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Costs and Prices of 2013:
Are they reasonable ?
Dr Tilak Siyambalapitiya
2
At the end of this session, you would be able to
…………
• Visualize the sub-businesses within the power
industry, and thei...
Sub-businesses within the Electricity
Business
Generators
Transmission Network Distribution Network
Customers
Generators a...
Where are the Power Plants, Transmission Lines ?
Too many distribution
lines to show on this map
PUC Publication: National Average Cost of Supply 2013
Costs of each sub-business
LKR/kWh
Generation (capacity) 2.75
Genera...
So, 2.75 is really, really too high. Or is it ?
Is the Generation Capacity Cost Reasonable ?
Additions:
• Finance costs ?
...
Is the Generation Capacity Cost Reasonable ?
1.11 Rs/kWh 2.75 Rs/kWh
Initial estimate
Actual Allowed cost
Annual maintenan...
Is the Generation Capacity Cost Reasonable ?
All Power Plants do not produce 7008 kWh per year: Some power plants, are for...
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
Capacitycha...
Conclusion on Generation Capacity Cost
• Presently: Rs 2.75 per kWh sold
• Acceptable ?: Yes, but certainly there is
room ...
Are the Generation Energy (Fuel) Costs Efficient ?
2013
Primary Source Ownership Share Cost
Rs/unit
Hydro CEB 30% -
Small ...
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 ...
13
Are the Wire business + supply costs
efficient ?
Rs/unit
Transmission 0.77
Distribution 2.72
• What should be done ?
– ...
14
Are the Allowed Losses Reasonable ?
• Allowed losses (technical + commercial)
Year
Total TL and all DL networks Policy
...
15
Network Loss Management
– Are we really so efficient ?
• Bulk sales cause a loss of less than 1.5%
• Therefore retail s...
Total Cost of Production and Delivery of Electricity: 2013
and estimate for 2014
2013 Rs/unit
Primary Source Ownership Sha...
Interpretation of System Costs: 2013
Generators
Transmission Network Distribution Network
Customers
Fixed Costs in Rs per ...
18
Indicative Revenue Management Mechanism 2013:
Single Buyer
Bulk Supply
Transactions
Account
Generators
(CEB, IPP,SPP)Sh...
19
Role of the Bulk Supply Transactions Account (BSTA)
Single Buyer
Bulk Supply
Transactions
Account
Pay
Transmission
Lice...
20
Revenue Correction Mechanism: Wire and Supply
Businesses
• All five DLs must report profits (there is no reason
for any...
21
Revenue Correction Mechanism: Bulk Supply Business
• Changes too rapid to wait for one year
• Once in six months:
For n...
22
From Costs to Pricing
The Professional Approach
• Calculate the cost of supply at
• Each voltage level
• At different t...
23
Demand
Charge
Fixed Charge
(LKR/kVA.
month)
(LKR/month)
Households All day 15.00 - - 100
Day 15.00
Peak 18.00
off-peak ...
24
All customers are not located in the same Point of the
Network. They impose different burdens on the network
Therefore,...
LKR/kWh
Household average 27.86
Religious average 25.74
Other retail (Industry, Commercial) 20.40
Bulk supply at LV (mediu...
Latest Price Announcement: Households
But how much are they being asked to pay ?: Households
Prices announced in April, Mayday concessions not included
2013 figures not published as yet
Surcharges and Cross-Subsidies: 2011 (1)
Customer Category in
year 2010 tariffs (and
kWh...
2013 figures not published as yet
Surcharges and Cross-Subsidies: 2011 (2)
LV BULK
General Purpose 2 87% 9,942
Government ...
30
The Cash Crisis in the Power Sector
31
From a Presentation on 16 July 2010
0%
5%
10%
15%
20%
25%
30%
35%
2010 2011 2012 2013 2014 2015
CumulativeTariffincreas...
Red band is declining, significantly from 2014, and benefits should be given
to customers, when the methodology is impleme...
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
...
34
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Costs and Prices of Electricity in Sri Lanka 2013: Are they reasonable..?

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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.

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Transcript of "Costs and Prices of Electricity in Sri Lanka 2013: Are they reasonable..?"

  1. 1. 1 Costs and Prices of 2013: Are they reasonable ? Dr Tilak Siyambalapitiya
  2. 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. 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. 4. Where are the Power Plants, Transmission Lines ? Too many distribution lines to show on this map
  5. 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. 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. 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. 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. 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. 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. 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. 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. 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. 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. 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. 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. 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. 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. 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. 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. 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. 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. 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. 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. 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. 26. Latest Price Announcement: Households
  27. 27. But how much are they being asked to pay ?: Households Prices announced in April, Mayday concessions not included
  28. 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. 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. 30 The Cash Crisis in the Power Sector
  31. 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. 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. 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. 34 The End
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