Source: http://siteresources.worldbank.org/INTENERGY2/Resources/4114191-1328286035673/D1_Peter_Meier.pdf

1. Sri Lanka and Vietnam:
Lessons of the Renewable Energy Tariff Experience
January 2012
Peter Meier
pe.meier@alumni.ethz.ch
1

2. •
VIETNAM
• avoided cost tariff introduced 1st January 2009, together with a
standardised PPA (to replace ad hoc project specific tariffs based on
12% return). Avoided cost based on gas CCGT (most expensive
project has gas price linked to the Singapore fuel oil price). 30MW
size threshold.
• RE projects supported by World Bank Renewable Energy Project,
which provides finance (on-lending through participating banks)
• Avoided cost tariff encourages daily peaking small hydro projects
with a seasonally and time-of-day differentiated tariff (high
remuneration for dry season peak energy).
• 2011 tariff provided around 1000 VND/kWh for a well-designed
daily peaking project (5 UScents/kWh). Feasible when using
Chinese equipment.
2

3. VIETNAM
• Unlike China, where local environmental damage costs from coal
power generation are high, in Vietnam these are low (and exposures
to PM-10, NOX SOx are dominated by emissions from urban
transportation, and the widespread domestic use of coal briquettes).
• As of 31 December 2010, 77 projects (734MW) have signed SPPAs
under the ACT, of which 30 (256MW) are already in operation, and
47 are under development or in construction. All are small hydro.
• In the first six months of 2011, an additional 11 projects (92.3) MW
signed an SPPA. During this time, another 50 projects converted
from the old negotiated PPAs to the ACT.
3

4. MAIN ISSUE: TRANSMISSION INTEGRATION PROBLEMS
Example:
• Lai Chau province in the Northwest: in 2020, local peak load
100MW, proposals for small hydro projects 320MW.
• Need extensive 115kV to evacuate power to the 220/500kV grid
• Recent study shows average cost around 50-70$/kW.
• Power companies in cashflow problems (associated with
equalisation mechanism to maintain uniform retail tariffs); in
theory SHP generation purchases costs are pass-through, but not
110kV costs.
4

5. LAI CHAU TRANSMISSION SYSTEM PLAN
5

6. ISSUES LEADING TO INTRODUCTION OF FEED-IN TARIFF
• Avoided cost tariff too low for wind and biomass projects
• First windfarm built with Fuhrlaender turbines, without a PPA,
temporary agreement provided 4 UScents/kWh. Exactly how this
project was financed is unclear.
• Pressure from GTZ and US turbine manufacturers led to issuance of
a feed-in tariff for wind in June 2011 – but set at a low rate of 7.8
UScents/kWh (only the big Chinese developers say this is
reasonable!)
6

7. PROBLEMS WITH WINDPOWER IN VIETNAM
• Modest wind regime
• Monsoonal climate, high seasonal variation
• Low capacity value (compared to daily peaking small hydro)
• Little reliable data in public domain (though World Bank has
funded some good wind speed monitoring at three sites)
• High incremental costs
• Reality is that wind projects are high up on the supply curve, and a
very expensive way to reduce GHG emissions in the sector
(especially compared to DSM, small or large hydro, and distribution
system rehabilitation).
7

8. PROBLEMS WITH WINDPOWER IN VIETNAM
• Best sites on the coast – either densely populated, or in areas where
there are large titanium and other mineral reserves.
• A contest between mining interests and wind power developers is
unlikely to end in favor of wind power!
• There exists no reasonable economic rationale for wind power
development.
8

9. PROBLEMS WITH WINDPOWER IN VIETNAM
• Much greater seasonal variation in monsoonal climates than in
Europe.
9

10. CAPACITY VALUE OF SHP V WIND
average dispatch in each tariff block
12 MW Nam Mu small hydro
12 MW wind
10

11. RE IGH SEASONAL VARIATIONS
H SUPPLY CURVE (FROM RENEWABLE ENERGY MASTERPLAN)
SHP
WIND
TARIFF
BIOMASS
RE SUPPLYCURVE
X10
Global cost=PSOC+VCARBON
PG
VCARBON
X9
PSOC
Social Cost PSOC =PECON+VL.ENV
X8
VL.ENV
X6
PECON
X7
Avoided cost at economic prices
PFIN
X3
X4
X5
Avoided cost tariff
X2
X1
QBAU
QFIN
QECON
QSOC QG
GWh
REMOVE INSTITUTIONAL BARRIERS
TARIFF REFORM
PREFERENTIAL PRICE
CARBON FINANCE
11

12. RE SUPPLY CURVE (FROM RENEWABLE ENERGY MASTERPLAN)
12

13. COST ESTIMATES
• little reliable wind speed data is publicly available
• best recent data from MoI/WorldBank project (AWS)
Phan Thiet
average annual wind
speed
@80metre height
annual load factor
UScents/kWh
Phan Rang
6.28
6.32
6.46
metres/second
average levelised cost
Plei Ku
[
]
28.4-34.1% 23.8-30.2%
13-15
14-18
30.5-36%
12-14
(1) Exchange rate: 1US$= VND 20,600
• Similar conclusions from GTZ study
• Wind needs at least 10-12 UScents/kWh (says GTZ, AWS)
• Actual feed-in tariff of 7.8 UScents/kWh
13

14. RECOVERY OF INCREMENTAL COSTS
• The Renewable Energy Masterplan argued for an electricity levy of
VND 10-25/kWh (0.05-0.12 UScents/kWh) to fund incremental
costs (to get to 5% of generation by 2025)
• Rejected by the Prime Minister’s office!
• Average wholesale generation price in 2011 is 4.7 UScents.
• The basis for 7.8UScents/kWh is unclear. The incremental cost will
be split 1UScent/kWh by the Vietnam Environmental Protection
Fund, 2.1 UScent/kWh by EVN (Electricity of Vietnam, currently
being unbundled)
• MoIT now wants to develop feed-in tariffs for biomass.
14

15. SRI LANKA
• Avoided cost tariff introduced in 1996, together with SPPA
• Tariff set by autodiesel oil-fired thermal plant
12
UScents/kWh
10
8
6
4
2
1 996
1 9 98
2 000
2 002
2004
2 006
2 008
15

16. AVOIDED COST TARIFF
• As in Vietnam, very successful – 173 MW small hydro (<10MW) in
73 projects financed by World Bank project.
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17. WHY FIT?
• As in Vietnam, avoided cost tariff enabled no wind projects
• Small hydro developers so successful, established a powerful lobby
pressing for FIT even for small hydro (with the first coal finally
under construction, fears that avoided costs would decrease!)
• Complicated FIT structure introduced in 2007 for new SPPS beyond
2008. Two tariff options, a flat rate levelised tariff and a frontloaded 3-tier tariff that provides for higher remuneration in the
early years (to assist better debt service cover ratios during the early
years of debt repayment).
17

18. HIGHEST WIND-FEEDIN TARIFF
14.53
22.02 12.77
4.30
6.64
12.69 10.21
9.82
8.50
17.91
China (Taiwan)
6.65 6.79 7.16 5.56 11.04 7.01 11.03
8.33 6.67 8.40 8.98 11.59 7.01 16.33
6.50 6.74 7.11 10.46 16.00 3.89 10.48
67.33 45.63 37.96
Germany
USA (Minnesota
state)
Great Britain
(England+Scotland+
Wales)
Canada (Ontario
province)
India (Madhya
pradesh)
India (Karnataka)
India (Tamilnadu)
India (Andhara
Pradesh)
Tanzania
South Korea
Malaysia
Uganda
13.32 5.11 8.06 8.39 4.87
7.11
19.97 18.24 13.69
20.70 4.74 11.37 9.85
34.65 39.96 30.99 47.30
Technology-neutral tariff: 8.26
Mini-hydro
Wind
Biomass
Solar PV
Agricultural &
Industrial W aste
Municipal Waste
Waste Heat
Recovery
Biogas
Landfill Gas
Geothermal
Energy
Thailand
Sri Lanka
Renewable Energy Feed-in Tariffs paid in Different Countries (in equivalent LKR/kWh)
12.18
17.94
11.53
75.75
8.21
9.84
8.21
29.99
10.11
8.94
9.49
9.38
2.34
18.08
19.97 SLR/kWh=17.5 UScents/kWh 1$US=113 SLR
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19. SEASONAL VARIATION
19

20. CURRENT STATUS OF WINDPOWER
Three 10MW windfarms
commissioned
Following poor outcome
of World Bank financed
3MW demonstration
project in Hambantota
(only 15% load factor,
when appraisal said
27%), much better
results: One wind farm
achieved a 28.5% LF in
first 12 months of
operation (FS design was
31.5%)
35MW Jaffna project not
feasible (no grid)
remaining 47MW should
be done by 2013-2014
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21. IMPLEMENTATION PROBLEMS
• Mechanism provided for CEB’s incremental costs to be passed to
the Sustainable Energy Authority.
• Incremental costs were assumed to be averaged into low cost small
hydro power projects when their PPAs expired – but average costs
of the portfolio were underestimated.
• But in 2010 unpaid bills for the incremental costs accumulated at
CEB because SEA had not funds.
• In 2011, costs were allowed to be passed through to consumers as
an interim measure, but Minister ordered a stop to new wind
project permits.
• FIT implementation poor. PUC issued a consultation paper for a
new tariff, but no tariff order resulted.
• FIT implementation has now passed back to the Ministry.
21

22. PROSPECTS IN SRI LANKA
• Probability of achieving the 10% RE target, despite one of the
highest FIT in the world: very small
• Major problem is absorbtion of must-run power: World Bank
funded a study; Consultant concluded both coal and wind could be
de-loaded, and that 620 MW of wind could be absorbed by 2020.
CEB rejected this recommendation.
• Independent experts think at most 100MW can be absorbed (given
other hydro additions with zero variable fuel cost).
• Basic problem: 10% 2015 RE target completely arbitrary, no supply
curve basis.
22

23. Implications for design of World Bank RE projects
• RE on-lending finance facilities should include provisions for
financing incremental network costs (especially at the 115kV level),
not just generating projects
• For feedin tariffs to be successful, the mechanism for recovery of
incremental costs needs to be credible. Using established funds
with only ad hoc revenue streams (like the Vietnam Environmental
Protection Fund) is unlikely to be credible.
• Throughout Asia, there is pressure for better transparency in
distribution company accounts and in retail tariffs. Attempts to
bury incremental costs in utility accounts will unlikely be
sustainable.
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24. Implications for design of World Bank RE projects
• An independent regulator is a necessary requirement for a
successful RE tariff. Whether feed-in tariff or avoided cost,
independent oversight is necessary. (But PUC experience in Sri
Lanka is disappointing).
• The World Bank should support whatever is the least cost way of
achieving low-carbon power sector expansion strategy, not wind
power for wind power’s sake (especially in countries with modest
wind regimes). Vietnam has an unusually high energy/GDP ratio,
with great potential for improvements in industrial energy
efficiency.
• If GoVN is prepared to pay 1,600 VND/kWh (7.8 UScents) for wind
energy, then why not also for biomass & small hydro? If one must
provide subsidy for RE, why let the principal beneficiary be Chinese
& European wind turbine manufacturers, rather than Vietnamese
rice farmers?
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25. Implications for design of World Bank RE projects
• There exists no economically rational case for technology specific
feed-in tariffs, much less for load factor differentiated tariffs (good
sites get lower tariff than bad sites). Only Tanzania has a
technology neutral feed-in Tariff!
• A rational basis for supporting renewable energy is the avoided
social cost of thermal generation (i.e. including any local
environmental externality costs), set as a price cap for a
competitive, technology-neutral annual solicitation for forward
delivery contracts consistent with national targets.
• FITs work only if there is sufficient public support for the politicians
not to have to hide the incremental costs. Lack of transparency will
work for a while, but large scale take-up of RE will not occur.
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