ECONOMYNEXT – Sri Lanka is proposing new Standardized Energy Buy Agreements (SPPA) for renewable vegetation beneath 10 MegaWatts which have options which makes it unattainable to get financing from banks, an trade affiliation mentioned.
Sri Lanka’s state-run Ceylon Electrical energy Board and the Ministry of Vitality is making an attempt to scale back prices as a part of efforts to scale back promoting costs and make the nation’s vitality inexpensive and aggressive.
The trade says whereas they may comply with a discount in feed in tariff, the proposed cuts are too steep.
Smaller renewable energy vegetation are usually not ‘dispatched’ or switched on and off by the system management, in contrast to thermal vegetation or massive hydros and utilities often purchase all the ability generated by them, no matter whether or not the vitality is required or not.
With a bigger share of vitality coming by means of renewable sources, energy grids have confronted instability and utilities are searching for methods to steadiness demand and provide to enhance system reliability.
Some nations have phased out promotional feed-in-tariffs, moved to self-produced/self-consumed fashions and and capped limited exports of rooftop solar to the grid.
One technique is to curtail provide when demand is low corresponding to throughout weekends.
Dispatched vegetation often have a minimal capability to cost to cowl the price of funding whatever the vitality offered.
The brand new SPPA have options that make them unbankable or unattainable to get financing from banks, Thusitha Pieris, President of Sri Lanka’s Federation of Renewable Vitality Builders says.
Unknown Curtailment
The most important drawback is that the curtailment will not be capped or predetermined and due to this fact the developer might not be capable to service loans.
If the curtailment is pre-agreed to a quantity beforehand, then revenues might be predicted to fulfill banks, FRED officers say.
“We don’t thoughts if we put a restrict of two, 3 %,” FRED comittee member Riyaz Sangani mentioned.
“We perceive. Something past that, it’s best to compensate us. And if there’s a curtailment, it needs to be taken into the monetary mannequin which is ready to work on the tariff.”
In Africa the place some Sri Lanka corporations are working, there’s a pre-agreed cap on the ability buy settlement, and any curtailment above the restrict is compensated by money, in accordance with FRED.
The brand new SPPA additionally proposes a retention of two % of revenues to cowl for not offering energy by means of the lifetime of the contract.
Nonetheless, FRED says that’s not honest since there is no such thing as a materials report of small renewables in Sri Lanka not supplying energy, and virtually all vegetation have continued to provide energy all through their contracts. They’ve additionally equipped energy when CEB delayed funds.
FRED says firms might present a financial institution assure if required, however depriving the cashflow needs to be prevented.
Low Returns
An additional drawback trade officers say is that the SPPA doesn’t give ample earnings to builders because of assumptions made on rates of interest and returns on fairness within the tariff mannequin.
Returns are calculated based mostly on Treasuries charges, which don’t compensate for the dangers of working a enterprise, Prabath Wickremesinghe, Government Committee Member of FRED mentioned.
There isn’t any level in stepping into enterprise to get Treasury payments, trade officers say.
Curiosity on borrowing are additionally made on common weighted prime lending charge plus premium which can also be disputed by the affiliation.
The brand new SPPA additionally eliminated the flexibility to commerce carbon credit score from the developer and had given it to the federal government. Buying and selling carbon is a troublesome course of and the federal government has to this point not been capable of make any headway, FRED officers say.
Tariff Dedication
FRED additionally say proposed feed-in-tariffs for renewable vegetation are too low. The charges haven’t been formally introduced however there’s a proposal to Cupboard out there on the general public area, the FRED officers say.
On that foundation the value paid for photo voltaic SPPA might come all the way down to round 14.50 rupees, one official mentioned.
With international renewable vitality prices falling and know-how enhancing prices are being lowered in lots of nations.
Renewable corporations promote energy to utilities avoiding aggressive bidding on pre-determined tariffs on the idea of prices decided by means of administrative calculations and lobbying and utilizing methods corresponding to prevented price to spice up tariffs.
In Sri Lanka, feed-in tariffs for SPPA have been controversial and even small vegetation that are topic to aggressive bidding have come at decrease costs prior to now, relying on plant elements and the challenge administration abilities of the promoters.
The trade might comply with some discount, however the proposed discount which quantities to round 30 %, is just too steep, Pieris mentioned.
Coupled with different issues within the SPPA, small energy initiatives can be fully unviable, Peiris mentioned.
The FRED would really like the Public Utilities Fee to be concerned in figuring out feed in tariffs and in addition a public session.
Within the present committee that decided new feed in tariffs dedication, the regulator was not concerned and the suggestion introduced by FRED has additionally not been adequately taken be aware of officers mentioned.
Uncounted Advantages
There have been an a variety of benefits from SPPA that are set in rupees and the utility prior to now has benefited when the forex depreciated, FRED officers say.
In Sri Lanka the rupee had depreciated steeply after 1978, because of flaws and anchor conflicts within the central financial institution’s working framework.
The big vegetation at the moment are paid on a US greenback denominated tariff after steep depreciation seen below so-called information pushed financial coverage potential output/versatile focusing on which has made the native forex an unreliable as a way of deferred funds in recent times.
Sri Lanka’s energy grid has to make substantial investments to the grid to permit it to accommodate renewable energy.
FRED says they may provide vegetation with batteries which can present the ability throughout evening peak if a tariff is given.
Though there is no such thing as a specific storage of vitality, in precise truth the CEB has been capable of preserve hydro storage into the dry season, because of rooftop photo voltaic and different renewable vegetation, FRED mentioned.
Utility officers have mentioned that Sri Lanka’s Public Utilities Fee’s failure in financial regulation has made it run massive losses prior to now, which it referred to as ‘regulatory losses’ which has led to massive will increase in brief time period debt and missed funds to non-public renewable and thermal energy suppliers.
Among the debt has already been absorbed by taxpayers.
Underneath an IMF program, the CEB has been compelled to function on cost-based tariffs after a sovereign default. The IMF has mentioned the newest tariff reduce by the regulator, has seemingly breached a structural benchmark of this system.
In Sri Lanka’s first sovereign default, losses at vitality utilities – which partly additionally got here from central financial institution depreciation of the rupee – performed a big half. (Colombo/Apr02/2025 – replace II)
