Mini-hydro
developer profitability in Sri Lanka will increase amid environmental risks due
to a new tariff structure that approved in January, a rating agency ICRA Lanka
said. Power and energy minister Mahinda Amaraweera had called for the
implementation of a fixed rate for renewable energy supply in January 2020.
Until 2008, the
State-owned power provider and regulator, the Ceylon Electricity Board (CEB),
had signed Power Purchase Agreements (PPAs) on the avoided cost principle,
charging the CEB's equal unit generation cost to private producers.
Nevertheless,
this system seen as disadvantageous to the state as the CEB had significant
inefficiencies, ICRA said. A three-tier tariff system was implemented in 2008
but was reformed once again with the implementation of competitive bidding in
2016.
Mini-hydros
initially considered to be exempt from bidding because of the difficulty of
power plant building, but that decision not finalised, ICRA said. Moreover,
ICRA said the extension of PPAs at a fixed rate effective from January 2019
would improve profitability.
Most of the
avoided costs had expired from 15-20 years of PPAs signed before 2008,
generating power at a nominal rate, but extending the new rates back to January
2019 would boost profits, ICRA said. CEB had proposed an earlier review of the
PPAs, but the move postponed.
Mini-hydro
plants produce about 6-8 per cent of energy from Sri Lanka. Profits, however,
fluctuate because of environmental threats. Mini-hydro companies had a favourable
fourth quarter due to rain in 2019, but given the uncertainty in the country's
weather conditions, the ability to operate power plants at an optimal level reduced,
ICRA said.
With the revival
of economic growth, the rating agency also said power demand would grow by 5-6
per cent over the next two years, increasing demand for private power
producers. Furthermore, for the few remaining old-style costs avoided PPAs,
income will grow for the next two years due to rising costs of thermal power
generation at the back of tensions between the US and Iran, ICRA said.
The positive
developments for mini-hydro developers, however, are being shadowed by overdue
CEB payments, ICRA said. According to the Minister, CEB made 85 billion loss
rupees for 2019 and expected to face more losses of 120 billion rupees by 2020.
Sri Lanka obtained high thermal power on an emergency basis since the state had
not commissioned new power plants since 2014.
OSL Take: The
development program carried out by the government of Sri Lanka, covering all critical
economic sectors islandwide, has resulted in the expansion of
business/investment opportunities in the country. However, the most significant
number of business/investment opportunities have come forward in Sri Lanka’s
power and energy sector.
Opportunities in
the power industry include wind and solar power plants, LNG power plants,
auto-diesel power plants (liquid natural gas) plants, mini-hydropower plants,
domestic solar systems, wind power, and power wires.
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