Biomass power producers shut down during power crisis

by Ifham Nizam

Renewable energy producers who generate electricity using biomass (wood chips) capable of supplying 20 MW (140 million kWhs) per year to the CEB grid, have shut down because what they are paid for such power is not sufficient to even cover their variable costs for biomass and other day to day operating costs such as salaries, chemicals, etc.

These producers, who have entered into Power Purchase Agreements (PPAs) with the CEB, have jointly written to the CEB requesting an increase in their tariff if they are to restart operations.

They have pointed out that the costs used in the formula used to calculate their annual tariff rate is far below actuals. The calculation uses Rs 14 per kWh as the cost of fuel wood, whereas the actual cost today is Rs 21 per kWh. Overheads and maintenance (O&M) and other related costs are assumed to be Rs 2 per kWh, whereas the actual cost is around Rs 6 per kWh, developers claim.

In their letter to the CEB, they point out that if the “correct” costs are used in the tariff formula, their tariff should be Rs 36.67 per kWh. With such a tariff they would be able to operate their plants and also service their bank loans.

They say that the CEB’s cost for generating power from its own plants, including coal, is substantially higher than the Rs 36.67 per kWh they have requested.

They have calculated that if the CEB pays them the requested tariff, instead of using their own plants to generate this power, it would save Rs 3,220 million per year. Also, since they use a local biomass and not imported coal and oil required by the CEB’s plants, the country would save USD 20 million per year foreign exchange.

Unlike in the case of other renewable energy technologies such as hydro, wind, and solar, biomass plants can operate reliably round the clock and, in CEB terminology, are ‘base load’ plants similar to the coal plants. The energy supplied by such plants is therefore more valuable to the CEB than power from other types of renewable energy.

The problem has been made worse by the fact that the CEB has not paid biomass developers (as well as other renewable power suppliers) for the power they have supplied to the CEB from December 2021 to date.

In their letter, developers have pointed out that they, unlike other renewable energy technologies (hydro, wind and solar) whose “fuel” cost is zero, have large recurring costs on fuel.

They have requested the CEB to expedite the payment of their past invoices and give them priority over other renewable energy developers as, without such payments, they cannot operate due to severe cash flow shortages.

One of the larger developers, Mirigama Dendro Power (MDP) located near Giriulla, has already informed its bankers that it is unable to service its loans and has asked the banks to take over its plant which was pledged as collateral.

The banks don’t want to foreclose because with the present tariffs no one would want to take over the plant even if all debts were settled and the plant was sold for a token one rupee.

This plant originally cost Rs 1.2 billion to build and it would cost Rs 3 billion to replicate today. Without an increase in the tariff as requested, MDP says they can’t remain in business and their plant will be only good for scrap. Other biomass developers whose plants are all currently stopped will soon be following MDP and closing down permanently, they say.

Biomass developers wrote to the CEB Chairman M M C Ferdinando two weeks ago and he recently met with a group of them. While the Chairman appeared to understand the situation, all he could say was that he would forward the request to the CEB’s tariff committee.

From past experience, developers claim that it will take months, if not years, for anything to come of this. By this time all biomass plants would have laid off their staff and most likely, been dismantled.

It is ironic that at a time when the country is suffering from power and foreign exchange shortages, an option to provide a substantial quantum of high-quality power to the grid at a price lower than any other alternative available today and to save foreign exchange, is not being prioritized, the developers urge.

Power and Energy Kanchana Wijesekera said that he will make the maximum effort to feed renewable energy-based power into the CEB grid as soon as possible. In the case of biomass developers, there is approximately 20 MW of such power capable of generating 140 million kWh annually already connected to the grid. But this has become unavailable because of the inadequate tariff.

As detailed above, the requested tariff is financially beneficial to the CEB and the country. Here is a clear opportunity for the minister to intervene to “walk the talk” and bring this 20 MW back into the grid, biomass developers say.