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Renewable energy generation: Delay in revising tariffs sparks concerns

Renewable energy generation: Delay in revising tariffs sparks concerns

29 Oct 2023 | By Maheesha Mudugamuwa

 The Power and Energy Ministry’s recent failure to honour its commitment to revise the variable tariff formula for renewable energy, as promised in June, has sparked growing concern among the public.

The crux of the matter is the concern that much-anticipated improvements in key economic indicators may not effectively translate into tangible benefits for ordinary citizens.

With the tariff review originally slated for completion by the end of September, the visible absence of noticeable progress has left many questioning whether the advantages of this development will ultimately reach the average consumer.

This transition in the variable tariff formula was introduced by the Ceylon Electricity Board (CEB) through circular No. 2023/GM/36/DCC (DCC Circular: 2023/DCC/COM-12), dated 26 June 2023 and issued by the Additional General Manager DD2, who serves as the Chairperson of the Distribution Coordination Committee. It signifies a notable shift in the pricing structure for Rooftop Solar PV (RTSPV) systems, bringing with it both opportunities and uncertainties.

At the heart of this transformation lies a complex formula influenced by key economic indicators. These indicators, which encompass the Average Weighted Prime Lending Rate (AWPLR), Treasury Bond Rate, and Average Weighted Fixed Deposit Rate (AWFDR), collectively determine the variable tariff.

Importantly, the tariff will be recalculated every three to six months by the transmission licensee, allowing it to adapt to the dynamic economic landscape.

Adjustments in economic indicators 

Since the implementation of the new tariffs, there have been notable adjustments in crucial economic indicators. Central Bank statistics reveal a substantial reduction in the Average Weighted Prime Lending Rate, which has plummeted from 20.82% in June to 14.96% in September. This significant change not only hints at the potential for more accessible and affordable loans but also holds the promise of stimulating economic activity.

The Treasury Bond Rate, particularly for a five-year term, has witnessed a noteworthy decline as well. It fell from a considerable 28.11% in March to 14.52% in September. This decrease reflects not only lower Government borrowing costs but also a possible increase in investor confidence in the country’s fiscal stability. 

Furthermore, the Average Weighted Fixed Deposit Rate has shifted from 19.70% in June to 17.24% in September. This demonstrates that fixed deposit investors are poised to enjoy relatively attractive returns on their investments. The decline in the inflation rate from 4.1% in June to 1.3% in September suggests a reduced pace of price increases, offering tangible benefits to consumers.

The exchange rate, while relatively stable, has experienced only a slight change. It transitioned from an average of 185.95 in June to 184.43 in October. These collective changes indicate a more favourable economic environment for investment and lending, bringing with them both opportunities and challenges in Sri Lanka’s evolving economic landscape. 

As the nation stands at the intersection of potential progress and prevailing concerns, the future of energy pricing and its effects on the broader economy remain a subject of paramount importance and scrutiny.

Tariff structure for RTSPV systems 

Conversely, the circular issued to Provincial DGMs, Area Chief Electrical Engineers, and Area Provincial Commercial Engineers discloses a significant transformation in the tariff structure for RTSPV systems. This change, jointly signed by Distribution Coordination Committee Chairperson Additional General Manager DD2 Eng. T.A.K. Jayasekera and CEB General Manager G.A.D.R.P. Seneviratne, has introduced a new variable tariff framework for RTSPV projects across different capacity categories.

As per the circular, the rates now stand at Rs. 48.89, Rs. 47.79, Rs. 44.17, and Rs. 43.77 for 0-20 kW, 20-100 kW, 100-500 kW, and above 500 kW, respectively. Aggregation schemes are subject to a rate of Rs. 46.46. This transformation represents a departure from the prior fixed tariffs of Rs. 37 for systems below 500 kW and Rs. 34.50 for systems above 500 kW.

The impetus for this revision came from the Cabinet of Ministers’ decision on 2 May 2023, initiating a shift towards a variable tariff model adjusted every three to six months over the course of the 20-year contract period. 

Notably, the calculation takes into account various factors, including loan interest and plant maintenance, resulting in a gradual tariff reduction starting from the 11th year onward. To ensure the continued operation of solar plants beyond the loan recovery period, a monthly deposit equivalent to 2% of the customer’s fee will be placed in a customer-owned bonded account. Access to these funds is contingent upon written approval from the CEB, effectively replacing the need for a performance bond.

Furthermore, the circular outlines that, in the event of a customer failing to meet energy supply terms, the CEB reserves the right to access funds in the bonded account.

Execution delay sparks concerns 

Yet, controversy brews in the corridors of power, with officials within the CEB questioning the delay in tariff changes that should herald cost reductions and public benefits.

It is learnt that a group of engineers from the CEB has been increasingly vocal in their questioning of why the long-promised tariff changes have yet to be realised.

As one senior engineer, who spoke to The Sunday Morning on terms of anonymity, emphasised, the rationale behind these tariff revisions is to bring down costs, thereby benefiting the general public. The delay in executing these adjustments has given rise to concerns, as it appears that only a select few individuals are enjoying the advantages. 

The engineer alleged that the ministry had blocked the tariff revision for reasons unknown to them. Furthermore, although the CEB management has purportedly recommended a tariff revision, it has not been put into practice yet.

The engineers argue that this situation underscores the pressing need for swift action to ensure that the benefits of revised tariffs are more fairly and transparently distributed among the wider population, ultimately promoting a greater sense of fairness and equity within the energy pricing framework. 

The call for transparency and accessibility in energy pricing becomes more critical as stakeholders seek a more equitable and consumer-friendly approach to tariffs.

Ensuring CEB’s financial viability crucial 

In response to a query by The Sunday Morning, Solar Industries Association (SIA) President Kushan Jayasuriya said that ensuring the CEB’s financial viability as a foundational step towards a greener and more sustainable energy grid was of paramount importance. 

His perspective centred on the necessity of upgrading the grid to accommodate renewable energy sources. This evolution often necessitates the deployment of advanced smart grids, which are crucial for optimising the integration of renewable power.

While Jayasuriya acknowledged that a tariff hike would have an impact on consumers, he underscored the vital role of a strengthened financial foundation for the utility. “This will not only provide incentives for renewable energy producers, but also ensure the timely execution of planned grid expansion activities. In essence, securing the CEB’s financial stability lays the groundwork for Sri Lanka’s journey toward a cleaner and more environmentally friendly energy sector,” he added.

Jayasuriya expressed the SIA’s unwavering support for a cost-reflective tariff structure. This forward-looking approach, he emphasised, was a critical element in boosting the utility’s operational efficiency. By fostering the integration of modern, cost-effective energy sources, this strategy ultimately promises a brighter and more affordable energy future for Sri Lankan consumers.

On a previous occasion, soon after the new tariffs were introduced, the SIA President explained that the proposed changes introduced variable tariffs influenced by factors like the dollar exchange rate, interest rates, and inflation. Customers would be able to choose between fixed and variable tariffs. The introduction of variable tariffs was prompted by the need for financial viability in volatile economic conditions.

Jayasuriya acknowledged that while fixed tariffs had initially been implemented, they may be revised more frequently as economic conditions stabilised and improved. This approach provides investors with flexibility and the ability to adapt to changing economic parameters.

Meanwhile, when contacted, CEB Chairman Nalinda Ilangakoon emphasised that the determination of renewable energy tariffs should rest with the Ministry of Power and Energy. He highlighted that the Cabinet had conferred the authority upon the ministry to make decisions regarding these tariffs.

All attempts to contact Power and Energy Ministry Secretary M.P.D.U.K. Mapa Pathirana for comment were futile.

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