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Small Hydro Power Industry in Sri Lanka

Policy and Progress

Presented by
Nishantha Nanayakkara Ph.D. (Saga, Japan)
Senior Lecturer, Dept. of Electrical Engineering, University of
Moratuwa
President, Grid Connected Small Power Developers Association
Role of Small Hydro Power in Sri Lanka

Growth in the Small Hydro Power Sector (< 10 MW)

35
30
34.76
25
Capacity 20
Increase (MW) 15 12.71
8.4
10 6.68 7.76
5 1.03 0.97 2.53
0
0
1996 1997 1998 1999 2000 2001 2002 2003 2004
Year
Source: Grid Connected Small Power Developers Association

First small hydro turbine in Sri Lanka was installed in 1887 by


Gilbert Gilkes. 369 plants ~ 10 MW were installed between
1887 and 1950. Only 60 of these are still operational.
Role of Small Hydro Power in Sri Lanka

Growth in the Small Hydro Power Sector (< 10 MW)

35
30
34.76
25
Capacity 20
Increase (MW) 15 12.71
8.4
10 6.68 7.76
5 1.03 0.97 2.53
0
0
1996 1997 1998 1999 2000 2001 2002 2003 2004
Year
Source: Grid Connected Small Power Developers Association

First modern SHP plant was commissioned in 1996.


Role of Small Hydro Power in Sri Lanka

Growth in the Small Hydro Power Sector (< 10 MW)

35
30
34.76
25
Capacity 20
Increase (MW) 15 12.71
8.4
10 6.68 7.76
5 1.03 0.97 2.53
0
0
1996 1997 1998 1999 2000 2001 2002 2003 2004
Year
Source: Grid Connected Small Power Developers Association

End 2005,
Commissioned 85 MW
Under Construction 30 MW
LoIs Issued 140 MW
Pending Applications 771 MW
Role of Small Hydro Power in Sri Lanka

2004 Power Sector Performance


2004 Available Capacity (MW)

Source MW GWh
Emergency
Wind Power
0% 1%

Thermal (Diesel)
45%

Hydro 1,282 2,960


Hydro
54%

Thermal 1,073 4,571

Wind 3 3
2004 Units Generated (GWh)

Emergency Power

Emergency Power 20 509


6% Self Generation
Wind
1%
0%

Hydro

- 115
36%
Thermal (Diesel)
57% Self Generated

Early 1990s – self reliance in power over 90%

Today – 63% of generation from petroleum


Role of Small Hydro Power in Sri Lanka

Source: Central Bank Annual Report 2004

Government of Sri Lanka (GoSL) subsidizes


tariff to ease the burden on the consumer
Role of Small Hydro Power in Sri Lanka

Why is the Small Hydro Sector important to Sri Lanka?

Improves energy mix and promotes self reliance

ƒ Indigenous and renewable


Protects environment
ƒ Cheaper than any other IPP
ƒ Distributed Generation ƒ Environmentally Friendly

ƒ Speedy Commissioning

Enriches economy

ƒ Saves foreign exchange ƒ Local private investment

ƒ Reduces factor costs ƒ Local technical expertise

ƒ Rural employment and income generation

ƒ Rural electrification and infrastructure development


Local technical expertise
‹ Cost per kW in 1996 - US$ 1900 (first project)

‹ Cost per kW in 2003 - US$ 1000 (accumulation


of local technical know-how, and investor-
technocrat partnerships)

‹ Cost per kW in 2005 - US$ 1250 ( geographical


difficulties, long distance distribution lines, high
cost for pre operational expenses, and high steel
price)

‹ Very high tendency to use Chinese Machinery


‹ Sri Lanka is blessed with nature, and all sites are
within 150 km to the sea port
‹ Feasibility, designs, and construction by local
experts
Role of Small Hydro Power in Sri Lanka

Having witnessed the successful development of SHP


sector
and
having realized the importance of developing indigenous
resources,

GoSL is accordingly increasing priority to


the development of renewable energy in Sri Lanka.
Role of Small Hydro Power in Sri Lanka

Generation Forecast 2005 - 2015


20,000
18,000
16,000

G e n e ra tio n (G W h )
14,000
Dendro
12,000 Wind
10,000 Hydro (<10 MW)
8,000 Hydro (>10 MW)
6,000 Thermal
4,000
2,000
-
2004 2006 2008 2010 2012 2014
Year

Actual Contribution to Annual Demand


2004 Small Hydro 3% of annual demand
2004 All Renewables 32% of annual demand

Potential Contribution to Annual Demand


2015 Non-Conventional 26% of annual demand
2015 All Renewables 56% of annual demand
Small Hydro Power Industry in Sri Lanka

Policy and Progress


Significance of Policy for SHP Industry in Sri Lanka

Growth of SHP Industry

Item 1996 1997 1998 1999 2000 2001 2002 2003 2004

Additions 12.7 34.7


1.03 0.97 - 6.68 2.53 7.76 8.40
(MW) 1 6

Tariff –Dry
2.90 3.38 3.51 3.22 3.11 4.20 5.90 6.06 5.70
(SLR/kWh)

Tariff –Wet
2.90 2.89 3.14 2.74 2.76 4.00 5.65 5.85 4.95
(SLR/kWh)

“GROWTH” Policy Initiatives

ƒ Letter of Intent Procedure


ƒ Standard Power Purchase Agreement
ƒ Published Small Power Purchase Tariff
ƒ BOI Incentives
Significance of Policy for SHP Industry in Sri Lanka

“GROWTH” Policy 1:
Priority of application

Any Independent Power Producer (IPP) wishing to develop a


renewable energy project, which is less than 10 MW, can submit
an application to the Ceylon Electricity Board for a Letter of
Intent (LoI).

ƒ Issued on a first-come, first-served basis to ensure


impartiality and transparency

ƒ No pre-qualification process to screen applicants, thus


encouraging any person with an identified site to apply.

ƒ IPPs must fulfill the conditions stipulated in the LoI within


six months and enter into a Standardised Power Purchase
Agreement (SPPA) with CEB.
Significance of Policy for SHP Industry in Sri Lanka

“GROWTH” Policy 2:
Standard Power Purchase Agreement

IPPs enter into a SPPA with CEB that defines the terms
and conditions for the generation and sale of power.

SPPA is a standardised, non-negotiable, 15 year


contract.

SPPA has provided a practical basis for private


sector involvement.
Significance of Policy for SHP Industry in Sri Lanka

“GROWTH” Policy 3:
Tariff based on avoided cost methodolgy
The rate for delivery of energy output is published by CEB every year,
This is a two-part tariff. The rate for the dry season (February to April)
is higher than that for the wet season (May to January).

ƒ Based on the principle of avoided cost of marginal


generation.

ƒ For the duration of the project, SPPA guarantees a


floor price of 90% of the tariff applicable in the year
the Agreement was signed.

ƒ Level of tariff is a key criterion for the investment


decision
Significance of Policy for SHP Industry in Sri Lanka

“GROWTH” Policy 4:
Tax and import duty concessions

Under the Board of Investment Law, infrastructure


projects qualify for tax holidays that can range from
5 to 10 years depending on the scale of the
investment and capital goods are exempt from
import duty during the period of construction and
implementation.

These incentives enhance the attractiveness of


investments in small scale indigenous energy
projects.
Significance of Policy for SHP Industry in Sri Lanka

Other Growth Factors

ƒ Commercial
lending under the
RERED Project of the World Bank

ƒ Local Investment Appetite

ƒ Local Technical Expertise


Significance of Policy for SHP Industry in Sri Lanka

Impediments to Future Growth

Tariff Structure

A sustainable tariff methodology


must be technology specific,
should not have drastic variations
and transparent.
Significance of Policy for SHP Industry in Sri Lanka

Impediments to Future Growth

Lack of Innovative Project Financing


Significance of Policy for SHP Industry in Sri Lanka

Impediments to Future Growth

Archaic Bureaucratic Procedures

GoSL intends to form a dedicated


Renewable Energy Development
Authority with the objective of
accelerating development.
Significance of Policy for SHP Industry in Sri Lanka

Impediments to Future Growth

Utilities Technical Limitations


1] System planning ignores small hydro energy
generation
2] Absorption limit for embedded generation soon to be
exceeded
3] Grid sub-stations in resource potential areas are
claimed to be at full capacity

Under the direction of the Ministry of Power and


Energy, these technical limitations are now being
assessed. Suitable steps are being taken to resolve
these issues in consultation with all stakeholders.
Significance of Policy for SHP Industry in Sri Lanka

Impediments to Future Growth

Absence of national renewable energy policy

The Ministry of Power and Energy is


currently drafting a national policy for
energy, which will also address the
development of the renewable energy
sources in Sri Lanka.
Significance of Policy for SHP Industry in Sri Lanka

Two-Tier Policy Approach

The growth of the SHP sector was not based on a single policy
statement, but was the result of a series of far-sighted and timely
decisions taken by GoSL that created a conducive environment for
private sector investment to flourish.

The industry has now matured and this lax framework requires planning
and streamlining for the country to reap the optimum from her
indigenous small hydro resources.

Policy decisions must be based on a cost benefit


analysis which is truly meaningful. All policy must
consider the indirect and qualitative impact that
enhances the living standards of the nation, and not the
power sector alone.
Thank You.

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