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Delays in power plant projects and lack of funds for fuel imports

Delays in power plant projects and lack of funds for fuel imports intensify Sri Lanka’s energy shortage.

Sri Lanka is currently facing an energy crisis as its largest energy supplier to households and industries, the Ceylon Electricity Board (CEB) board is faced with severe debt. Energy shortages have worsened the situation by making sourcing more expensive and threatening a price hike to consumers. In order to relieve the cash crunch, CEB has had to issue red notices to customers in an effort to collect all dues urgently. While some consumers have been accused of delaying payments by taking advantage of the pandemic, genuine cases that are unable to settle dues have been offered a chance for concessionary payment plans.


Energy shortages have continued despite efforts towards energy self-sufficiency and clean energy production. Sri Lanka’s energy demand is currently met by thermal power, which includes coal and fuel oil (~52%), with the remaining 48% being met by renewable energy sources including large and small hydro, wind, solar, and biomass. In an effort to increase the country’s clean energy capacity to 90% as opposed to the earlier agreed ratio of 70%, the Sri Lankan government announced plans to shift away from thermal power, which accounts for the largest share in the current energy composition. In September 2021, the government committed at the United Nations Framework Convention for Climate Change (UNFCC) to not build any new coal-fired power plants although it may seek to expand or upgrade existing plants.


In efforts to improve clean energy generation, international investors and competitive bids were invited to fund renewable projects in Sri Lanka. In response to call for bids to install hybrid renewable energy systems in three islands off Jaffna, many keen investors responded with a particular interest from Indian investors. However, timelines for tenders have been extended to facilitate as many bids given the keen interest from multiple investors in the US, UAE, India, China among many others. In addition to this, the China National Energy Engineering and Construction Company Ltd. (CNEE) has offered to invest USD 800 million in Sri Lanka on 400 MW solar projects in Sri Lanka.


However, sole reliance on renewable energy isn’t adequate to meet the current electricity demands and are beyond desired price points.


One of the key reasons for this is the hydro power plants, which largely rely on rain showers to be able to generate energy and tend to be adversely impacted by days of unpredictable weather leading to several power outages in the country.

Hence, in order to bridge energy shortages, authorities have had to plan for supplemental energy generation from liquefied natural gas (LNG) plants as well as nonrenewable power plants over the next 10 years, in addition to developing renewable energy sources.


While LNG is not an entirely renewable fuel like solar or wind power, it could present a bridge toward a more renewable-based energy future. Compared to traditional heavy fuel oils, LNG represents a reduction in emissions of Carbon dioxide, Nitrogen oxide, Sulphur and fine particle emissions. In efforts to develop LNG import facilities and related power plants, bids have been collected for tenders in LNG infrastructure, including establishing an offshore Fuel Supply Regasification Unit (FSRU)*. Modernisation of the current oil refinery, which is over 45 years old can also help meet the petroleum sector demand.


However, renewable sources of energy and LNG are not cheap, when compared to coal power generation. Hence, energy authorities have expressed the need for development of a future coal power plant to cater to the power sector demand at a lower cost. While this does not align with the government’s clean energy target, it is the cheapest base power source, and cannot be overruled as an option in order to be able to meet the country’s electricity demand at desired price points. On account of this dilemma, the Norocholai coal power plant extension has been paused for a while. While an initial interim decision was taken to halt construction to meet clean energy needs, the final decision is yet to be made by the CEB.


To add to the energy shortage chaos and energy price hikes, the shortage of foreign currency reserves in the country and the large amounts of debt owed by Ceylon Petroleum Corporation to the state banks has adversely impacted funds available to pay for fuel imports, reducing fuel available for oil energy generation. Sri Lanka has now sought a USD 500mn credit line from India to pay for its crude oil imports as energy authorities warn that the current availability of fuel can only be guaranteed until next January.


Despite several efforts to meet the target of energy self-sufficiency by 2030, delays in implementation is impacting energy availability in the short-term and is threatening price hikes in utility bills to consumers. If the energy crisis is to be resolved in a timely fashion, evaluation of tenders received for renewable energy projects and the commencement of power plant construction would need to take place sooner rather than later. Decisions on coal power generation would also need to be made urgently so that the identification and constriction of coal power plants can take place without any further delays. This would help mitigate further adverse impacts on the price of electricity and the economic development of the country at least until the crisis of fuel imports and foreign exchange reserves is resolved.

*An LNG-based power plant requires gas to be imported, unloaded, stored, gassified and delivered to the power plant. The unloading could be 1. Through a Floating Storage Regassification Unit (FSRU) located in the sea, 2. In a less sophisticated FSRU located in a small harbour, safe-guarding the ship from currents, typhoons or a tsunami or 3. Alongside of a jetty in an especially-built LNG port.


References

“ENERGY WATCH” – Ceylon Electricity Board, 2021; “Renewable energy projects in Northern Province: Adani to enter northern power sector?” – Morning.lk, October 2021; “What is liquefied natural gas used for?” – How Stuff Works; “Red notice electricity bills issued, concessions only for genuine cases: Ministry of Power” – Morning.lk, October 2021; “No green light to proceed with Norochcholai extension” – Morning.lk, October 2021; “Chinese energy company offers to invest $ 800 million on renewable energy projects in Sri Lanka” – Colombo Page, October 2021; “’China ready to invest US$ 800 mn for solar power” – Daily News, October 2021; “Serious discrepancies taken place during Yahapalana regime” – Daily News, October 2021; “Govt.’s deal with Kerawalapitiya power plant and American firm: Pros and Cons” – DailyFT, October 2021; “Sri Lanka Seeks USD 500 Mn Loan from India for Fuel Purchase” – News18.com, October 2021