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Small hydropower sector warns of more power cuts and tariff hikes in 2023

20 Sep 2022

  • Hydropower generation sector in dire straits
BY Safrah Fazal   Increased duration of power cuts and a further 100% hike in electricity tariffs are likely if the country loses the contribution of its non-conventional renewable energy (NCRE) sector, which is in dire straits, to the national grid, Small Hydro Power Developers have warned. The NCRE sector includes hydropower, wind power, biomass, and solar power. Small Hydro Power Developers Association President Thusitha Peiris, speaking to The Morning yesterday (19) said: “The authorities should protect the NCRE sector. Biomass projects have been severely impacted by the Ceylon Electricity Board’s (CEB) delays in payments, which, if not properly looked into, could lead to an increase in power cuts and a hike in the electricity tariffs by next year. Except for one, all biomass projects have also closed down due to non-payment because they couldn’t pay the suppliers for wood. If this trend continues, the marginal cost of the CEB will go up to about Rs. 60-70. As a result, next year, another 100% increase will have to be imposed in terms of consumer tariffs.  “The CEB is maintaining their marginal generation costs at the moment mainly because of the NCRE sector, at an average of Rs. 16 per unit. But if these NCRE projects (which now stand at about 1,300 megawatts) gradually reduce, they will have to replace these with fuel or coal. It is true that the country is going through a challenging time, but they must somehow safeguard this industry or they will have to use up more US dollars for fuel. If they lose the NCRE sector, the CEB will have to either increase daily power cuts to about five to six hours, or replace that energy at a high cost with fuel energy, which would lead to a huge loss to the CEB and the Government.” Meanwhile, the island’s hydropower sector has been severely impacted with the loss of repeat investments following developers losing confidence in investing in new projects, challenges in servicing loans of over Rs. 60 billion to private banks, and difficulties in settling staff salaries and overseeing necessary essential maintenance of hydro power plants as a direct result of the CEB’s delay in settling invoices amounting to over Rs. 20 billion since October 2021. Peiris remarked: “As an industry, we are facing great challenges. The worst result of this has been that our re-investments have already stopped as developers are not keen on investing in new projects, since they are not receiving returns. About Rs. 60 billion in loans were obtained by industry developers to develop their projects and most of these projects have reached non-performing status because they have not been able to settle their monthly installments.  “We are also struggling to pay salaries and carry out essential maintenance work. To ensure that our operations go on without crashing, we have also had to borrow more from banks. That too has come to a standstill because when our main loan is non-performing, banks are not willing to give us a temporary overdraft. We have had to shut down one plant, as the developer could not survive the lack of payments over these months. He could not repay his loans and was placed in the Credit Information Bureau.” Peiris also noted that their concerns were raised at meetings held between the Public Utilities Commission of Sri Lanka, the CEB, and the Ministry of Power and Energy.  “The CEB previously stated that with no tariff increase, their cash flows are too low to settle these liabilities. With the recent increase in electricity tariffs being approved, the CEB said that they expect their cash flow to improve from October of this year, and that they will attempt to settle their dues as much as possible.” Commenting on the matter, sources from the CEB told The Morning that the allegations against the CEB pertaining to the payments are true to a certain extent.  “It is true to some extent. Our finances are tight. But with the increase in tariffs, we expect the situation to improve. During this critical time, all sectors must make sacrifices. We know that they have grievances with maintenance costs and staff salaries, but we have bigger grievances. We are unable to pay our independent power producers who are running the fuel plants. Unlike water, fuel cannot be obtained for free. We understand that hydropower plants are facing difficulties too, but we have paid everybody to some extent. We will look into those companies that have obtained loans from banks,” they said. Speaking further, the source stated that on average, the CEB hopes to pay Rs. 3-5 billion a month to the hydropower sector. Meanwhile, Peiris added that as per the Power Purchase Agreement (PPA) signed between the CEB and the hydropower plants, the CEB is compelled to settle invoices within a period of 30 days. “We receive our payments for staff salaries and maintenance costs after 10-11 months subsequent to invoicing. This discourages future investors. If this pattern continues, investors’ confidence in this sector will drop gradually. Our invoice for October 2021, was settled this month. The invoice for November 2021, will be settled next month, and so on. They are running on 10 months’ arrears. With these payments, they expect us to manage staff salaries and maintenance. What about my investors and bank loans?  “Our accounts are already overdrawn, and the moment we bank the cheques, the bank will first recover the interest and the capital, so we are only left with a bare minimum for salaries and maintenance. According to the PPA, if the settling of invoices exceeds 30 days, they are expected to pay interest to the developer. We have sent interest invoices, but they haven’t paid anything. If they are hoping to settle payments in this manner, there is no point in having a PPA.”


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