Long-term generation expansion plan – Legal barrier against implementing the Electricity Act

 

By Dr. Janaka Ratnasiri and Eng. Parakrama Jayasinghe-September 29, 2020

A retired Professor of Electrical Engineering has claimed that “the CEB’s long-term generation expansion (LTGE) plan is the best strategy for this country to follow at this time, which is revised once or twice a year” in a write up appearing in The Island of 03.09.2020. Obviously, the learned Professor does not seem to be familiar with the CEB plan because it is not revised once or twice a year but only once in two or three years. Nor has he studied the proposals made by the CEB in relation to the current developments in the energy sector worldwide. The LTGE Plan has some importance for Sri Lanka because compliance with it has been made mandatory for capacity addition both in the Act as well as in the Power Ministry mandate.

SRI LANKA ELECTRICITY (AMENDMENT) ACT NO. 31 OF 2013

This Act, which is an amendment to the Sri Lanka Electricity Act No. 20 of 2009, governs the addition of any new power plants or expansion of existing power plants in Sri Lanka. This amendment to the Act requires that such addition of generation capacity needs to comply with the CEB’s LTGE Plan which has received the prior approval of the Public Utilities Commission of Sri Lanka (PUCSL). There are six instances in the Act where reference has been made to the CEB’s LTGE Plan making it mandatory that any new capacity addition or expansion has to meet the requirements specified in the CEB Plan.

Some extracts of sections of the Act where reference has been made to the LTGE Plan are given below.

“A transmission licensee shall, based on the future demand forecast as specified in the Least Cost Long Term Generation Expansion Plan prepared by such licensee and as amended after considering the submissions of the distribution and generation licensees and approved by the Commission, submit proposals to proceed with the procuring of any new generation plant or for the expansion of the generation capacity of an existing plant, to the Commission for its written approval”.

“Upon obtaining the approval of the Commission under subsection (2), the transmission licensee shall in accordance with the conditions of its transmission licence and in compliance with any rules that may be made by the Commission relating to procurement, call for tenders by notice published in the Gazette, to develop a new generation plant or to expand the generation capacity of an existing generation plant, as the case may be, as shall be specified in the notice”

“Upon the close of the tender, the transmission licensee shall through a properly constituted tender board, recommend to the Commission for its approval, the person who is best capable of meeting the requirements of the Least Cost Long Term Generation Expansion Plan of the transmission licensee duly approved by the Commission”, among others.

“The Commission shall be required on receipt of any recommendations of the transmission licensee, to grant its approval at its earliest convenience, where the Commission is satisfied that the recommended price for the purchase of electrical energy or electricity generating capacity meets the principle of least cost and the requirements of the Least Cost Long Term Generation Expansion Plan and that the terms and conditions of such purchase is within the accepted technical and economical parameters of the transmission licensee”.

“For the purpose of this section- “Least Cost Long Term Generation Expansion Plan” means a plan prepared by the transmission licensee and amended and approved by the Commission on the basis of the submissions made by the licensees and published by the Commission, indicating the future electricity generating capacity requirements determined on the basis of least economic cost and meeting the technical and reliability requirements of the electricity network of Sri Lanka which is duly approved by the Commission and published in the Gazette from time to time”.

 

MINISTRY OF POWER MANDATE

The recently established Ministry of Power has stipulated as a key mandate of the Power Ministry the following:

Meeting the electricity needs of all urban and rural communities based on the long-term generation expansion (LTGE) plan prepared by the Ceylon Electricity Board (CEB).

Among the special priority areas identified for the Power Ministry is the Implementation of the long-term generation expansion plan.

LONG-TERM GENERATION

EXPANSION PLAN

Since the Electricity Act as well as the Ministry of Power mandate require that the generation capacity addition needs to be carried out meeting the requirements of the LTGE Plan, it is necessary to examine closely what this plan is. The CEB prepares a long-term generation expansion (LTGE) plan once in two or three years outlining the least cost options of generation plants that need to be added to the system annually for the next 20 years to meet the forecasted demand. The latest plan is in respect of the period 2020 – 2039 but it is still in the draft form yet to be approved by the PUCSL as required by the Sri Lanka Electricity Act No. 31 of 2013. As such the LTGP in effect is the 2018-2037 plan which has received the written approval of the PUCSL.

Being a rolling plan updated once in two or three years, the types and capacities to be added in a given period keeps changing with the plan. Hence, a potential developer is at a loss to know which plan to follow in planning a future power plant development project. This becomes clear when the capacities recommended to be added in the three recent plans covering the periods 2015-34, 2018-37 and 2020-39 (Draft) given in Table 1 are examined. For simplicity, only the additions of large thermal power plant capacities are included in the Table.

It is seen that the 2015-34 Plan has included only coal power plants amounting to 3,200 MW up to 2034. The 2018-37 Plan, on the other hand, has included addition of 2,700 MW of coal power plants together with 1,500 MW of natural gas (NG) power plants, up to 2036. Whereas the 2020-39 Plan (Draft) has included addition of 2,100 MW of coal power plants together with 3,000 MW of NG power plants up to 2039. When the capital cost of power plants and fuel costs keep varying year to year, it is impossible to forecast accurately 20 years earlier what the cheaper option would be in 20 years hence.

 

ISSUES IN IMPLEMENTING

THE CEB PLAN

If the CEB Plan was implemented in 2016, by 2025, coal power of capacity 1,400 MW, including the proposed coal power plant at Sampur, needs to be built according to 2015-34 Plan. However, according to the 2018-37 Plan, 3×300 MW of coal power plants, together with 2×300 NG power plants, need to be built by 2025. On the other hand, according to the 2020-39 draft Plan, 3×300 MW of coal power plants together with 4×300 MW of NG power plants need to be built by 2025. When a plan keeps changing in this manner with so much divergent recommendations, it cannot be called a long-term plan. There is no unique recommendation for a given period for an investor to pursue. If the 2015-34 Plan decided that coal power plants are the cheap option up to 2025, how is that the 2018-37 Plan decided that NG power plants are the cheaper option for this period? This shows the weakness of the planning methodology.

If an investor wishes to build a power plant in 2015, he is required to follow the capacity additions as specified in the 2015-34 Plan and will decide to build a coal power plant. After spending the first two years on the preliminaries such as feasibility studies and environment impact studies, he finds that an updated 2018-37 Plan released in 2018 recommends NG power plants, instead. Is he then required to change his plans and start building a NG power plant instead? In view of environmental consideration, a NG power plant is always preferred to a coal power plant. It should be noted that a 300 MW coal plant will generate about 100,000 t of ash annually which is an environmental hazard.

There is also an ambiguity in applying the condition laid down in the Act that the capacity additions shall meet the requirements of the LTGE Plan. The Act does not specify whether the Plan to be applied is what is in force at the time of commencing the power plant project or what is in force at the time of commissioning the power plant. Within a matter of four to five years’ time taken to build a coal power plant, the requirements in the Plan could change widely during this period. Hence, it is essential that this be clearly specified or this condition removed altogether enabling implementation of the Act without leaving room for it to be questioned in a court of law.

 

DISPUTE BETWEEN THE REGULATOR AND THE LICENSEE

The Electricity Act requires that the LTGE Plan prepared by the CEB shall be approved by the regulator, PUCSL. However, the approval of the Plan for 2018-37 ran into a problem when the original draft submitted by the CEB was not approved by the PUCSL who in turn proposed an alternative Plan which was not accepted by the CEB. This dispute went dragging for over a year and settled only after the intervention of the President. Even in the case of the current draft for 2020-39, the CEB had submitted it to the PUCSL for approval last year, and is still awaiting approval. Possibly, the PUCSL may want the Plan to fall in line with the Government policy of giving priority for renewable energy sources as described in the writer’s article appearing in the The Island of 25^th and 26^th September.

This dispute was brought to stark reality in respect of the CEB plan 2018-2037 both by the evaluations of the PUCSL and in the submissions made during the public hearings. The blatant errors and misrepresentation sin the draft submitted by the CEB which was obviously done to force the adoption of further coal power plants ignoring the world wide rejections can be seen in the submissions made to the PUCSL during the public hearings and is available in the PUCSL web page ().

Accordingly, an amended LTGP was formally issued by the PUCSL which should be considered as the LTGP in force until such time a new plan is approved after going through the processes including the public hearings as done in the case of the 2018-2037 LTGP. The fact that the CEB refused to accept this plan and the fact that the Government decided to force the PUCSL to issue an approval for the flawed plan submitted by the CEB makes a mockery of the entire process and the role of the PUCSL as the regulator of the Electricity Sector. As such, it does not make sense to incorporate such a flawed variant plan as mandatory for capacity addition in the Act as well as in the Ministry mandate and to describe it as the best strategy. As a matter of fact, it is the worst strategy for power sector development in the country.

 

AMENDMENT TO THE ELECTRICITY ACT AND MINISTRY MANDATE

To get over the problem of the Act and the Ministry mandate not being able to meet the requirements of the LTGE Plan in view of the uncertainty of the technologies which the Plan recommends for different time periods, it is necessary to amend these two documents. The first reference to the LTGE Plan in the Electricity Act described previously says that procurement of generation capacity shall be based on “the future demand forecast as specified in the Least Cost Long Term Generation Expansion Plan”. This is in order because there is little variation in the demand for a given year between different Plans.

The rest of the references say that future capacity additions shall meet the requirements of the LTGE Plan. Since the requirements include the technology whether a coal plant or a NG plant should be installed and this changes from Plan to Plan causing the uncertainty in implementing the provisions in the Act or the Ministry mandate, it is best if these sections are amended. It is proposed that the words “meet the requirements of the LTGE Plan” appearing in the Act be amended to read “meet the demand forecasted in the LTGE Plan”, wherever the term “requirements” appear.

The Act says that “Upon obtaining the approval of the Commission the transmission licensee shall in accordance with the conditions of its transmission licence and in compliance with any rules that may be made by the Commission relating to procurement, call for tenders by notice published in the Gazette, to develop a new generation plant or to expand the generation capacity of an existing generation plant, as the case may be, as shall be specified in the notice”. Hence, it is logical to keep the fuel option open when calling tenders at the time capacity addition is required giving sufficient time for the procurement process and construction of the plant. The bids received would show which fuel option is the cheaper.

It is important to issue a set of specification with respect to performance and emissions which should be met by the plant offered. The tender should also be required to specify the levelized cost of generation including the amortized annual cost of the plant, cost of operation and maintenance and the fuel cost for generating a unit of electricity giving a formula to work out the fuel cost depending on its price in the international market. The price should also include the cost of externalties. It will be then possible to select the best and cheaper option, whether coal or gas, meeting the specifications.

It should also be noted that the Electricity Act has interpreted “least cost of generation” to mean “least economic cost of generation”. Economic cost should include the cost of damage to the environment due to emission of fly ash as well as from accumulation of about 100,000 tonnes of bottom ash annually from a 300 MW coal plant. It should also include the cost of health damage to people exposed to gaseous emissions and release of toxic substances from the plant. The current plans do not include these and if they are included, all the coal plants included in CEB’s LTGE Plans need to be changed to NG power plants as such plants do not cause emission of toxic gases or other substances.

 

CONCLUSION

Though the Electricity Act and the Ministry mandate stipulate that capacity additions be carried out to meet the requirements of the CEB’s LTGE Plan, practically it is not possible to follow this in view of the fact that the type of plants to be added keep changing with the Plan. It is therefore proposed that the Act as well as the Ministry mandate be amended suitably. It is also proposed that the type of plant be selected after calling tenders keeping the fuel option open a few years ahead when the capacity addition is required and not 20 s years beforehand.

It is important to recognize that the basic purpose of the LTGP is to ensure the long-term energy security of the country using means and technologies that enables realization of the least economic cost of generation, which should include the cost of externalities. As such, unless a firm binding feed in tariff over the life of the plant cannot be guaranteed via suitable tender procedure accepting the above premise, making any long term plans using numbers such as parity rate and price of coal or gas is a futile exercise.

Furthermore, the changes occurring in the energy sector practically every day which helps to realize the above objectives must constantly be factored in to the planning process. Thus, the CEB plans available currently certainly comprise the worst strategy to follow in developing the power sector in the country, as they completely ignore the very progressive advances made the world over which are of great benefit to Sri Lanka.