Less Rainfall, More Losses for You and I

A dry Kotmale Reservoir. (Pic courtesy Sunday Times)

A dry Kotmale Reservoir. (Pic courtesy Sunday Times)

Sri Lanka’s electricity sector is in perpetual crisis – either a malfunctioning coal power plant built with costly funding, or severe contractions in hydropower generation. Despite all this, electricity supply to people and businesses has by and large been steady and predictable, unlike, say, 15 years ago. (of course bearing in mind the random blackouts and brownouts that occur). The cost, then, of ensuring steady power even during times of generational-crisis, is that the power utility – the CEB – bears the brunt of it. Most folks are quick to assume that the CEB’s losses are due to downright inefficiency. This is not always so. The culprit is often, simply, the rain. Why? Problems in Sri Lanka’s power generation mix.

Latest numbers from the CEB indicate that the power sector is facing severe losses due to the delay in anticipated rainfall to the catchment areas – the reservoirs (here’s a useful infographic by the CEB on where they are located). According to this news report citing the CEB, the utility is now making a Rs. 7.65 loss per unit. This is because the CEB is having to turn to expensive power generation, in the absence of sufficient hydropower. Hydropower generation, which costs just Rs. 2.50 per unit,  has fallen to record low levels, due to the lack of rainfall. It is currently meeting only 12% of the national requirement, while 85% is being met by thermal power, which is far more expensive. Over 40% of this thermal power is being generated by “high cost fuel oil plants”. Hence, the heavy losses incurred by the CEB (in Q1 2014 alone, it was Rs. 24 bn).

This situation isn’t new. Problems with the ‘generation mix’ have been going on for some time. They were expected to abate as more of the coal power plants (cheaper than fuel-powered) come on stream. But as we can see with the Norochcholai plant, the prospects on this seem rather bleak too.

The 2012 edition of the State of the Economy report by the IPS had an entire chapter dedicated to the power sector, reiterating that Sri Lanka cannot sustain rapid growth over a longer term without tackling the problems of this sector. This policy brief is a good quick read to get an overall understanding of the sector and how the issues in it impact on households and firms. Meanwhile, as this article argued, problems in the electricity sector are continuing to be felt disproportionately on the very sector that generates jobs and growth – the industry sector.

Despite the folly Sri Lanka faces in hydropower each time the rains are delayed, some experts argue that there still is potential for Sri Lanka to still maximise it’s hydropower capacity, by adopting better management of water resources and new technology. As this article by my colleagues posits,

“…it is still too early for Sri Lanka to focus overwhelmingly on coal energy for the future. Even though hydro will not be sufficient to cater to the growing electricity demand in Sri Lanka, there is additional potential that can be explored. With focused research on better management practices and innovations, the contribution from hydro could well be more than the 19.5% by 2020 as currently predicted by energy planners”.

Nevertheless, the electricity generation mix continues to cause problems for Sri Lanka. The symptoms due to the lack of rain may not be obvious to you and I, the average user – we haven’t, and probably unlikely to see, see power cuts. But we do pay indirectly, and here’s the summary of it:

As the rains delay → hydropower reduces → expensive thermal power must increase to bridge the supply gap → the higher costs are not passed on to consumer, prices remain the same → CEB bears the cost difference → CEB makes losses → loss is a fiscal burden on the Treasury → this is paid for by your taxes and mine. 

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