• TEC recommendation: $ 6.66 cents; negotiated rate: $ 8.75 cents
• CEB expects Rs. 27.85 b loss over 20-year BOO period
• Realistic energy output more important than over-optimistic projections: Jayawardena 

The Power and Energy Ministry has approved a higher tariff for the controversial construction of a 100 MW ground-mounted solar park in Oddamavadi, Batticaloa, going against the recommendations put forth by the Technical Evaluation Committee (TEC), The Sunday Morning learns.

It is learnt that while the TEC had suggested a unit cost of $ 6.66 cents, the developer, Solar Forge Batticaloa, had proposed a higher rate of $ 9.78 cents. Following negotiations, the unit cost of the project has now been set at $ 8.75 cents, surpassing even the rate offered for a similar solar project in Siyambalanduwa.

This decision has raised concerns, particularly as the State-run Ceylon Electricity Board (CEB) anticipates an annual loss of Rs. 1.39 billion. Operating on a Build-Own-Operate (BOO) basis for 20 years, calculations indicate that Sri Lanka will incur a staggering total loss of around Rs. 27.85 billion by the project’s conclusion.

As per a Cabinet decision dated 31 August 2021, the state ministry had invited Expressions of Interest (EOIs) for the development of renewable energy with capacities of 50 MW or above across various technologies. The Government had received 533 EOIs, with 136 coming from a single developer for a specific location. 

Subsequently, on 13 March 2023, the Cabinet had granted approval to appoint the Standing Cabinet-Appointed Negotiating Committee (SCANC) and the Project Committee (PC) to negotiate and provide recommendations for large-scale renewable projects. 

Investors submitting proposals for single locations were instructed to obtain provisional approval and final permits from the Sri Lanka Sustainable Energy Authority (SLSEA) under the SLSEA Act No.35 of 2007.

Accordingly, some project developers had applied to obtain energy permits from the SLSEA. This type of renewable energy development falls under the provisions of Sections 43(4)(b), 46, and 47 of the Sri Lanka Electricity Act, as amended by Acts No.31 of 2013 and No.16 of 2022. 

The establishment of the 100 MW Oddamavadi solar power project is one such project that obtained an energy permit through this process. The developer and investor of this project is Solar Forge Batticaloa.

Nevertheless, the procurement process for the Oddamavadi solar project has come under scrutiny, with allegations of manipulation to avoid competitive bids and secure a higher tariff rate.

It is alleged that despite the PC recommending a rate of $ 6.66 cents per unit, the SCANC, purportedly influenced by the Minister, had engaged in negotiations with the investor and agreed to a significantly higher cost of $ 8.75 cents per unit.

It is also alleged that while the PC had participated in the negotiations, it reportedly had not agreed to the increase and had expressed objections to the wording of the Cabinet paper, suggesting that they had consented to the higher tariff rate.

A senior official affiliated to the CEB, speaking on conditions of anonymity, conveyed concerns to The Sunday Morning regarding projects of similar capacity, emphasising on the eventual burden on consumers.

The official highlighted the persistently high electricity prices partly attributed to losses incurred by the CEB due to corruption. Stressing on the importance of a transparent tender process, the official pointed out that while some may argue that tenders delay projects, the Oddamavadi project, initiated through an EOI nearly four years ago, was yet to materialise. Similarly, delays were noted in the Adani investment.

Regarding the Oddamavadi project specifically, the official explained that despite a $ 0.75 cents difference in unit cost compared to Siyambalanduwa, this discrepancy would accumulate significantly over the 20-year period.

Additionally, the official questioned the rationale behind suggesting and approving a higher tariff for the Oddamavadi project, especially considering the downward trend in solar rates globally and the depreciation of the dollar in Sri Lanka.

Nevertheless, as learnt by The Sunday Morning, the project has been approved by the Cabinet.

As per Cabinet Memorandum No.14/2024/PE submitted by Power and Energy Minister Kanchana Wijesekera on 1 March, the Minister has sought Cabinet approval to authorise the CEB to award the project to establish the 100 MW Oddamavadi solar power project on a Build-Own-Operate basis for a 20-year operational period to Solar Forge at the rate of $ 8.75 cents per kWh and to negotiate the other terms of the draft Power Purchase Agreement (PPA) with Solar Forge Batticaloa, to consider the energy permit fee as the proposal security and exempt the investor from submitting a separate proposal security to the CEB.

It is further stated in the Cabinet memo that following the 13 March 2023 Cabinet decision, the SCANC, under the auspices of the Director General of the Public Finance Department, undertook negotiations with the developer, aided by the PC.

Throughout this process, various parameters had been discussed and settled upon. Notably, the capital cost was agreed upon at $ 108 while the Operations and Maintenance (O&M) rate had remained at 3.22%. Lending rates were set at 7.5% and the return on equity was established at 6%. Additionally, the energy value was agreed upon and the debt equity ratio was set at 70:30.

The levelised tariff cost was finalised at $ 8.75 cents for a 20-year period without escalations during the PPA.

Furthermore, considerations had been made to invite a Request For Proposal (RFP) to explore variable tariff options, alongside a potential exemption from proposal security requirements due to the developer’s prior payment of Rs. 100 million to the SLSEA for the energy permit fee, as per the Cabinet memo.

Despite the prevailing circumstances, The Sunday Morning learns that the PC has taken a decisive step by addressing its concerns directly to the Ministry Secretary.

Specifically, the committee has raised objections regarding the approved tariffs and the wording of the Cabinet memorandum, which seemingly implies the committee’s agreement to the tariff increase.

Power and Energy Ministry Secretary Sulakshana Jayawardena confirmed receiving a letter from the PC.

According to him, the PC typically recommends parameters and values. He noted that the developer had initially proposed $ 9.78 cents, which had subsequently been negotiated down to $ 8.75 cents.

Jayawardena explained: “Some parameter values the PC considered are relatively low – for instance, the capital cost. You can’t compare prices in India or elsewhere with Sri Lankan prices.”

He emphasised on the challenges faced by the CEB in paying tariffs on time in recent years, a factor considered by the developer in quoting higher prices.

Jayawardena compared the negotiated tariffs to those of the Siyambalanduwa project, stating: “Even in that project, which was tendered, the initial price was around $ 10 cents, but negotiations brought it down to $ 8 cents.”

He further highlighted discussions during the TEC meeting regarding the plant factor quoted by the developer, noting that achieving a 25% plant factor was difficult without tracking. In the Sri Lankan context, ground-mounted power plants typically achieve a plant factor of around 21-25%.

Jayawardena stressed on the importance of considering the amount of energy realistically achievable to ensure cost recovery, as overly optimistic projections could artificially reduce tariffs. These considerations have been taken into account during SCANC and TEC meetings.