Transition to Renewables: Costs and benefits
The government-specified targets for supplying 70 per cent of the country’s power generation with renewable energy by 2030 have boosted the interest in alternative energy sources and technologies within the country. These targets come with a decision that no new coal power plants will be established within Sri Lanka. Besides, the annual foreign exchange spent on oil imports alone is now around US$4000 million, close to one third of the total foreign exchange earned from exports. By any means, there is a clear need for a sustainable shift to renewables in the near future. Since Sri Lanka’s hydropower capacity growth has become nearly saturated by now, the biggest potential for increasing renewable energy penetration comes from solar, wind, and biomass. In our previous article on this topic published in Business Times on January 23, 2022 (https://www.sundaytimes.lk/220123/business-times/transition-to-renewables-opportunities- and- challenges- 469323. html) we explored the opportunities and challenges in this renewable energy transition. However, the actual costs and benefits of shifting from fossil fuels to renewables need to be quantified in making this a reality.
Economics of energy supply
Economics pose the biggest hurdles in making this transition from fossil fuels to renewables. Whilst the cost of importing fossil fuel can be avoided by replacing them with renewables, the infrastructure development, technology transfer, and equipment import costs associated with renewables can easily become an added burden.
For example, the global solar panel prices are now averaging around $2.5-3 per Watt, and the costs of inverters, mounting, and connections have to be added to this. In Sri Lanka, a 5kW rooftop solar system requires an investment of around Rs. 1 million at present, and most of the system components need to be imported. Thus, foreign exchange is still clearly flowing out of the country. In addition, the conversion rate of a US Dollar vs a SL Rupee has grown from Rs.150/USD to Rs.200/USD (an increase of 33 per cent) within the 2017- 2022 period. This currency depreciation has caused the renewable capacity additions more expensive in local terms.
Coal, an affordable and abundant energy source, has enabled many countries to generate cheap power that facilitated industrial growth and economic development. For instance, the US used coal heavily at a certain point in their industrial history, and therefore owe much of its economic growth to coal. Many developing nations too rely on coal owing to the cost benefit, despite the more intense environmental concerns associated with it. India and China are two famous examples. Replacing coal with more costly (yet cleaner) sources of energy such as low- carbon LNG, solar, and wind can drive the supply costs up and hinder the economic growth further in Sri Lanka, while also putting a price burden on consumers.
In Sri Lanka, the average cost of electricity generated from hydropower ranges around Rs. 4- 5/ kWh, from coal around Rs. 10- 13/ kWh and over Rs. 30/ kWh from thermal oil. When hydropower generation decreases due to droughts, the share of coal and oil will increase, and so does the average cost of electricity. For example, in 2019, the dry weather spell caused the hydropower generation to a minimal. Consequently, the cost of electricity at the selling point increased to Rs. 3.29/ kWh, from Rs.19.12/kWh in the previous year. Yet the overall average selling price at that point in time was Rs.16.62/kWh. The CEB had to bear the loss. While coal-based energy generation can curb this increase in generation costs, the government’s zero coal addition policy means the non-conventional renewable energy (solar, wind, biomass etc) will be called upon to cater to Sri Lanka’s increasing energy demand. However, at an average generating cost of around Rs.16/kWh, renewables are pricier at present, and the requisite new infrastructure development is also a problem for a cash strapped economy. The electricity prices here are already considered to be high, especially in comparison to other Asian countries, and there is a moderately high incidence of energy poverty within the country. Therefore, further increasing the cost of electricity supply will essentially mean, this added cost is either passed on to the consumers or is assumed by the government. In either case, it is detrimental to the Sri Lankan economy, its growth, and the welfare of the public.
Developing infrastructure and integrating energy storage
The infrastructure development for renewable energy generation is costly. In addition, it is necessary to focus on aspects such as power grid management, stability, and storage. Since solar and wind energy in particular are fluctuating and non-dispatchable, it is necessary to have a sufficient firm capacity in the grid in order to eliminate the possibility of supply shortages. Major hydropower plants in Sri Lanka can fulfill this need to a certain extent. Nevertheless it is necessary to look for other solutions such as pumped storage hydropower and large- scale battery storage, to increase the renewable portion of the energy mix further. The costs of energy storage have reduced drastically in the past decade and is now at around $300-350/kWh (Rs.60,000-70,000/kWh) for utility scale storage. Yet, the large- scale deployment of energy storage is still a significant challenge for Sri Lanka, especially under the current economic conditions.
The CEB predicts Sri Lanka’s energy demand to grow by 5.8 – 6 per cent annually within the next 5- year period. Thus, the choices that we make regarding energy supply sources and grid infrastructure expansion also need to take this demand growth into account. Another possibility for the future of the electricity sector is to move towards decentralised energy generation with smart microgrids, where communities are supplied with energy generated with locally available renewable energy resources. In keeping up with the latest global trends, Sri Lanka also needs to think of the deployment of smart grid controls, Internet of Things, and offshore energy generation in time to come.
Cost-benefit comparisons and decisions
The energy transition is not merely about planning, setting the goals and source switching, but also about developing ancillary services and supporting infrastructure, local industries, supply chains, labour force, and business models. The next part of the equation is identifying how to develop local energy industries that can support the necessary infrastructure and technology development within Sri Lanka, thus preventing the drain of foreign exchange reserves on energy imports.
Clean energy initiatives can deliver indirect benefits to the economy in terms of creating new employment opportunities and manufacturing industries. The Sri Lanka Sustainable Energy Authority predicts that the 2030 target will create 150,000 new jobs in renewable energy, efficiency improvement, and ancillary services areas. India brings one example; solar energy product manufacturing has been turned into a small-scale industry in rural India, providing employment opportunities for many women. Another example for benefits distribution across different layers of society can be found in biomass supply chains, where local residents can participate in the growing and procurement of energy crops to be used as fuel in biomass power plants. There are some entities in Sri Lanka who are already involved in developing solar inverters, turbo machinery equipment, wind turbines, and batteries. These efforts need to be supported.
Meanwhile, environmental impacts of the emerging energy scenarios too need to be taken into account in the decision-making. While the environmental issues associated with fossil fuel combustion such as climate change, smog and air pollution, acid rains, and coal ash release are well known, there are less discussed issues associated with renewables as well. One such case is the generation of hazardous waste associated with the rising use of solar photovoltaics. Unless properly recycled, solar panels, batteries, and other system components can create severe environmental problems at the end of their useful life, due to the release of heavy metals ( such as Cadmium, Chromium, and Lead), plastics, and other chemicals to the environment. In East Africa, the growth of off- grid solar industry has now resulted in a severe e- waste management issue leading to groundwater contamination, soil pollution, and human health impacts.
The SL energy sector lacks a comprehensive and holistic vision and framework that supports the sustainable energy transformation, which is now a global priority. Lack of expertise and R&D too act as barriers. In order to overcome the challenges associated with the sustainable energy transition, it is essential to develop the technologies, industries, supply chains, labour force, and expertise to support a self- sufficient, resilient, and sustainable energy sector in Sri Lanka.