CEB to stop private power purchases in 2013-2014

The Government confidently said this week it planned to discontinue buying private sector-generated power in the next two years, with power generation from new state plants sufficient to meet the country’s entire needs.

The assurance came amidst frequent breakdowns in coal and thermal power plants resulting in countrywide power cuts.

Power and Energy Minister Patali Champika Ranawaka told the Business Times that the Ceylon Electricity Board (CEB) is to halt the practice of purchasing power in the next two years from inde- pendent power producers (IPPs) with the commissioning of the second and third stages of the Puttalam Lakvijaya power plant at Norochcholai with a capacity of 600 MW.

Lakvijaya, the country’s first coal power plant, will have a total capacity of 900 megawatts (MW). The first phase has a capacity of 300 MW, and the second and third phases, to be commissioned by 2014, will produce the balance 600 MW.

On Wednesday, this power plant (first stage) was automatically shut down due to the tripping of the transmission line from Norochcholai to Veyangoda depriving the national grid of 300 MW. This resulted in power cuts of 2.15 hours duration being imposed in 58 towns and the Colombo city area. Mr Ranawaka said the CEB is considering the possibility of not extending the existing power Purchase Agreements (PPAs) with IPPs as and when it comes up for renewal in the future. The CEB entered into these agreements between 1995 and 2005 and some of the conditions demanded by the private sector were not acceptable, the Minister said.

The agreement with Aitken Spence Plc’s Lakdhanavi Ltd near Colombo is up for renewal by the end of this year while an already expired agreement with the company for its 20MW thermal power plant at Matara is presently under negotiation for extension, he disclosed.

“Of the 11 independent power plants, agreements with six will expire in the next three to four years. Some are subsidiaries of the CEB, and the rest belong to the private sector,” Mr Ranawaka said.

IPPs are run by several local firms including Aitken Spence and Hemas Power. Some have foreign investors and even the Asian Development Bank as shareholders. The total installed capacity of these power plants is 782 MWs.

Private sector power per one kilowatt hour (Kwh) costs Rs. 19 to the CEB which sells it at a subsidized rate of Rs.13 to the public, thus incurring a loss of Rs. 27 billion, he said.

The country’s power demand could be met without buying power from the private sector, after all the state plants come on stream.

An IPP is typically paid through a 'capacity charge' which contains a fixed profit margin for the capital invested and a usage charge which is mostly a pass-through running cost of burned fuel and lubricants, a spokesperson for the IPPs told the Business Times.

IPPs have not been officially informed about a plan to halt the power purchases from the private sector, he said adding that, if this happens, the government would have to pay the capital invested by them in accordance with the agreement.

The proposal to set up a coal power plant came when the country experienced repea- ted power failures and shortages in the 1990s. At the time, the country depended on a single hydropower system. “During this period, the CEB was compelled to buy power from the private sector,” the Minister said adding that the international power agencies were refusing to fund new power projects. “So the CEB had to buy power from independent power producers,” he disclosed.” He said IPP’s played a very important role in Sri Lanka’s energy sector preventing the imposing of power cuts during power shortages.

The IPP spokesperson noted that the government on its own cannot change or cancel the agreements as it was guaranteed by the state.

But the Minister said though the pri- vate power plants are allowed to operate under strict and complex agreements, the government could take unilateral action to cancel it any time as private sector power is very expensive.

Over the past decade, the private sector’s power contribution has continued to rise, with the sector fulfilling around 43% of the country’s power requirements during 2011 compared to less than 10% in 2000. The country’s IPP sector comprised 115 producers as at end- December 2011, with 90 players focusing on mini- hydro power.