Small hydro power developers face tough call

By Cheranka Mendis

Small hydro power developers, who contribute 6% of the national electricity demand, amounting to 650 million units annually with 201MW, are facing difficult times with the Government  – in particular the Ceylon Electricity Board – which do not provide the necessary assistance for the industry to survive.

At a tariff rate of Rs. 13.04 per unit quoted by the CEB for the industry at the highest level of a three-tiered tariff structure, stakeholders are facing troubled times in keeping the business alive.

Those in the last tier of the structure, which represents companies in existence for over 15 years, only receive Rs. 3.47 for a unit. Tier two hydropower developers are quoted Rs. 8 for their contribution, which represents companies between eight to 15 years old.

They said power purchase prices, which are cost-based technology tariffs, have remained fixed over a period of 20 years, guaranteeing low cost green energy to the national grid at a the lowest price term.



“The operational costs are high for the industry. While the CEB has publicly declared that cost of power generation for it is Rs. 25, we are only offered a very minimal rate,” VSHydro (Pvt) Ltd. Managing Director Prabodha Sumanasekera said.

Sumanasekera, who runs the country’s first small hydropower plant located at Dickoya, initially started by his father in 1996, stated that adding to the issues, the CEB when renewing the 20 year contract offers the lowest tariff rates to developers.

“Since last June, the Dickoya plant has not been paid by the CEB as they have not renewed the contract yet. They are offering us just Rs. 3.47 for a unit for the next five years, which does not help at all.”

Admitting that he cannot hold the business for much longer as its reserves have already been taken over due to non-payment, Sumanasekera stated that if the CEB did not look at the industry in a more favourable manner, business going forward would be hard.

Project Seethaweliya, the second plant built in Sri Lanka, is in dire straits too. “A fair and equitable tariff must be offered to the old small hydro plants that are reaching the end of the term of the first contract after 15 years.”

Run solely by the private sector, development has slowed during the avoided cost tariff regime, he said. “The cost and technology-based tariff scheme was introduced in 2007 to promote less viable projects. The present small hydro tariff does not reflect the actual cost and generation characteristics of the small hydro plants,” he said.

Furthermore, the industry is seeking Government encouragement for new projects in the country even though the best sites suitable for small hydro have already developed. He acknowledged that the present commercial loans available for projects, which feature high interest rates and short repayment periods, must be corrected.

Sumanasekera said that in other countries, repayment periods often come close to an eight-year period for such developments. “We have never received any concessions or grants. This discourages the development of the remaining available projects.”

Concerns were also voiced on authorities not clearly defining a way forward for the cancelled projects and allegedly going forth with a sinister move to bundle such projects into one company.

Unnecessary demands have been made by the local authorities, especially the Pradeshiya Sabhas, requesting a large component of the project revenue as royalty payments over and above the statutory payments made to the State.

“This has to be controlled. State intervention is needed to eradicate this. Projects are held back for six months to one year with no approval if such demands are denied.”

Added to that are unreasonable technical conditions imposed by the Central Environmental Authority, which limits project viability, and the Board of Investment (BOI) increasing the investment ceiling, result in most available projects not qualifying for BOI status and privileges.

For the sustainable development of the industry, the Government should proactively address the aforementioned challenges facing the industry to pave the way for investors to develop the remaining small hydro potential in the country.

He noted that the importance and contribution of the industry should be recognised and that SLSEA should play the role of one-stop-shop and clear bottlenecks for development.

“Tariff settings should be transparent. An equitable tariff should be offered for projects where off-take contracts are up for renewal and the Government should mobilise long-term bank funding, especially from State banks, with repayment periods of upto 15 years and concessionary interest rates.”

Sumanasekera said: “The Government allows the private sector to develop hydropower plants of capacity below 10MW even though we have the capacity to do more. Today there are 94 operational plants feeding into the national electric grid, with a total capacity of 201 MW.” The number is expected to increase to 220-230 MW within three months.

With the ‘Mahinda Chinthana – Idiri Dekma’ envisaging the supply of 10% of the national electricity requirement to come from renewable energy, the industry should be supported to boost its capacity to 250 MW by 2015, which is a possibility if corrections are made, Sumanasekera said.

The Small Hydro Power Developers Association yesterday launched its website, www.hydropowersrilanka.org. The website contains information on national policy, power generation in Sri Lanka, project development and directory of members among other features.