Investor-friendly policy ...

Dr. Tilak Siyambalapitiya

Continued from yesterday

Three-tier: Possibly the most important element of the new tariff policy is its tiered structure, specifically requested by the investors during stakeholder deliberations and granted by the Government. The policy will offer a high price over years 1 to 6, and a moderate price from years 7 to 15, and an operating fee from year 16 onwards.

The high payment in years 1 to 6 ensures that investors get profits from year 1 after fully settling the bank loans and operating costs. In the previous pricing policy, most investors had negative cashflows in the first few years.

Moreover in the new policy, operating costs are escalated in accordance with the inflation and currency depreciation, to ensure that the investor has adequate funds to maintain the power plant in a good condition for 20 years, and beyond.

In the longer term, that tariff would move to a lower level that would make the operator (ie the investor), the buyer and the electricity customer happy, because unlike in the previous policy of basing the prices on avoided fuel costs, these renewable energy power plants of the private sector too would provide electricity at prices much lower than fossil-fuels.

This is precisely what the now depreciated Laxapana and Mahaweli hydropower projects are doing at the moment" expensive upfront but exceptionally cheap in the long-run.

If all go well, Sri Lanka would have by 2015, a fleet of small renewable energy power plants (minihydro, biomass, wind, waste-fired, etc.) that would produce the same quantity of electrical energy as the Laxapana hydropower complex of CEB. Most importantly, this will allow Sri Lanka to retain about a 35 per cent share (25per cent from large hydro, 10 per cent from small renewables) of sustainable energy in electricity production.

Sri Lanka would have then shifted from the presently agonising two-fuel policy (large hydro and oil) to a comfortable four-fuel (large hydro, coal, small renewables and oil to top-up) policy.

However, to achieve this objective, the Government and CEB have to realise that small renewable energy-based electricity generation, when considered as a group, is no longer expensive when compared with other sources. Coal and renewable energy are complimentary.

The investors have to realise that the Government and CEB are now willing to offer a price to make their investments viable with profits from day one, but in return, they should give electricity to the grid at a lower price in the long term.

The Government does not plan to charge any royalty fees from the small renewable energy producers who will be coming on-board under the new pricing policy. With the international climate of rising fuel prices including coal, renewable energy no longer needs to be "subsidised" by anyone. A technology mix is financially viable on its own merits.