A presentation by Dr. Tilak Siyambalapitiya on Electricity Costing and Tariffs in Sri Lanka Visualize the sub-businesses within the power industry, and their stated costs for 2013 How reasonable are the cost components? Appreciate the correction mechanism Understand the cost of supply to each customer category Appreciate the subsidies and surcharges on each customer category Look at the past and visualize where Sri Lanka got it wrong Look into the future to examine the cost profiles.

1. 1
Costs and Prices of 2013:
Are they reasonable ?
Dr Tilak Siyambalapitiya

2. 2
At the end of this session, you would be able to
…………
• Visualize the sub-businesses within the power
industry, and their stated costs for 2013
• Question: How reasonable are the cost components?
• Appreciate the correction mechanism
• Understand the cost of supply to each customer
category
• Appreciate the subsidies and surcharges on each
customer category
• Look at the past and visualize where Sri Lanka got it
wrong
• Look into the future to examine the cost profiles.

3. Sub-businesses within the Electricity
Business
Generators
Transmission Network Distribution Network
Customers
Generators and transmission, distribution networks are all over
the country, but they can be represented as above.
Like to see the where they are ???

4. Where are the Power Plants, Transmission Lines ?
Too many distribution
lines to show on this map

5. PUC Publication: National Average Cost of Supply 2013
Costs of each sub-business
LKR/kWh
Generation (capacity) 2.75
Generation (energy) 15.57
Transmission 0.77 Transmission wires + system operation business
Distribution 2.72 Distribution wires and supply business
Total 21.80
Generation business
Generators
Transmission Network Distribution Network
Customers

6. So, 2.75 is really, really too high. Or is it ?
Is the Generation Capacity Cost Reasonable ?
Additions:
• Finance costs ?
• Maintenance costs ?
• Hydros produce less than 7008 kWh per year
• All 7008 kWh cannot be sold, owing to network losses
• IPPs need a return on equity
Subtractions:
• Depreciated old generators
• CEB generators do not need cost recovery, no return on equity ?
Consider
a power
plant of
one
kilowatt
Investment on this power plant = 1500 USD
Lifetime = 25 years
Annual electricity output = 8760*80%
= 7008 kWh
Cost of investment recovery = 1500/(25x7008)
= 0.009 USD/kWh
= 1.11 Rs/kWh

7. Is the Generation Capacity Cost Reasonable ?
1.11 Rs/kWh 2.75 Rs/kWh
Initial estimate
Actual Allowed cost
Annual maintenance costs 2% of investment
= 2%*1500
= 30 USD/year
Maintenance cost = 30/7008
= 0.00428 USD/kWh
= 0.00428*130
= 0.56 Rs/kWh
Therefore, cost now = 1.11 + 0.56
= 1.67 Rs/kWh
When 100 kWh is produced, only 89 kWh can be
sold to customers. The balance is lost.
So, capacity cost now = 1.67 x 100/89
= 1.88 Rs/kWh

8. Is the Generation Capacity Cost Reasonable ?
All Power Plants do not produce 7008 kWh per year: Some power plants, are for
Dry season backup, hydropower plants are used for peak-time duties. However, all
them have to be maintained.
Total power generating capacity = 3400 MW
Energy expected generation in 2013 = 11,000 GWh (million kWh)
Energy capability of total capacity = 3400 x 8760 x 80% = 23,800 GWh
Therefore, estimated capacity cost = 1.88 x 11000/23800
= 4.07 Rs/kWh
Therefore, on the face of it, the capacity cost of Rs 2.75 per kWh
sold seems reasonable. But ? ………
There are quite a lot of distortions in CEB power plant capacity
costs. Need to streamline them by signing PPAs between each
CEB generating plant and CEB transmission.

9. Generation Capacity Costs of IPPs and CEB
-
0.50
1.00
1.50
2.00
2.50
3.00
3.50
4.00
4.50
0 2 4 6 8 10 12 14 16
Capacitycharge(LKR/kWhatMGEA)
Year of operation
WestCoast Power
Asia Power
ACE Power
Embilipitiya
Heladhanavi
ACE Power
Horana
ACE Power
MataraAES Kelanitissa
Colombo Power
Lakdhanavi
Expected typical profile
Avg for CEB Power Plants
Norochcholai estimate
(not published yet)

10. Conclusion on Generation Capacity Cost
• Presently: Rs 2.75 per kWh sold
• Acceptable ?: Yes, but certainly there is
room for improvement
• Target: Rs 2.00 per kWh sold is likely to be
possible,
- provided ALL generation is CEB-owned
- with no return on equity
- no IPPs

11. Are the Generation Energy (Fuel) Costs Efficient ?
2013
Primary Source Ownership Share Cost
Rs/unit
Hydro CEB 30% -
Small Renewables Private 7% 18.00
Coal CEB 15% 8.30
Oil CEB and Private 48% 23.41
Average 100% 13.74
• One litre of oil: Produces between 3 to 5 kWh of electricity
• One kilogram of coal: Produces about 2.5 kWh of electricity
• Coal price reflected above: USD 150 per tonne (correct ?)
• Oil prices reflected above: Rs 120 per litre of diesel, Rs 90 per litre of
fuel oil (correct ?)
• Can hydro produce more?
• What if oil prices decrease after these costs are allowed ?
• What if it rains heavily after these estimates are done ?

12. Fuel Costs (Rs/kWh)
Coal 8.30
Residual oil 23.50
Furnace oil 24.53
Diesel 25.94
Renewables 18.00
If Sri Lanka wants lower prices, what should we
produce electricity from ?

13. 13
Are the Wire business + supply costs
efficient ?
Rs/unit
Transmission 0.77
Distribution 2.72
• What should be done ?
– Constant Monitoring
– Benchmarking
– Publishing results
– Awards for improved management of costs and losses (?)
– X-factor (improved efficiency factor)
– Presently, inflation adjustment is awarded

14. 14
Are the Allowed Losses Reasonable ?
• Allowed losses (technical + commercial)
Year
Total TL and all DL networks Policy
target
for Sri
Lanka
T&D
losses
Summarised from filed sales and losses Summarised from approved sales and losses
Sales to
End-use
Customers
(GWh)
Sales
growth
Input to
TL's
network
(GWh)
Sri
Lanka
T&D
Loss
Sales to
End-use
Customers
(GWh)
Sales
growth
Input to
TL's
network
(GWh)
Sri
Lanka
T&D
Loss
2009 8,351 8,371 - 9,754 14.2% 13.5%
2010 8,908 6.7% 10,634 16.2% 9,031 7.9% 10,503 14.0%
2011 9,460 6.2% 11,185 15.4% 9,667 7.0% 11,185 13.6%
2012 10,078 6.5% 11,917 15.4% 10,308 6.6% 11,903 13.4%
2013 10,736 6.5% 12,645 15.1% 10,989 6.6% 12,612 12.9%
2014 11,437 6.5% 13,424 14.8% 11,713 6.6% 13,375 12.4%
2015 12,184 6.5% 14,229 14.4% 12,485 6.6% 14,206 12.1% 12.1%
2016 12.0%
2012 Actuals
Distribution
Entity
Target Loss
(% of input)
Actual Loss
(% of input)
CEB R1 8.9% 6.6%
CEB R2 11.8% 9.3%
CEB R3 8.9% 7.8%
CEB R4 10.1% 4.9%
LECO 5.6% 6.6%
All distribution 10.7% 7.4%
CEB Transmission: Target 3.0%, Actual 4.4% in 2012

15. 15
Network Loss Management
– Are we really so efficient ?
• Bulk sales cause a loss of less than 1.5%
• Therefore retail sales should be causing a loss
exceeding 15%
• Engineering models say it should be 5% !!!
• So, although the loss performance is good, there is
substantial room for improvement
• Investments for loss improvement are included in
the allowed distribution revenue (Rs 2.72 per kWh)

16. Total Cost of Production and Delivery of Electricity: 2013
and estimate for 2014
2013 Rs/unit
Primary Source Ownership Share Cost
Rs/unit
Generation Capacity 2.75
Hydro CEB 30% - Fuel 13.74
Small Renewables Private 7% 18.00 Transmission 0.77
Coal CEB 15% 8.30 Distribution 2.72
Oil CEB and Private 48% 23.41 Network Loss Adjustment 1.82
Average 100% 13.74 Short-term Debt repayment 0.32
Total cost 22.12
2014
Primary Source Ownership Share Cost
Rs/unit
Generation Capacity 2.50
Hydro CEB 30% - Fuel 9.30
Small Renewables Private 7% 18.00 Transmission 0.77
Coal CEB 45% 8.50 Distribution 2.72
Oil CEB and Private 18% 23.41 Network Loss Adjustment 1.27
Average 100% 9.30 Short-term Debt repayment 0.32
16.87
Observation: Generation capacity costs are likely to increase when the PPAs for
Norochcholai and Upper Kotmale (CEB-GL to CEB-TL) become effective

17. Interpretation of System Costs: 2013
Generators
Transmission Network Distribution Network
Customers
Fixed Costs in Rs per kWh sold to end users
2.75 0.77 2.72
Fuel Costs in Rs per kWh
13.74 15.57

18. 18
Indicative Revenue Management Mechanism 2013:
Single Buyer
Bulk Supply
Transactions
Account
Generators
(CEB, IPP,SPP)Shot-term
debt
repayment
GOSL
Subsidy
8,013
million
LKR
3,504
million
LKR
DL1
8,484
million LKR
DL2
8,920
million LKR
DL3
5,247
million LKR
DL4
4,167
million LKR
DL5
2,913
million LKR
TL
8435
million LKR
8,435
million LKR
xxxxxx
million LKR
xxxxxx
million LKR
xxxxxx
million LKR
xxxxxxxx
million LKR
xxxxxx
million LKR
186,770
million LKR
xxxxx
million LKR
xxxxxxx
million LKR
xxxxxx
million LKR
xxxxxx
million LKR
xxxxxx
million LKR
190,398
million LKR

19. 19
Role of the Bulk Supply Transactions Account (BSTA)
Single Buyer
Bulk Supply
Transactions
Account
Pay
Transmission
Licensee
Income from
Sales to
Distribution
Pay
Generation
Licensees:
CEB, IPPs,
SPPs
Receive
Govt
Subsidies
Main Source of
Income
Rainfall
above
average,
lower
fuel
prices
Rainfall
below
average,
higher
fuel
prices

20. 20
Revenue Correction Mechanism: Wire and Supply
Businesses
• All five DLs must report profits (there is no reason
for any DL to report losses): to realize this, annual
accounts must be prepared and published
• The TL must report profits
• Annually: TL and DL allowed revenues are adjusted
– Upwards for inflation
– Downwards for required efficiency improvement (X-factor)
– Downward for return on investment planned but not done
– Upwards for any unforeseen investments (eg: substantial
weather damage)

21. 21
Revenue Correction Mechanism: Bulk Supply Business
• Changes too rapid to wait for one year
• Once in six months:
For next six months (eg: Jul-Dec 2013)
– Forecast generation cost (based on storage, forecast
inflows, fuel prices, economic dispatch)
For the past six months (eg: Jul-Dec 2012)
– Upwards/downwards if hydro contribution was
lower/higher than expected in the Jul-Dec 2012 forecast
– Upwards/downwards if fuel prices were higher/lower than
expected in the Jul-Dec 2012 forecast
– Any extraordinary situations the TL submits
– No correction for changes in network losses
• Customer tariffs changed once in six months

22. 22
From Costs to Pricing
The Professional Approach
• Calculate the cost of supply at
• Each voltage level
• At different times of day
• Cost of supply is blind to
• The income of user (rich or poor)
• Purpose of use (household, business, industry)
• Appliances used
• Adequate examples: Fuel pricing in Sri Lanka, LPG, all
commodities including food
• Electricity is the only commercial in Sri Lanka good where
the price is intentionally distorted at the point of sale

23. 23
Demand
Charge
Fixed Charge
(LKR/kVA.
month)
(LKR/month)
Households All day 15.00 - - 100
Day 15.00
Peak 18.00
off-peak 12.00
Day 10.00
Peak 13.00
off-peak 7.00
Day 9.00
Peak 12.00
off-peak 8.00
MV Bulk 1200 0.4 2000
LV Bulk 1500 0.5 1000
Other retail - - 100
Customers Energy charge
(LKR/kWh)
Reactive
power
Charge
(LKR/kVArh)
Tariff figures are only for illustration
Ideal Price Structure

24. 24
All customers are not located in the same Point of the
Network. They impose different burdens on the network
Therefore, comparing prices against the national
average cost (Rs 21.80 per kWh) is unfair, incorrect
About 44% of electricity sold in Sri Lanka is for bulk
customers, for whom the distribution and supply costs
are zero or lower
Generators
Transmission Network Distribution Network
Customers
MV Bulk LV Bulk
Other
Retail
Households

25. LKR/kWh
Household average 27.86
Religious average 25.74
Other retail (Industry, Commercial) 20.40
Bulk supply at LV (medium industry, commercial) 17.73
Bulk supply at MV (large industry, commercial) 15.08
National average 21.80
Cost of supply in terms of Position in the
Distribution Network
Generators
Transmission Network Distribution Network
Customers
15.08 17.73 20.40 27.86

26. Latest Price Announcement: Households

27. But how much are they being asked to pay ?: Households
Prices announced in April, Mayday concessions not included

28. 2013 figures not published as yet
Surcharges and Cross-Subsidies: 2011 (1)
Customer Category in
year 2010 tariffs (and
kWh/month for
households)
Subsidy or surcharge as a
% of cost of supply
Volume of cross
subsidy received or
provided (LKR
million/year)Subsidised
customers
Customers
paying a
surcharge
LV Retail
0-30 80% (4,373)
31-60 77% (12,135)
61-90 70% (14,001)
91-120 40% (4,672)
121-180 20% (2,066)
181-600 29% 2,429
>600 122% 1,802
Sub Total 45% (33,016)
Other LV
Religious 61% (614)
General Purpose 1 36% 7,500
Government 1 3%
Industrial 1 18% (558)
Hotel 1 34% 7
Street Lighting 100% (2,310)
Sub Total 18% 4,024

29. 2013 figures not published as yet
Surcharges and Cross-Subsidies: 2011 (2)
LV BULK
General Purpose 2 87% 9,942
Government 2 38%
Industrial 2 10% 1,947
Industrial 2 TOU 10% 214
Hotels 2 TOU 33% 9
Hotels 2 (GP) 36% 299
Hotels 2 (IP) 30% 195
Sub Total 38% 12,606
MEDIUM VOLTAGE
General Purpose 3 89% 2,347
Government 3 35%
Industrial 3 14% 1,583
Industrial 3 TOU 29% 403
Hotels 3 40% 31
Hotel 3 TOU 41% 256
Sub Total 30% 4,619
Total 8% (11,767)

30. 30
The Cash Crisis in the Power Sector

31. 31
From a Presentation on 16 July 2010
0%
5%
10%
15%
20%
25%
30%
35%
2010 2011 2012 2013 2014 2015
CumulativeTariffincrease
-20,000
-10,000
0
10,000
20,000
30,000
40,000
50,000
60,000
70,000
AnnualGrosssubsidyrequired(Rsmillion)
Scanario A1: Required tariff increase (% cumulative)
Scanario A2: Required tariff increase (% cumulative)
Scanerio A2: Annual gross subsidy required
Scanario A3: Annual gross subsidy required
In constant 2010
currency-no
inflation or fuel
price escalations

32. Red band is declining, significantly from 2014, and benefits should be given
to customers, when the methodology is implemented.
Are we coming out of the high cost regime ? Yes we are.
How ? By building lower-cost generation

33. 33
The Evolving Cost Structure
3.20
4.03 4.01 4.53 4.65 4.62
10.54 8.64 9.15
9.49
7.04
5.59
0.45
0.79
0.85
0.96
1.12
1.06
2.71
2.88
2.67
2.49
2.30
2.12
-
2.00
4.00
6.00
8.00
10.00
12.00
14.00
16.00
18.00
20.00
2010 2011 2012 2013 2014 2015
Averagecostofsalestoend-users(Rs/kWh)
Distribution
Transmission
Generation Fuel
Generation capacity
In constant 2010 currency-no
inflation or fuel price
escalations
13.74

34. 34
The End