- CEB and Ace Embilipitiya discussions continue
- Proper planning could have ensured fair prices
The negotiations between the Ceylon Electricity Board (CEB) and Ace Power Embilipitiya have failed to reach a conclusion as of last week, despite the urgent need to acquire emergency power in order to provide an uninterrupted electricity supply to the drought-hit southern region, The Sunday Morning reliably learns.
The chosen supplier, Ace Power Embilipitiya, is reportedly requesting a higher price for the electricity it provides.
A senior CEB official, who opted to remain anonymous, explained that during such desperate times, it was not uncommon for suppliers to demand elevated prices, given the lack of alternatives for the CEB to source electricity from, particularly from the sole available power plant in the southern region.
However, the official opined that if planning had been executed in advance, electricity could have been acquired at a more affordable rate. According to the official, the opportunity to purchase supplementary power at a lower cost was supposedly granted with Cabinet approval towards the end of the previous year.
The official The Sunday Morning spoke to made a surprising revelation, alleging that CEB engineers had advised saving more hydroelectric power at Samanalawewa several months prior, predicting the severity of the ongoing drought that the area was currently facing.
The source alleged that the suggestions had not been taken seriously by the authorities. Consequently, hydroelectric power production at Samanalawewa continued at higher levels, leading to the depletion of water resources.
Supplementary power needs
The necessity for supplementary power is prominently emphasised within the framework of the CEB’s Long Term Generation Expansion Plan (LTGEP) spanning from 2023 to 2042. Given the setbacks in executing significant power generation projects, a potential capacity shortfall is foreseen in the time frame between 2023 and 2025.
To safeguard the minimum reliability standards during this interim, a supplementary power capacity of 120 MW is deemed essential.
The strategy for acquiring this supplementary capacity is open to both gas turbine and Internal Combustion (IC) engine technologies, primarily aiming to secure the most economically-viable terms from the range of available market options. The choice of fuel can be specified at the point of procurement, selecting suitable fuels with well-established supply chains and transparent pricing mechanisms.
Additionally, there is an exploration of utilising operational generating capacities with expired contracts, alongside other short-term alternatives, all within the confines of a proper legal framework. This strategic approach seeks to fulfil the immediate energy requirement in the most advantageous and economically sound manner for the nation, given the prevailing circumstances, it is stated.
Statistics
According to CEB statistics as of Thursday (24), hydropower generation accounted for 14.3% of the total power generation, while the contribution from CEB’s thermal oil and coal sources stood at 25% and 26% respectively, in relation to the overall electricity generation of the grid. Additionally, the Independent Power Producers’ (IPP) thermal oil contribution constituted 13.6% of the total electricity generation.
As of Friday (25), a noticeable decline in water levels was observed in the major reservoirs managed by the CEB, coinciding with a prolonged period of limited or no rainfall in their respective catchment areas over several months.
According to CEB statistics, key reservoirs like Castlereigh, Maussakelle, Kotmale, Victoria, Randenigala, Samanalawewa, Inginiyagala, Ukuwela, and Rantambe are currently at water levels of 1,083.9 m, 1,155.1 m, 688.4 m, 407.1 m, 209.6 m, 424.5 m, 64.3 m, 440.2 m, and 150.7 m above sea level respectively.
Importantly, none of these reservoirs have received any rainfall within the past 24 hours leading up to Friday (25).
NAO audit report
The audit report issued by the National Audit Office (NAO) in 2021 (latest available) reveals that although the main objective of the CEB is to supply power at a low cost to the country, the CEB was unable to achieve this objective due to unfavourable conditions in the Power Purchase Agreements (PPAs), high cost incurred for generation of thermal power, and less contribution from wind and other non-conventional renewable energy sources.
Further, significant delays were observed in the implementation of the activities included in the Long Term Generation Plan and the Transmission Plan of the CEB. As a result, the CEB has made emergency power purchases which has affected the least cost objective of the CEB.
On the other hand, the previous agreements between the CEB and ACE Power Embilipitiya have raised serious concerns regarding the continuous purchasing of electricity from the same power plant by extending the agreements.
The NAO has also revealed the unit costs (per kilowatt hour) associated with purchased energy from various sources during the reviewed year. Notably, the retired IPPs and the 24 MW additional power plant incurred unit costs of Rs. 21.75, Rs. 25.26, Rs. 24.97, and Rs. 88.85 respectively, whereas the average selling price per unit was Rs. 16.37.
This discrepancy underscores the potential for reducing excessive energy procurement costs if power plants had been commissioned in alignment with the Least Cost Long Term Generation Expansion Plan to address real-time demand needs, rather than being utilised as emergency power plants at elevated expenses.
However, CEB’s response within the same audit report offers an alternate perspective. During the initial four months of the year, the dry weather conditions and system demand rises had led to all thermal power plants operating at maximum plant factor to meet the demand due to minimal hydropower generation.
Consequently, the unit cost (factoring both capacity and energy charges) of generating electricity in thermal plants had been comparably low during this period. As the rainy season arrives, system demand diminishes, allowing hydropower plants to function optimally and the necessity for dispatching thermal plants declines. During this time, the cost of fuel becomes lower than the energy charge, while capacity charges continue to be incurred.
Furthermore, even in the rainy season, certain thermal plants must operate to fulfil night peak demand. These fluctuations in electricity purchasing throughout the year influence the unit cost of generating electricity in the aforementioned generators, causing it to fluctuate.
The expiration of contracts for Ace Power Embilipitiya (Pvt) Ltd., Ace Power Generation Matara (Pvt) Ltd., and Asia Power (Pvt) Ltd. coincided with the dry season, where the minimum unit cost under maximum plant factor (50-70%) is noted (Rs. 21-25/kWh). However, the Valachchenai power plant operated with an exceptionally low plant factor (5.4%) due to the combined impact of reduced power demand resulting from Covid-19 and heavy rainfall.
As a result, this thermal power plant incurred a higher unit cost of Rs. 88, which includes the consideration of capacity charge. It is highlighted that capacity charge, while committed for the agreed term, is not tied to energy delivery to the CEB, accentuating the complex dynamics influencing unit costs in electricity generation.
Discussions ongoing
In this context, in response to a query from The Sunday Morning, CEB Chairman Nalinda Illangakoon said that active negotiations were ongoing between the CEB and ACE Power Embilipitiya, with the objective of expediting the process to a conclusion.
He highlighted that both parties held concerns and considerations, hence the ongoing discussions.
Addressing the current scenario, the Chairman clarified that the CEB had effectively managed the situation, and that there had been no reported incidents of power outages.
He revealed that the CEB was effectively utilising all accessible diesel power plants to oversee the situation.
Thus far, there have been no discernible issues or complications, according to him. The collaborative efforts between the involved parties, coupled with the utilisation of available resources, have contributed to maintaining a stable power supply without any immediate concerns, Illangakoon said.