Norochcholai, turning point of electricity industry

Dr Tilak Siyambalapitiya

Information and misinformation is doing the rounds again. It is true that coal prices have increased way beyond what was expected. What is not explicitly stated is that oil prices too have increased. Make no mistake: Coal is still the cheapest way to produce electricity for Sri Lanka, except for large or medium-scale hydro. The Government, save for a few mistakes, is on the correct path to bring electricity sector back to financial stability

In his fourth public visit to the site, the first phase of the Puttalam Coal-fired power plant, more widely known as the Norochcholai power plant, will be officially commissioned today by the President. Two more identical generating units are still being built on the same site, which will raise the total electricity production in Puttalam to a nominal 900 megawatt by year 2013.

The first phase of the power plant commissioned today will produce at least 1,500 million units of electricity this year, to serve 14 percent of the estimated total electricity production of 11,000 million units in the country.

The power plant will now assist the operations planners to make the best use of the hydro-electric generating system, saving the water to meet the peak demand every evening and to run the reservoirs at high storage levels to maximise their electricity output. Arguments are many, as to whether the coal power plant is actually cheap and whether it will cause a reduction in electricity bills.

Much has been said and written by professionals and politicians about power generation and its costs, in justifying or otherwise, of the coal power development program.

Sri Lanka is still a country with relatively high electricity prices, even with Government subsidies on fuel oil used for power generation and a generous debt moratorium granted by the Government to the sector.

Besides, Sri Lanka is one of the few countries that secure a high share of electricity from renewable sources of energy, particularly hydropower. In 2010, Sri Lanka produced 53 percent of her electricity requirements with hydropower and other renewables, thanks to significantly above-average rainfall that had other economic costs too.

For year 2011, the forecast for renewable energy share is about 38 percent and with the good rainfall seen in January, we may reach about 40 percent. There are some very significant issues with the cost of small renewable energy-based power plants built by the private sector, which must be dealt with sooner than later, to ensure the benefits of renewable energy would truly flow to the society.

Costs of oil and coal

So the question is, what is the cheapest way to produce the balance 60 percent of electricity? At this moment, the world oil prices are in the range of USD 100 per barrel. It costs a further USD four for freight and handling into Sri Lanka. Even if the Ceylon Petroleum Corporation (CPC) does not charge for storage and delivery and when port charges are added, it would be about USD 110 when a barrel of oil lands in the country. At these prices, even with the favourable exchange rates, a litre of fuel oil used for power generation costs Rs 68 per litre.

This is a most conservative price estimate, neglecting many charges and costs of CPC. If this litre of fuel oil is input to the most efficient oil-fired thermal power plant in Sri Lanka, it will produce five units of electricity: this means a fuel cost of Rs 13.60 per unit.

As reported in the media, coal has been delivered to Puttalam at prices ranging from USD 110 to 160 per tonne. Coal prices have been fluctuating significantly over the past few months owing to flooding in Queensland, Australia. Since reaching a peak in the last week of January, the prices have been gradually declining. However, let us assume the highest price reported of USD 160 per tonne delivered. This means a kilogram of coal will be Rs 17.60. This kilogram can produce only 2.5 units of electricity. So, the coal-fired thermal power plant at Norochcholai will produce electricity at a fuel cost of Rs seven per unit. This is about half the cost of production from our most efficient oil-fired thermal power plant.

I have not added the capital recovery costs, which are generally higher for coal than for oil, provided both are CEB owned. The gap is typically about Rs one per unit of electricity, which is not significant when compared with the gap in fuel costs to produce a unit.

Daily savings

Within 24 hours of the President declaring open the power plant, Norochcholai would deliver 6.8 million units of electricity. CEB will shutdown a number of its most expensive oil-fired power plants and use electricity from Norochcholai. Based on the above costs for the cheapest (not the most expensive) oil power plant, just for 24 hours, Sri Lanka would save (13.60 - 7.00) x 6.8 = 45 million rupees. The actual saving would be much higher, because what will be shutdown would be the most expensive power plants, not the cheapest.

Since 1980, a small group of engineers pursued the tasks of studying and responding to public concerns for 30 years on the concept of coal-fired power generation in general, and for 15 long years about Norochcholai itself. The project has been approved and cancelled many times over by various Presidents, Prime Ministers and Cabinets of Ministers. The most hilarious piece was aired on a Government television channel on March 31, 2002: “CEB engineers have misled the previous Government and the present Government too, about the power project in Norochcholai.

The Prime Minister has called the Japanese Ambassador to his residence to inform him that the Government has cancelled the Norochcholai coal-fired power plant project and that Japanese funds are no longer needed”. The next day, the Prime Minister ordered CEB to call for offers from the private sector to finance, build and operate 200 megawatt of oil-fired thermal generating capacity.

After facing such humiliation repeatedly for 15 years and after humiliating friendly Governments who were willing to provide concessionary financing to build the power plant, at the end of a long 15 year struggle, the project is now a reality, to serve electricity to the country for at least another 35 years.

On this historic day, let us not forget engineer E Carlo Fernando, the engineer, visionary and campaigner for coal power, who is no more. Let us also remember the resident of the area, who was misguided by various external elements and died after being shot at by Police during a protest march, sometime in 1997. Let us also remember the three Chinese workers who died in construction accidents at the power plant site between 2007-2011.