The significance of Norochcholai power plant
The media has reported that the stages two and three of the on-going
Norochcholai coal power plant construction in Puttalam would also
commence shortly, with the signing of the agreements on 29th June 2009.
Norochcholai coal power plant. Pictures by Sarath
With the President and the Government firmly behind the project,
construction of stage one is moving ahead, to be followed by stages two
and three in the same premises. Once completed, the power plant will
have a total gross generating capacity of 900 MW. After discounting for
the in-house consumption and losses in transmission, the power plant
would provide about 850 MW of capacity to the national grid.
The difference of 50 MW is typical for this kind of a power plant;
there is nothing unusual. Even if a power plant is built to use oil, the
same losses would occur.
The power plant would help Sri Lanka reduce the use of the most
expensive power plants on its system: CEB system has four power plants
burning auto diesel, adding up to about 600 MW.
They will be the first to be curtailed. Then the next group of power
plants using fuel oil will be curtailed. All hydropower plants except
Kukule and Ukuwela will move to operation only at the evening peak
hours. Kukule and Ukuwela have no reservoirs, and they will run always
when water is available.
None of the protestors who used all their might to block the
Norochcholai project over 1996-2005, including national and local
politicians, religious leaders, environmental forums and scientists,
academics have said anything about the project, since it was launched by
the President in 2006.
Construction of stage one is over 30 percent complete. The protestors
have moved on to protest on other issues, depending on the amount of
support and publicity they receive from various agencies. Numerous
politicians who were against the project have changed sides, and are now
with the Government. The development that is going on in the once sleepy
Kalpitiya peninsula is seen everywhere.
There were two specific issues raised not only the protestors but by
the many reasonable and knowledgeable people during the height of the
debate: (1) Will the power plant cause any damage to the environment ?
(2) Will it produce electricity cheaper than other means ?
The answer to the first question lies in the manner in which the
environmental approval issued to the power plant is adhered to by its
operator, Ceylon Electricity Board (CEB). The power plant is being built
based on the approval to build issued by the Provincial Environmental
Authority, after the due process in accordance with the Environment Act.
Once the power plant is ready for operation, CEB has to apply for an
Environmental Protection Licence (EPL), and then adhere to the
conditions stipulated in it. Once the emissions and other environmental
impact data are available, CEA will determine whether there are any
adverse impacts on the environment and violation of standards specified.
There are many who would ask: will CEB adhere to regulations ?
Well the laws are there to force CEB to abide by the regulations, and
for Central and Provincial Environmental Authorities to force CEB to do
so, and for the public to force both parties to do their duty. Just
because we do not know, Sri Lanka cannot force electricity customers to
pay unreasonably high prices for electricity.
On the second issue of whether it will indeed produce electricity
cheaper, some estimates can be made now, because the full cost of the
project has now been published in the media. The full cost of the
project has been reported to be USD 450 million for stage one, and a
total of USD 890 million for stages two and three.
The costs include all the coal supply, power generation and
transmission infrastructure, to deliver 850 MW of power to the grid at
Veyangoda, Chilaw and Anuradhapura. The power plant has an economic life
of at least 30 years.
Therefore, at the official discount rate of 10 percent, the capacity
cost of the project will be 1.77 UScts/kWh. The present estimated price
of coal is about 100 USD/tonne delivered to Norochcholai, and hence it
will have a fuel cost of 4.2 UScts/kWh.
The maintenance cost to run the power plant, inclusive of meeting all
the environmental standards will be about 1.25 UScts/kWh. Therefore, the
economic cost of electricity produced in this power plant will be 7.24
UScts/kWh. If oil prices reach 140 USD/barrel as they did last July,
coal prices may also double, and then this cost will increase to 11.42
Oil and gas options
Now, 7.17 UScts per unit of electricity is the economic cost, based
on the long-term country perspective. Today, the oil price is USD 70 per
barrel, and instead of Norochcholai, if we build a power plant burning
fuel oil, the costs will be as follows: Capacity cost 1.43 USCts/kWh,
Fuel cost 7.61 USCts/kWh, maintenance 1.00 USCts/kWh. Total 10.04 USCts
per unit of electricity. All this is if we build the power plant to use
the cheapest liquid fuel, that is furnace oil.
Furthermore, if we rejected Norochcholai and went for the liquefied
natural gas option, as promoted by many and opposed by many, the costs
will be as follows.
This assumes that the gas terminal will be given to Sri Lanka free of
charge by a company in Australia, as recently reported in the media.
Although it is too optimistic to assume a company will give a USD 600
million gas terminal to Sri Lanka free of charge, for this comparison,
let us assume so.
Then the cost of electricity from a gas fired power plant will be
1.37 UScts/kWh for the power plant investment, 8.21 UScts/kWh for gas
and 1.00 UScts/kWh for maintenance. Total 10.58 UScts per unit of
So the comparison is 7.17 UScts (or Rs 8.21) for coal, 10.04 UScts
(or Rs 11.54) for oil and 10.58 USCts (or Rs 12.17) for gas. So compared
with coal, a power plant using the cheapest kind of oil will cost 40
percent more, and one using gas will cost 48 percent more.
The coal and its alternative oil power plant will have all its
equipment and systems covered by the above cost, while the gas plant
assumes that a company will gift a gas terminal to Sri Lanka, and we
have to pay only for the gas, and not for the infrastructure. The above
price of Rs 8.30 per unit is on the basis of economic costs.
Owing to the concessionary 20-year loan, the actual cost of
production of Norochcholai at the present price of coal would be Rs 7.83
per unit. Yes, it is more than the approximate price of Rs 4.00 per unit
stated in the late 1990s. Why?
The rupee has depreciated from 70 to 115 Rs to the USD, coal prices
have increased from 47 to 100 USD to be delivered to Norochcholai, the
investment has increased from USD 900 to USD 1340. These increases are
all applicable to any other kind of power plant, oil or gas, we would
have built if we did not build Norochcholai.
Future price increases
A frequent argument is whether coal prices will remain fixed.
Definitely they will not remain fixed.
the project site
When oil prices go up, coal prices and gas prices too, also go up.
Oil has the smallest proven reserves and coal has the largest proven
reserves. So, when oil and gas prices double, coal prices too increase
by about 80 percent. No country in the world can escape that. They go up
together, and come down together.
Thus the decision of the Government to proceed with the full
development of the Norochcholai coal-fired power plant to its full
design capacity of 900 MW will cause Sri Lanka to see an economic cost
of electricity around 7.83 Rs per unit to produce from coal. Mixed with
30 percent large hydropower and 10 percent of other small renewables
(some of which are indeed very expensive), Sri Lanka is likely to see
the most competitive cost of electricity production by year 2015.
Electricity customers should see the first price reductions in 2011
when Norochcholai power plant Stage one begins full operation, and the
full benefits by 2014, when all the stages are in full operation. If oil
and coal prices remain as they are today (at 70 USD and 100 USD,
respectively), electricity customers should indeed receive an actual
price reduction from the first month of operation of Norochcholai.
Sri Lanka is not alone in building coal power plants. India is
building five mega power plants 5000 MW each in various locations (total
25,000 MW against Sri Lanka’s 900 MW in Norochcholai), and Vietnam is
building 2,000 MW in Mong Duong with finances from Asian Development
Bank. Hundreds of projects are under construction in USA, China, and
other larger economies.