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Power sector: NFE agreements gather steam

07 May 2022

 
  • Treasury seeks minimum LNG supply estimates for next 10 years
  • Seeks estimates for RE target of 70%, 50% and 25%
  • No plans to revisits 70% RE target: Power Ministry
  By Maheesha Mudugamuwa The Finance Ministry is stepping up to finalise the controversial $ 250 million power deal with the US energy company New Fortress Energy (NFE) Inc., The Sunday Morning learns. The move comes in the wake of national foreign currency reserves plummeting to critical levels and as the Legislature scrambles to restore political stability in the country. It is reliably learnt that the Ministry had requested the Ceylon Electricity Board (CEB) last Friday (6) to provide estimates for the minimum required Liquefied Natural Gas (LNG) quantities for the 300 MW Yugadanavi Power Plant, 350 MW Sobadanavi Power Plant, and other power plants that will be converted to operate on LNG for the next 10-year period starting from 2023 (2023-2032) under the Renewable Energy (RE) generation capacity scenarios of 70%, 50%, and 25% respectively. The Sunday Morning understands that the estimate issued by the CEB is also based on the demand forecast under the existing approved Long-Term Generation Plan (2022-2041) of the State-owned utility. Further, the Finance Ministry has informed the CEB Chairman that it believes that a more realistic estimate of the minimum gas quantity based on the current conditions – including the import prices of the fuels used – would be helpful in evaluating the NFE proposal. It is understood that the Ministry has called for the estimates to be made under three energy supply capacity scenarios of RE ranging 70%, 50%, and 25%. Furthermore, the Ministry has also requested the CEB to inform the number of investments required annually for the 10-year period under consideration, along with the expected addition of renewable capacity each year on the RE capacity being on 70%, 50%, and 25% basis. According to Ministry sources, the information on the minimum required LNG had been sought to enable the NFE technical committee in concluding the negotiations of the proposed Gas Supply Agreement and amendments to the existing project agreements of West Coast Power (Pvt.) Ltd. with the CEB. The information had been sought in a backdrop where the Government had officially announced its RE target of 70% by 2030. However, as learnt by The Sunday Morning, there had been no official discussions held so far to reduce the RE share and change the Government policy on renewables. Nevertheless, as learnt by The Sunday Morning, the Ministry is trying to reach a ‘take or pay’ agreement with the US company by deciding the minimum required LNG in the next 10 years.       Commenting on the progress on the NFE proposal, Deputy Secretary to the Treasury R.M.P Rathnayake said the two committees appointed to evaluate the proposals were working on it and there were several agreements to be finalised with the CEB. When asked if the Government was reconsidering the national renewable energy target set by the President, Power Ministry Secretary K.D.S. Ruwanchandra stressed that the renewable energy target of 70% by 2030 would not be revised. He noted that the NFE proposal had not yet been finalised. In July 2021, NFE announced the signing of a Framework Agreement with the Government of Sri Lanka to build an offshore LNG receiving, storage, and regasification terminal located off the coast of Colombo, and rights to supply gas to the existing 300 MW Yugadanavi power plant. NFE will utilise this same LNG terminal to also supply natural gas to this new 350 MW power plant. According to the agreement, NFE will build a floating storage in the sea to store LNG and they also will build a pipeline to transfer LNG in the form of a gas from that storage to Yugadanavi. The Yugadanavi Power Plant, which has a capacity of 300 MW, was constructed by Lanka Transformers Ltd. (LTL – a joint venture between CEB and Bonar Long of Scotland) and is owned by West Coast Power Ltd., of which the owners are the Treasury (51%), EPF (27%), Lanka Electricity Company – LECO (18%), and LTL (4%). In September 2021, the Cabinet approved the controversial share transfer of 300 MW of Yugadanavi Power Plant to NFE. Accordingly, the Finance Ministry has agreed to transfer a total of 40% shares of the power plant owned by the Treasury to New Fortress, together with the rights to supply natural gas to Sri Lanka.  


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