because it depends on how the industry behaves and the economics should also be right.

Who controls electricity pricing?
The electricity prices should go up or down every six months. If the price controlling system is operating properly, next January we would have a reduction in electricity prices because the second half of the year had more hydro than expected. So budgeted fuel was not required and the reduced fuel budget belongs to the customer. At the end of the year, the Public Utilities Commission of Sri Lanka (PUCSL) can factor in this benefit into the price, along with the exchange rate fluctuations and give the customer the applicable cost. Electricity pricing must to be removed from the government control.

What is the present energy mix?

The Cabinet-approved generation mix gives a firm energy mix of 30 percent coal (lowest cost after hydro), 30 percent LNG, 25 percent large hydro (lowest cost) and 15 percent oil based. RE is fluctuating but Solar with batteries is considered firm energy. However, solar can’t solve our present problem, though it will definitely be a solution in the future and we have a plan for that. We have no objections for LNG and it is included in our next plan. We are a third world country and our main issue is poverty. So coal is the best option because, after hydro, it is the lowest cost. LNG comes after that. Carbon emission is lower in LNG but other emissions like methane are there. If we look at the situation when there was a delay in a petrol ship, if we had not used diesel and petrol both, our entire system of transportation would have collapsed and resulted in a national crisis. That’s why we need a power generation mix with a few options but the PUCSL tried to manipulate our plan and go for all LNG. LNG comes from Qatar and other Middle Eastern countries, which are volatile. If the supply chain is blocked, we cannot manage the power system. Oil is very costly, more than Rs.20-30, sometimes Rs.40-45. But we are running oil power plants because otherwise we don’t have enough power to meet the demand. The reason is that we have not built enough alternative power plants. 

What was the issue with regard to the Least-Cost Long-Term Generation Plan?
We prepare a 20-year plan during a period of around one year and it’s a long process. Our planning engineers are highly qualified and are specialised in their subject. But we didn’t have an effective plan since 2014 because the PUCSL proved only four years, which is inconsistent with the act. The PUCSL approved our 2018-2037 plan in 2018 after a big struggle. The PUCSL does not have a technical planning division. We have all the planning resources such as technical personnel and the appropriate tools. We requested for the Attorney General’s opinion with respect to the Least-Cost Long-Term Generation Plan 2018-2037 in 2017 and it was given in 2018, stating that the provisions of the PUSCL and Electricity Act do not permit the process of public consultation and revision engaged by the PUCSL. They can have an expert consultation if required. 

‘‘The generation mix for November 1 was 63 percent hydro, 36 percent thermal (26 percent from coal) and less than one percent from wind/solar. For December 6, it was 43 percent hydro, 56 percent thermal (28 percent from coal) and one percent from wind/solar

How does the generation mix meet the growing power demand?
The demand for power increases at about 150-200 MW every year. Constructing a 50-100 MW plant is not sufficient for the high increase. We need to construct 500-1000 MW power plants. Right now, when hydro goes down to 15 percent, coal can go up a maximum of 40-45 percent and the balance needs to be generated via oil. For example, the generation mix for November 1 was 63 percent hydro, 36 percent thermal (26 percent from coal) and less than one percent from wind/solar. For December 6, it was 43 percent hydro, 56 percent thermal (28 percent from coal) and one percent from wind/solar. As you can see, when hydro contribution goes down, thermal and coal contribution goes up. By February-March 2019, if the reservoir levels drop, we will have to go for power cuts. 

What are the politics surrounding coal power plants?
In a crisis situation, our bargaining power as a nation is lost. Because of the pressure, we are forced to accept sub-standard solutions. Our loss due to the delay in obtaining coal power was about Rs.900 billion, eight times the cost of the Southern Expressway and 12 times the Katunayake Expressway. On the other hand, Norochcholai is our first coal power plant and we lacked experience. Ideally we should go for better technology to reduce the element of risk. Even in LNG exporting countries like Australia, Qatar, Indonesia and Malaysia, their future generation plans include coal to make it economically viable. The former prime minister’s election promise to not build a coal power plant was the reason behind the cancellation of the Sampur power plant. The president stopped the project and the loss to the nation was Rs.900 billion. Norochcholai is a great resource to us now but need to have some redundant machines to support the breakdown situations. If new power plants don’t come up, we will face a crisis. Our political leadership plays a key role in avoiding this. They need to be strong and make decisions for the country as a whole. They withheld the Sampur power plant decision for one and a half years, saying coal was not a national policy but it’s clearly stated in the policy guidelines. 

What is your view on the three LNG power plants said to be approved recently? 
The three power plants are said to be GG power plants. In the Electricity Act, although there are provisions for GG power plants, we have to ensure the least cost for the transmission licence, according Section 43 (3) of the act. However, none of those proposals indicate a selling price. Also, there is an issue with 500 MW plants, in that they reduce the reliability. The risk factor of a 500 MW power plant being down can impose huge pressure on the rest of the grid. Loss-of-load probability specifies that 300 MW is the most appropriate capacity for our system. 

Is there on-going trade union action?
With the present issues, we are not going to step out of the legal requirements in submitting to the regulator. We feel that the regulating body needs mature, independent professionals. We are carrying on trade union action these days demanding more suitable people with professional integrity, specifically for the role of director general, which is the most influential and active position in the PUCSL. 

What is the environmental impact of coal power?
We have fulfilled the requirements of COP21 in preparing our generation plan. Hence, our coal power plant is running within the permitted emission levels, well below the limit in terms of harmful SOx, NOx, emissions. In the US, the per capita CO2 emission is 16 tonnes per annum. In Sri Lanka, only 0.6 or 0.7 tonnes per annum and out of this 60 percent is from vehicle emission. In Germany, CO2 is eight tonnes per annum and Europe is over 5 tonnes per annum. Since 2014, with the loss of Sampur, we have had no new low-cost power plants, which have resulted in an additional cost of around Rs.650 billion. 

What is the PUCSL?

The PUCSL is a regulating body. We have to ensure the utility tariffs represent the least cost or sustainable cost, ensure technical regulation, which means ensuring the quality of product/service and also ensure safety, carry out dispute resolution and information dissemination. The PUCSL comes as an independent party to ensure the above, as they are not in the interest of the ministry or the utility.

Who are the stakeholders?
There are four parties in this picture: the utility, the government, the consumer and other stakeholders. The latter includes people who will be affected by an activity of the utility, not as a consumer but as a stakeholder in a different way. Their interests should be looked into as well. Our regulatory role is such that it is impossible to make everyone happy. Theoretically, if one party is happy, there is something wrong with the regulatory role.  

What is your involvement in the least-cost generation plan submitted by the Ceylon Electricity Board (CEB)?
The plan must be the least-cost plan as this directly affects the tariff, whose is the primary function of the PUCSL. The regulator should also allow the utilities to recover their prudent cost. If the tariff recovers the cost, the responsibility of the regulator is to ensure the approval of the generation plan, which amounts to 80 percent of the cost of the utility. The utility has no mandate to dictate the terms of the least cost. 

What is the approval process?
The approval process includes all the stakeholders like the ministry under which the utility functions, Finance Ministry, the utility companies, professional institutions, chambers, 200 other small-scale power generators and a cross section of the community. Once the generation plan is submitted by the CEB, it is published on the web and written comments are invited. Anybody can submit comments. Thereafter, a date is set for a public forum for stakeholder consultation and anyone can represent a stakeholder group. The commission takes all comments down and the most important concerns are taken into the decision-making process. Under Section 18 of the PUCSL Act, the commission can take the representations under oath and convert the stakeholder consultation into a public hearing, which is a very powerful process. Anyone in the country can come and give representation. But we have not gone to that extent. 

Is changing the generation plan done in consultation with the CEB?
The CEB is present in all the consultations and there are many follow-up discussions. Consultations also include domain experts’ views. We can also hire experts and use internal staff to get an engineering opinion. The commission is free to amend and approve the plan. The generation plan has much more than the engineering aspect, such as financial, environmental, legal and social acceptability. It is a much wider subject and that is why the PUCSL is there. So there is no issue in the generation plan approval process. No one has opposed or criticized the decision of the PUCSL except one or two people in the union. The CEB management has up to date not written to us stating that our decision was technically wrong. They have pointed out some legal issues, whether we have a right to do the public consultation and we say yes, we have a right. Our decision was widely discussed by experts and the media and accepted. The litmus test is to see whether it is acceptable to a broader section of society. Unions safeguard their membership, while the regulator must safeguard all the stakeholders.  

Can you elaborate on the social acceptability of the generation plan?
Social acceptability is a critical parameter as it may affect implementation. In the case of Sampur, the government gave an undertaking to the courts that they are not going ahead with the project because people were resisting. The result is that we are back to emergency power. That is why consultation is important to get the pulse of the people. Norochcholai was planned from the 1980s but it took 30 years to implement. Under the functions of the commission, Section 17 (b) of the PUCSL Act states that the PUCSL must “consult to the extent the commission considers appropriate any person or group who or which may be affected or likely to be affected by the decisions of the commission”. That’s why the public consultation process comes in. All stakeholders get the opportunity to voice their opinions, recommendations and concerns. We must arrive at an equitable decision through a transparent decision-making process. The factors that must be taken into consideration include the price/affordability, availability, accessibility and acceptability of the solution. If you look at the process and not just the outcome, it becomes clear. The acceptability refers to the acceptability of the outcome by the broader society, which the regulator is there to serve.