Despite national policy plans to achieve 70% of the total electricity requirement through Renewable Energy (RE) sources by 2030, a senior official of the Ceylon Electricity Board (CEB) close to the matter, who wished to remain anonymous, told The Sunday Morning that the CEB was yet to conduct a proper evaluation to predict the cost of transition to RE, as well as the possible end-user tariffs for end-2030.
The official explained that in order to achieve 70% of the total electricity requirement through RE, the existing grid must be expanded, and added that the cost of this expansion was estimated at present to be approximately $ 9 billion.
He claimed that the expansion cost, once factored into the tariff calculation, was likely to gradually increase end-user tariffs by the end of 2030, even if the Government secured support from international funding agencies for the expansion.
“We’re not saying that adding RE is not viable. What we stress is the importance of conducting thorough research on end-user tariffs by the end of 2030. That is why we need scientists to go the extra mile. Otherwise, it could lead to disaster,” the official claimed.
The official continued: “If we had made the right decisions in 2010, we wouldn’t be facing these challenges now. Similarly, we are making decisions for a period 10 years ahead without conducting proper research in the sector. Up until 2026, the CEB has prepared a plan to integrate RE into the existing grid through several transmission line expansions. The issue arises after 2026, as no more new additions can be made to the existing grid.”
LTGEP policy shift
In April 2019, the Government initially proposed a renewable energy target of 50% by 2030, a goal that was subsequently increased to 70% in the 2022 policy update. The CEB has faced strong criticism about not working quickly to absorb renewable energy, from State officials including the former energy minister as well as from the domestic RE industry.
The Long Term Generation Expansion Plan (LTGEP) 2023-2042 reveals the profound impact of this policy shift. It states that this change has effectively removed the flexibility for optimising renewable energy sources during generation planning. Instead, RE is now mandated by policy, with limited room for optimisation due to policy directives that also exclude coal as a fuel source.
The plan aims to increase total RE capacity from 2,711 MW in early 2022 to 8,783 MW by the end of 2030, and 16,963 MW by the end of 2042. It also emphasises refurbishing or replacing ageing RE plants with similar technology after their plant life or Power Purchase Agreement (PPA) expires.
The LTGEP presents several cost scenarios to achieve and maintain 70% RE by 2030, avoid coal-fired plant additions, and consider different factors.
To achieve 70% RE by 2030, maintain it beyond 2030, and avoid coal-fired plant additions throughout, the total present value cost is $ 18,872 million. When cross-border interconnection with India is considered, the cost rises slightly to $ 18,883 million, exceeding the base case of the LTGEP 2023-2042 by a marginal difference of $ 11 million.
Furthermore, if nuclear power development beyond 2040 is incorporated into the plan, the total present value cost reaches $ 18,986 million.
In contrast, adhering to the previous policy guidelines, aiming for 50% RE by 2030 and maintaining it beyond 2030 while eschewing coal-fired plant additions results in a total present value cost of $ 17,792 million.
This scenario reflects a lower cost compared to the base case and identifies an incremental cost of approximately $ 1 billion for increasing the RE target from 50% to 70% by 2030 as per the latest policy guidelines. These scenarios underscore the intricate trade-offs and complexities associated with achieving higher RE targets while navigating policy directives and cost considerations.
2030 tariffs unpredictable
In such a backdrop, Solar Industries Association (SIA) President Kushan Jayasuriya said that it was difficult to predict the tariffs for 2030, since the Government was now following a cost-reflective tariff mechanism.
Speaking to The Sunday Morning, he said: “The Government is moving towards the cost-reflective tariff model. Whenever fuel prices go up, it will go up, and when prices come down, it will come down. If we implement some renewable energy technology by 2030 which does not entail major dollar taxes, it is likely that it won’t cause any major tariff hike. In terms of consumer usage, normally in Sri Lanka it is very close to the economic growth of the country, although there were exceptional cases during Covid.”
He added that since the Government was planning to go ahead with an aggressive renewable energy mechanism by absorbing more RE, should we succeed in implementing a number of mega-scale renewable energy projects, then the risk of the electricity cost going up would be minimal.
“For RE plants, it is only the capital cost that applies. Chances of the cost going up are zero. For fuel, however, when the prices go up, the costs also go up,” Jayasuriya said.
He added: “We have always subsidised electricity and used it as a commodity for which consumers never pay the right price. As a result, we fall into debt, as we have not paid the right cost and compensated for it elsewhere, which turns it into a long-term debt.”
He also stressed that the lack of a cost-reflective tariff meant that efficiency was not prioritised.
“We took energy for granted. Only once we faced an economic collapse did we realise that we were selling at a loss. The Minister is aggressively trying to bridge the gap, but by the time we act, it will be too late,” he said.
Highlighting grid expansion costs, Jayasuriya suggested that similar to developed countries, things would have to be managed by pooling money from power plant owners and that plant owners would have to become more competitive, since the central management would otherwise buy from the cheapest plant.
“For decades, we didn’t put the burden on the public. But when we became bankrupt, the accumulated burden of many years fell upon the public,” he said.
Meanwhile, when contacted by The Sunday Morning, CEB Chairman Nalinda Illangakoon acknowledged that they did not possess a comprehensive end-user tariff for the end of 2030.
However, the Chairman noted that the CEB was working towards achieving the targets set by the Government, stressing the need for comprehensive research regarding end-user tariffs while achieving set targets.