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FINANCIAL CHRONICLE™ » DAILY CHRONICLE™ » Sri Lanka renewable energy firms demand higher tariffs after depreciation

Sri Lanka renewable energy firms demand higher tariffs after depreciation

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Malika1990

Malika1990
Senior Vice President - Equity Analytics
Senior Vice President - Equity Analytics
Aug 29, 2012 (LBO) - Sri Lanka's renewable energy firms have demanded higher tariffs after the rupee depreciated and interest rates rose following a balance of payments crisis, at a public consultation called by the power regulator.

Renewable energy firms said the rupee had depreciated from 110 to over 130 (about 18 percent) over the past year pushing up their capital costs.
Power Depreciation

Ironically a key trigger for Sri Lanka's most recent balance of payments crisis the large volumes of bank credit taken by state run Ceylon Electricity Board and Ceylon Petroleum Corporation to subsidize energy in a drought year.

The Public Utilities Commission failed to raise power prices both in June and December due to a political decision, though it was expected to do under its governing law, due to political decision making.

The Central Bank then sterilized foreign exchange sales with printed money worsening the problem. Energy prices were raised in February 2012 and sterilized foreign exchange sales were gradually reduced, but not before the rupee fell to 130 levels.

Since the analysts have said that unsterilized purchases of large dollars inflows by the Central Bank has prevented the rupee from appreciating, despite overall credit in the banking system slowing.

Sri Lanka's exchange rate which was fixed from mid 1880s until 1951 through a hard peg or currency board, started depreciate after a soft-pegged central bank, or a monetary authority with money printing power was created.

Higher Capital Costs
The wind energy association, to the public hearing that said the capital cost of a plant is now estimated at 254 million rupees per MegaWatt.

Power is bought by state-run Ceylon Electricity Board, which operates Sri Lanka's national grid.

The CEB assumed a cost of 223 million rupees a MegaWatt for wind and a higher 229 million rupees for renewable energy firms with locally made components making them a bigger burden on the people and the country.

The CEB had assumed an interest rate of 12.61 percent. The wind power association said the average prime lending rate has moved up to 13.75 percent and risk premium of around 2.0 percent would push their interest cost to around 16.75 percent.

Sri Lanka interest rates are expected to fall next year if the state deficit is managed, energy enterprises reduce their losses and borrowings and private sector credit demand eases further.

The Treasury overdraft at state banks, the CEB and CPC are among the largest borrowers from the banking system.

Buying Price

The CEB, which is the so-called 'transmission licensee' proposed tariffs of 13.63 rupees a unit (kiloWatt hour) for mini hydro up from 13.04 rupees, and a higher 13.95 rupees for mini-hydro local to allow for nationalist profits.
Sri Lanka renewable energy firms demand higher tariffs after depreciation 12lboaug29renew
For wind the CEB proposed 17.40 rupees down from and exiting 19.43 rupees a unit and a higher 17.86 rupee rate of wind-local.

Waste heat recovery was proposed a rate of 7.77 rupees up from 6.64 rupees.

Bio mass (agro-waste) was proposed a rate of 16.21 rupees a unit up from 14.53 percent. Biomass operators said the rate was too low for agricultural waste.

Biomass operators also said that their plants were dispatcheable indicating that they could be run when the CEB's system control most required the power, and it should be recognized when determining the tariff.

However the CEB had proposed 23.56 rupees for biomass dendro. However since the plants could be dispatched at peak times it was almost as reliable as diesel.

For mini hydro there were additional costs to the CEB had to buy them whenever they were generated and CEB had to maintain standby capacity to replace them when during dry times.

Output from mini hydro also falls when the country hits a drought and the CEB has to allow its run of the river plants to spill and pay money to mini hydros in wet years.

At present the energy charge alone for combined cycles are above 20 rupees, but below 7.0 rupees for coal.

Renewable energy operators usually ask for higher tariffs on the basis of being 'green' citing no pollution and other negative externalities.

Who Pays?

But Jayantha Ranatunga, head of the consumer consultative committee said the power users had to ultimately bear the cost.

Analysts point out that even if the 'government' or 'Treasury' gave a what is referred to as a 'subsidy', it will have to financed by taxes on potatoes or dhall or other goods and services consumed by the people.

The second option is to borrow money, which drives interest rates up. The third option - like in 2011 - is to print money to keep interest rates down amid heavy borrowing, drive inflation up and depreciate the currency.

The Public Utilities Commission is expected to give its renewable tariff decision by September 14.
http://www.lbo.lk/fullstory.php?nid=298035042

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