Financial Times

Row over mini-hydropower price
Private mini-hydropower developers have slammed a Ceylon Electricity Board decision to lower its buying price this year, saying it is unfair and discourages the development of cheap, renewable energy sources.

But CEB officials said the developers were being unrealistic and demanding to be paid at the same rate as for emergency power bought on a short-term basis from private oil power plants.

Dr Romesh Dias Bandaranaike, CEO of Eco Power, which has built six plants with a total capacity of 15MW and is to commission its seventh plant of 2.5MW by the end of May, said the CEB was paying high prices to buy electricity from private diesel generators when much cheaper power could have been bought from mini-hydro power producers.

Every mini-hydro power developer enters into a standardised power purchase agreement with the CEB under which they sell all the power they generate to the CEB each year at a price calculated by the CEB.

The pricing mechanism uses an 'avoided cost' method, to calculate the savings made by the CEB by not using expensive oil-based plants, to arrive at an overall average value per unit.

Under this method, if the CEB buys a unit of electricity from a mini-hydro power plant it will not need to generate this unit from its own plant or buy it from a private diesel plant. So the amount to be paid for this unit should be the savings the CEB makes on the fuel cost of not generating the unit from its own plant or buying it from the private sector.The CEB's new chairman, Ananda Gunasekera, said that the pricing was being reviewed but added that he had not got any official protest from private mini-hydro developers. He said he was still studying the issue and could not respond to criticisms by the private developers immediately but added that he believed there was no need for the purchase price calculations to be confidential.

Dr Dias Bandaranaike of Eco Power said the "CEB has continuously manipulated the calculation of prices paid for mini-hydro power so that these prices have been lower than they should be if calculated properly."

These price manipulations have had far reaching negative impacts on both the development on mini-hydro power and the CEB's overall cost of buying power, he said.

Eco Power, which has about 25MW of additional plants in the pipeline in various stages of preparation, has gone for arbitration against the CEB in the pricing dispute.

Altogether the island has about 40MW of mini-hydro plants connected to the CEB grid with about 40 more plants being built and potential for building a further 250MW of mini-hydro plants "provided the price paid for generation from these plants is attractive enough," Dias Bandaranaike said.

A senior CEB official denied that the CEB was manipulating the price to discourage private mini-hydropower developers. "We work on a standard annual formula. There's no deliberate reduction."

"This year we're running on emergency power after the rains failed," the senior CEB official said. "Mini-hydro power prices for 2004 were calculated towards the end of 2003 when the CEB was not buying emergency power. So they (private mini-hydro developers) now want the CEB to take into account current oil prices."

The CEB buys electricity from private thermal plants under an emergency basis on short-term contracts of three to six months but signs up with mini-hydro power developers for 15 years.

Mini-hydropower developers were trying to gain undue advantage by demanding to be paid at current oil prices, the CEB official said. "Ultimately that burden will go to customers. The developers will recover the full cost of building mini-hydro plants in 3-4 years after which they make profit.

"We're paying a higher amount for emergency power for a short period to avoid a crisis. If not we would be forced to go for power cuts." Dr Dias Bandaranaike said that if prices had been remunerative more mini-hydro plants would have been built by now, allowing the CEB to save money on buying electricity from private diesel power plants.

The CEB should give developers access to the data and calculations on 2004 prices and not keep them confidential as CEB is not a normal commercial entity but a monopoly state utility, he added.

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