Windfall profits for a few: Electricity costs to increase further

by Dr Tilak Siyambalapitiya

The ink on the latest electricity tariff hike announcement is still not dry. Customers are severely stressed, with Sri Lanka’s electricity prices now reaching the highest in the region. A grocery shop in Sri Lanka pays the same price for electricity as his or her counterpart in Singapore, the highest in south and southeast Asia. A factory in Bangladesh, South Korea, Malaysia or Vietnam pays 40% less for electricity than in Sri Lanka. A medium household in Sri Lanka pays twice more for electricity than its counterparts in India, Hong Kong, Vietnam, Thailand and three times more than its Malaysian counterpart.

Eng. Parakrama Jayasinghe (The Island 30 Oct., 2023) has explained, among other things, why Sri Lanka’s electricity costs are on the rise. The present average cost of production is Rs 32. Older renewable energy agreements (mini-hydro, wind, solar parks, solar rooftops) are the only producers that sell electricity below Rs. 32. New renewable energy contracts are signed at Rs. 37 a unit or more. Electricity from diesel and fuel oil come at Rs. 80 a unit or more. So, electricity costs will rise further, because each additional unit of electricity, renewable or otherwise, is produced at Rs 37 a unit or more.

So, the price increase two weeks ago, which you will see in your bills soon, is certainly not the last. Costs in Sri Lanka will rise further, even if the rupee remains stable.

The Public Utilities Commission (PUC) approved the CEB’s request for the latest tariff hike subject to some recommendations. For example, it said, ‘Reduce the energy losses in the grid further … “send us your plan to do that.” One would have expected the PUC to take punitive action against the CEB for producing electricity from diesel at Rs 80, pushing the prices further up.

Hidden inside PUC’s list of recommendations is an innocent-looking clause, which says “Allow rooftop solar units to move between optional contracts”, which CEB never publicly asked for. Not even a suggestion to that effect was published in PUC’s brief put out for public consultation.

According to Mr. Jayasinghe’s reasoning in The Island, 30 October, new coal power costs Rs 20 a unit, new gas generation costs Rs 32 a unit, diesel or fuel oil is above Rs 80 a unit, new renewable energy agreements are at Rs 37 each a unit. Therefore, to a student of mathematics, in a country where electricity prices are the highest, the answer is simple. Replace diesel (80) with coal (20) and gas (32). Do the best to buy more renewable energy, too, at Rs 32 or less (not Rs. 37).

With PUC’s requests, the government immediately sprang into action. You may think that action was to implement cost reductions. You would have thought the government established a special task force to build cheaper power plants, both renewable and others, to reduce costs.

No! While PUC’s directives contained nothing substantial to REDUCE costs, the government swung into action to implement the only clause that would INCREASE the costs for CEB and LECO.This is how it will happen. I will explain it with an example.

Your company, say company X, has a factory, with a large roof. Responding to the government’s call to build solar roofs, you invested on a two-megawatt solar roof in 2016. You found an opportunity here by opting to sell all your electricity produced, at Rs 22 a unit. Electricity you buy for your factory was only Rs 11 a unit during 2014-2022 period, because PUC did not increase customer prices for eight years. So, you made a business decision, and signed a 20-year agreement. I will sell my solar electricity at Rs 22 a unit. Separately, remain as a customer buying electricity at Rs 11 a unit. Electricity for your night shifts, too, was bought at the subsidized price of Rs 6.85 a unit.

In 2016, you had a grand opening of your solar roof with the Minister of Power and Energy attending. You bought two-page advertisements in several newspapers to tell the world how environmentally friendly you are. You informed your buyers that you were now “green”. You said your electricity would be cheaper to society in the long run.

By 2022, you have recovered your investment with a profit. In 2023, your company faces reality. Electricity prices went up, and now you do not want to sell it to the grid, but use the production for yourselves. Why? Because you now sell it at Rs 22 a unit but buy it at Rs 37 a unit! Older contracts get paid Rs 15.50 a unit.

Ha ha!

As if the PUC recommendation was written elsewhere within days, the CEB and the LECO were ordered by the government to allow Company X, and thousands of others to do just that.

If yours is Bank B, you are in for a larger windfall. You can “sell” the electricity from your old rooftop unit at Rs 58’ it would otherwise have fetched Rs 15.50. The public that has no proper roof or funds to have solar units, have already paid for your rooftop investment twice over, and now they will pay for your windfall profit, too.

There goes the beauty of renewable energy. Expensive upfront and cheaper in the long-run. No! Not anymore (in Sri Lanka). It is now expensive upfront and expensive in the long-run, too!

This PUC decision to award windfall profits to thousands of solar producers such as Company X and Bank B will immediately cost about Rs 11 billion more per year, which will be passed on to the customers through the next price increase. The price increase will be blamed on the dry weather in February and March 2024.

And what is more, this recommendation will not produce even one more unit of electricity from renewables. Just pay more for already signed agreements, which at that time, promised cheaper electricity to the public in the longer term.

What next? Mini-hydro, wind, solar parks and biomass power suppliers, too, are knocking on PUC’s door asking for more money for their ageing power plants, for which the public have paid many times over. And, that decision, if ever made, will push electricity prices further up. It is only a matter of time.

Do not get it wrong. These decisions will not produce even one more unit of renewable energy, but simply increase their price.

I wish the late Eng. Wimalasurendra were around to claim that Laxapana he strenuously campaigned for and got built, though fully depreciated and paid for by the electricity customers for over three score and ten years, should also be allowed to sell electricity at Rs 37!

So that’s how Sri Lanka’s electricity sector undergoes ‘independent’ regulation by PUC.