Untitled Document

Power crisis: Is Upper Kotmale the answer?
By D.N.R. Samaranayaka
The presence of a serious power supply shortage is evident from the fact that the current unconstrained demand cannot be met from the available supply without resorting to power cuts or increasing the price of electricity to curtail consumption. Both power cuts and higher electricity tariffs affect economic growth in a variety of ways with the final outcome being lower economic growth, high unemployment and lower household incomes. Increasing the price of electricity could also increase household expenditure on electricity due to the possibility that electricity is inelastic in demand particularly among low and middle-income groups. Given low average consumption, the reduction in power consumption among these households is likely to be lower in magnitude compared to the magnitude of the increase in price.

In the absence of supply constraints, demand for electricity is largely determined independent of the level of supply and by a variety of factors. Of these, the rate of economic growth is the key determinant. It influences the factors that determine the demand for electricity such as household incomes, urbanization, industrial composition, technology use and accessibility to electricity supply. Therefore, an increase in the demand for electricity from the current period to the next will depend on the magnitude of the changes of these factors. In a slow growing economy, the changes that occur in these factors could be marginal and the additional demand for electricity will be relatively small. A higher rate of growth of the economy, on the other hand, leads to higher demand for electricity as well.

Supply sources
The composition of power supply in Sri Lanka changed significantly over the years. In the early 1950s, hydropower was the primary source of energy in the country. During this period, the demand for power was essentially limited to domestic, industrial and commercial uses in and around the city of Colombo and major urban centres in the country. In rural areas, only a very few had access to electricity.
In 1981, installed capacity of hydropower stood at 371 MW and thermal at 130 MW.

The country's electricity generating capacity increased significantly over the last 20 years largely due to the development of major reservoirs under the Mahaweli scheme. The installation of thermal power plants to supplement the power requirements was another factor that contributed to the increased capacity. Sri Lanka currently has a total installed capacity of about 1,687 MW. It consists of 1,137 MW of hydro, 453 MW of thermal and 97.5 MW supplied by the private sector.

The production pattern over the last five years suggests that the hydropower generating capacity has a maximum potential of 4,700 GWh. The actual capacity, however, varies with the amount of rain during regular rainy seasons in the catchment areas.

Electricity demand
As the electricity consumption varies across countries due to the variation of factors that determine the demand for energy, the relationship between average per capita income and per capita energy consumption is used as a measurement in international comparisons of energy consumption.

Sri Lanka is one of the countries with a low per capita consumption of electricity. As shown in the table, the average per capita electricity consumption in Sri Lanka in 1980 has been 100 kWh and it increased to 148 kWh in 1990 and to 295 kWh in 1999. Sri Lanka also stands as one of the countries that lag behind in electricity consumption in relation to the increase in per capita income over this period. This is reflected in a lower increase in per capita electricity consumption in relation to the increase in per capita income. As a result, there has been a decline in energy intensity which would have resulted from low technology use in domestic production.

In most other countries such as Thailand, Malaysia and Singapore, the growth rate in electricity has been higher than the growth of per capita incomes. Low electricity consumption in Sri Lanka in comparison with countries such as Singapore, Malaysia and Thailand is a combination of number of factors. Among these the slow rate of economic growth, limited economic diversification with low contribution of manufacturing to GDP, low application of modern technology in domestic industries, slow urbanization and limited accessibility of electricity in more rural provinces are particularly important.

Although there has been a gradual increase in the national coverage, electricity has not yet reached every household in the country. According to the CEB estimates, the national coverage in 2000 reached 57 percent, an increase of nearly 15 percentage points compared to the early 1990s.

Domestic consumption
The breakdown in electricity consumption in 2000 shows that households accounted for 1,700 GWh, industrial sector 1,754 GWh and commercial sector 825 GWh. All three sectors taken together experienced increased electricity consumption by 1,178 GWh between 1995 and 2000 or by 22 percent compared to the consumption in 1995. Of this increase, households accounted for 686 GWh, industrial sector for 228 GWh and commercial sector for 264 GWh. A major factor for this increase in all three sectors has been the increase in number of accounts during this period. The number of accounts increased from 1.3 million to 2.3 million in the household sector, from 20,101 to 27,231 in the industrial sector and from 151,706 to 255,706 in the commercial sector.

The increase in consumption per account holder has also been an important factor for higher demand in electricity in the household and commercial sectors. In the household sector it increased by 64 kWh per account holder and in the commercial sector by 1,476 kWh per account holder between 1995 and 2000. In the case of the industrial sector, on the other hand, consumption per account holder dropped by 11,555 kWh in 2000 compared to 1995. This reduction in the industrial sector is partly explained by the persistent power cuts and by the necessity of some of these establishments to utilize alternative sources for their power needs during the period of power cuts.

Electricity in the domestic sector is mainly used for lighting, but its use in air conditioning of buildings, cooking, and in the operation of electric appliances such as fridges, fans, microwaves and televisions is steadily increasing. Although the growth in these areas is more prominent in the urban sector, their use is also expanding in semi-urban and rural areas. Socio economic changes that are taking place in rural areas due to increasing purchasing power of Middle East returnees together with improvements in transportation and communication are major sources contributing to the increasing demand for electricity in rural areas.

In terms of electricity consumption per account holder, the highest consumption in 2000 has been in Colombo city with 2,170 KWh per annum. Under the assumption that the average family has 4.8 members, electricity consumption in per capita terms in Colombo City can be estimated at 434 kWh per annum.

The lowest consumption has been in the Uva province with 559.2 KWh per account holder or 116.5 KWh on per capita basis per annum. In 2000, CEB supplied 1755 GWh of electricity to 27,231industrial establishments. In terms of the industrial classification adopted by the CEB, 23,767 small scale establishments in the country accounted for 129 million kWh, 3,345 medium scale establishments for 1,038 million kWh and 119 large scale establishments for 587 million kWh. The consumption of small scale establishments increased from 32 million kWh in 1995 to 129 million kWh in 2000, medium scale from 372 million kWh to 1038.8 million kWh and large scale from 387 million kWh to 587 million kWh.

Nearly 52 percent of the electricity demand in the industrial sector was accounted for by the Western Province and this share increased to 63 percent when the electricity demand in Colombo City was also added. All other provinces accounted for the balance 37 percent.

In the commercial sector 255,676 establishments were provided with electricity in 2000 at an average of 3500 kWh per unit per year. Of these, small-scale commercial establishments totalling 253,994 consumed more than 50 percent of the consumption with an average consumption of 1,947 kWh per annum.

A regional breakdown of electricity consumption shows that the Western Province together with the City of Colombo accounted for 60 percent of the total electricity consumption in 2000 while a rural province like Uva accounted for only 2.3 percent. In per capita terms the former accounted for 585 kWh per annum while the latter 116 kWh per annum.

Future projections
Electricity demand as well as its annual growth has been complicated by regular power cuts, increasing tariff and high installation cost. In the absence of these factors that depress demand, electricity consumption is likely to be higher. The likely higher electricity demand implies that there is a supply shortage if electricity demand is based on factors that normally determine its demand. Under such a situation, the country could face a worse crisis if power-generating capacity is not increased significantly in the coming years.

A rough estimate of the demand for electricity by 2010 is based on two scenarios. The first assumes the coverage of electricity supply to households will increase by 10 percentage points to 67 percent and industrial and commercial demand by a compound growth rate of five percent per annum by 2010. This scenario takes into consideration an average growth of the economy by about four percent per annum over this period. The second assumes the increase in household coverage by 20 percentage points to 77 percent and industrial and commercial demand by a compound growth rate of 10 percent per annum by 2010. The latter assumes an average economic growth of about six percent over this period.

In comparison with the increase of 2,637 GWh in the past decade, i.e. between 1990 and 2000, the projected increase under scenario 1 appears inadequate. In the absence of excessively higher electricity prices and supply constraints curtailing power supply, the increase in demand could be much closer to the estimate in the second scenario. The latter requires the power supply to almost double from the capacity in 2000.

Upper Kotmale
The Upper Kotmale power project with an installed capacity of about 90 MW and power generation capacity of about 200 Gwh has been approved by the government despite the objections from concerned groups on various issues related to the project. The Energy Consultant Tilak Siyambalapitiya continues to advocate the importance of this project on the grounds of its potential supply, its beneficial impact on average price of electricity and lower pollution compared with alternative sources. The Upper Kotmale project cannot meet any of these objectives.

The potential power generating capacity of Upper Kotmale is about four percent of the current electricity sales by the CEB. Unfortunately, the addition of Upper Kotmale to the main grid will not make any significant difference to the power supply needs of the country in the coming years. In 2010, for example, it may provide about two percent of the supply requirement provided that there is rain in the catchment areas. In the absence of adequate water in the reservoir, it may not even provide a fraction of this amount. As discussed above, this uncertainty is well demonstrated in the decline of power supply in 2000 by 1,800 GWh due to insufficient water in the reservoirs.

If the Upper Kotmale power supply is sufficient to meet the supply gap in relation to anticipated demand by at least in 2010, it should be certainly viewed from a completely different perspective and it may have to be considered for implementation even with some environmental implications. Since it will meet only a small fraction of the total power requirement, its implementation needs serious consideration particularly in the context of broader environmental issues and implications.

The next point that Mr Siyambalapitiya makes is that the supply from Upper Kotmale could reduce the price of electricity. Unless electricity from Upper Kotmale can be sold separately, the lower electricity price from Upper Kotmale is an absurd argument. When a small quantity of power supply is averaged with the supply from other sources, it does not make any impact on the overall price structure.

Although it is difficult to make a straightforward comparison of consumer prices of electricity across nations due to significant variation in tariff policy of individual countries, Sri Lanka is now assumed to be the country with the highest consumer price of electricity in the Asian region. Most of these countries have a lower contribution to electricity supply from hydro than its contribution of around 50 percent in Sri Lanka. Although hydropower can be produced at a lower price, it will not necessarily lead to lower consumer prices in the presence of operational inefficiencies, outdated technology, mismanagement and low productivity.

The third issue that is raised in favour of Upper Kotmale is the increased pollution from thermal power generation. There is no validity in this argument as well since hydropower cannot provide the country's entire electricity requirement. Furthermore, Sri Lanka is not the only country which depends on alternative sources such as coal, thermal, gas or nuclear. In fact, hydro accounts for only about 10 percent of the power supply when the world supply as a whole is taken into consideration. In the Asian region too, the dependency on non-hydropower sources are increasing.
Policy implications

The government is committed to an accelerated economic growth in the medium term, and it is expected that this growth is led by the manufacturing sector. A revival of the rural economy with some degree of economic diversification is also needed to reach national growth targets. This combined economic strategy will increase the demand for electricity closer to the demand shown in the second scenario.
There is no dispute that the country's increasing demand for electricity cannot be met from hydropower.

The development of small-scale projects could only complicate the problems for other sectors that depend on water. While electricity has alternative sources, water does not have substitutes with the exception of drinking water which, to a limited extent, could be harvested from rainwater. According to the International Water Management Institute, Sri Lanka will be a water scarce country by 2025.

Since there are no comprehensive studies on the effects of hydropower projects on environmental aspects, it is not clear how they affect both the ground water and the downstream water supply. They both are crucially important to sustain the agricultural economy in the country and prevent any serious food shortage, particularly in the context of anticipated increase in population in the next two decades. It is important, therefore, to clearly understand whether hydropower projects are contributing to the scarcity of water before a decision is taken about the implementation of any future hydropower projects.

The limitation of hydropower potential in the country makes it necessary to depend on alternative sources such as thermal, coal and natural gas. Thermal and coal in particular have environmental implications due to the emission of pollutant materials in the process of electricity production, but these can be minimized and mitigated under strict environmental guidelines.

What is urgently required at this stage is a comprehensive energy policy which takes into account the total picture of the energy sector rather than the continued preoccupation with short term strategies which in the long term will not provide a solution to growing energy needs.

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