Taiwan’s and Sri Lanka’s Power Sectors

by Kumar David- 2021/10/10

(State Owned Utility like our CEB)

There is no reason, except cabinet and ministerial mismanagement, government meddling and political corruption, why the electricity supply sector is a mess in Mother Lanka but successful in, say Taiwan. But then the same is true of these two economies almost in every way. Lanka’s population is 22 million and Taiwan’s 26 million, our land area of 65 thousand sq. km is quite a bit larger than Taiwan’s 36 thousand and both countries lack significant deposits of oil, gas or mineral resources. Taipei, latitude 25 degrees north of the equator is more temperate than Colombo’s six degrees north. The economic indices however are as far apart as paradise is from purgatory; Taiwan’s nominal GDP and GDP per capita are US$ 760 billion and US$ 32,000, respectively, while the corresponding numbers in Mother Lanka before Covid were US$ 88 billion and US$ 3,700; though in the first decades after the Second World War we started with a notable handicap in our favour. People wistfully recall Lee Kuan Yew’s lament about similar early disadvantages that Singapore had to start from. Taiwan in those days after the civil-war in China was a bigger laggard.

These differences show up sharply in the electricity supply sector. The size of the sector in Taiwan with the corresponding number for Sri Lanka in parenthesis is; installed capacity 49 GW (4.1 GW) and electricity generated 270 TWh (20 TWh). A TWh (terra watt hour) is a thousand-million kWh and a kWh in common parlance is a unit. Taipower, Taiwan’s CEB owns the world’s largest gas-turbine power-station, the 4.4 GW Tatan and the world’s fourth largest coal-fired station, the 5.5 GW monster Taichung, nine times bigger than today’s Norochcholai. And, Taipower manages without provoking too big an uprising by irate environmentalists and without blanketing the nearby countryside with fly-ash to an unbearable extent. Taiwan’s breakdown of generation by energy source is 35% coal, 32% gas, 10% nuclear, 9% renewables and 8% oil. Allow me to remind you that in Sri Lanka the averages – hydro varies with rainfall and modifies all other annual percentages – is about 40% coal and 25% major hydro, other renewables including minor-hydro, wind, solar and biomass add to about 5%. The rest is oil-fired (private and CEB). Renewables will increase in the coming years in absolute terms but not much as a percentage because demand too will rise as the country’s economy (hopefully) improves.

Taiwan as one of four Asian Tigers is credited with an astounding economic trajectory; but the other three are easier to understand. South Korea is the biggest and Korea has the longest modern history, it also sports a complex and chequered relationship with Japan. Singapore’s upswing is half a century and going; it is a meritocracy of singular distinction, a place where racial bigotry is officially despised and there is English. Hong Kong from the post-revolution Shanghai money pots and after that in Deng’s days it was a sophisticated hub of the world’s soon to be largest economy. But Taiwan is different. It was colonised and raped by Japan from 1895 to 1945, and in 1949, kicked out of China. Chiang Kai Chek established himself as dictator till he died in 1975. Forty two years of Martial Law on the island ended only in July 1987 and thereafter the territory gradually emerged as a thriving if cantankerous democracy.

In the next three to four decades Taiwan evolved into a thriving economic powerhouse. What is the answer to this enigma? Let me try to explain. First, Taiwan was in the frontline of America’s anti-China policy and a magnet for American investment and finance. Second, a treasure-trove of Chinese talent fled to the island with Chiang in the late 1940s and carried with it a mother-lode of historical and artistic treasure and money. Thirdly, Deng’s opening up of China benefited Taiwan as much as it did Hong Kong.

However there is another reason which is no less important for us in Sri Lankan. Religion, language and ethnicity count for nothing and Taiwan has no “national conflict” to speak of; it is pretty cohesive. Mandarin is the unofficial national language and after the removal of Japanese was made compulsory in schools. It is a more natural lingua franca in Taiwan than English or Hindi are in India. True, though related, in everyday life nearly 70% speak Hoklo (Hokkien) and 20% use Hakka; aboriginals have their own languages. The point however is that the government recognises and fosters many languages and dialects.

A second huge advantage that Taiwan has over Sri Lanka is that religion has no clout in public life and plays no official role. No Mahanayakes or Ganasaras rally their forces, no Cardinals gather their flock and there is hardly a ‘madarasa’ school in sight. Thankfully, 20% of Taiwan’s population is officially atheist. Among the majority about 35% each are Far Eastern Buddhists and Taoists and 4% Christians. Nearly 10% belong to a rainbow of faiths though unfortunately Animists (a better lot than the religious) have died out even among the remoter indigenous peoples. The lesson to me seems clear; though admittedly language, race, ethnicity and religion aid social cohesion, communication and culture, none can dominate the show and boss others in political-space. Now you fill in the blanks.

Let me get back to the electricity sector which I chose because it is topical in Lanka and representative of the point at which I am hammering away. There are reasons some different and some similar why renewable sourced electricity is nine percent in Taiwan and 25-30% in Sri Lanka. Taiwan is simply not blessed with big hydro power in the way we are. However, being a small island with an even higher population density than Lanka it simply cannot find the tens of thousands of acres of land needed to generate gigawatts of power and terra-watt hours of electricity using solar panels. Being intelligent the Taiwanese are not living in 70% cloud-cuckoo land.

A crucial matter on which learning from East Asia is vital for Sri Lanka is how to buy LNG on contract and in global spot-markets. Whatever happens to the New Fortress Energy game (I hope a competitive tender succeeds instead) we can be certain that LNG is the way to go. The hard part is that gas and LNG prices have been wildly volatile in 2021 thanks to supply chain disruptions and the unexpected post-Covid pick up of the global economy. And the future’s not ours to see. Therefore, Sri Lanka, meaning CEB and CPC, need to build LNG buying departments and teams and start training right now. East Asia is the place to send our people for training.

Let me give you a ball-park idea of scale. When the two stations (total 660 MW) now under consideration for LNG fuelling in the Negombo area are in full flow they will need about 35 million-million Btu of LNG a year. The secretive contract with New Frontier Energy makes mention of the following two pricing options for the Take-or-Pay deal that is being pushed: Henry-Hub+115%+$5 per million Btu or Japan-Korea Marker+$1.15 per million Btu. My column last week (Oct 3) carried graphs of Henry Hub and JK-Marker prices in recent months. No one can be sure where they will end up in about two years but these two composites computed on Jan 2021 prices work out at about $12 and $25 per million Btu, respectively. (The big difference may be due to liquefaction and transport costs but the variation underlines a point; we need purchasing people who are on the ball. Otherwise the country will be screwed).

Now as I said these are ball-park numbers to indicate to readers the magnitudes involved. Let me use $15 per million Btu for LNG for my purposes next. The LNG bill for the two aforementioned power stations will be about $525 million per annum – dear God! The CEB’s long term expansion plan to 2037 speaks of a gas-fired generating capacity of about 3,000 MW. If all this happens and if prices stay more or less the same as my assumption, the outlay on LNG fuel will be in the region of $2 billion to $2.5 billion per year. These numbers will be out of kilter within a decade but one thing is for sure, LNG is the way of the foreseeable future for electricity generation and it brings me back to what I am trying to say: Start inducting a group of blokes with expertise in gas purchasing and LNG spot markets. My two cents worth is that East Asia is an important location for this training. After core teams are built the skills will become self-perpetuating, but get down to training buyers now whatever happens to ongoing shenanigans.

There is one other matter we need to bear in mind going forward. China’s President Xi announced at the UN a few weeks ago that his country will not build any more coal-fired plants abroad. Sri Lanka’s only coal plant and the additional unit now being installed are Chinese made; and China helped in the financing. Now that road is closed. However, the CEB’s 2020-2039 expansion plan envisages the addition of 1,800 MW of coal-fired capacity distributed over five power plants in this period. Pretty surely some projects will go out of the window but the 600 MW plant at Foul Point said to be for 2026 will be re-timed but not easy to replace. Europe and America are not in the power plant construction game but are turbine, generator, transformer and control software providers. This leaves us with India, Japan and South Korea as potential sources for finance and equipment and construction agents as well. Taiwanese plant contractors with equipment sourced globally may also be an option. Is it too cheeky to expect Beijing to finance projects while the province of Taiwan builds them? Ah well, hope springs eternal in the human breast and paupers need to find ever more innovative ways to beg.