Energy Policy and vital long term National Interests
It is welcome news that the National Energy Policy, which was drafted in 2005 and finally approved in 2006 is to be revised. This is an opportunity not to be missed to ensure that Sri Lanka adopts an appropriate and visionary energy policy, which takes into account both local and global realities. A National Energy Policy has to focus on long term national interests and objectives. All available information and data of emerging trends need to be used as a guide when thrashing out the final White Paper.
Errors from the past have to be avoided. Two stand out. The first was when we opted from replacing the use of hydro electricity, which accounted for 95 per cent of our needs, with oil based generation. The contribution from hydro resources was reduced to less that 50 per cent. The second was the very large subsidy given to industries using furnace oil for thermal generation. This has resulted in crippling the Ceylon Petroleum Corporation with a loss of more than Rs 7000 million.
Moreover, many industries who are converting their furnaces and kilns fired with imported oil to bio mass, which is a progressive step, are being handicapped by this subsidy. Those using oil continue to have an advantage with the hugely subsidized oil.
The Essential Policy Elements
Therefore, a new National Energy Policy has to give ample consideration to the following matters:
In fact electricity occupies only a minor fraction of the national energy basket. It is less than 10%. The policy must formulate goals and targets and strategies to address all form of energy viz.
· Electricity for domestic, commercial, industrial use.
· Thermal energy for industrial use.
· Thermal energy for domestic and commercial use.
· Transport fuel.
The energy balance below illustrates the relative importance.
Fig I – Sri Lanka Energy Balance 2006
Energy usage patterns and development of sources of energy does not happen overnight. Any short term measure done in haste is bound to lead to undue disruption of economic and social life. A decision to adopt a change to several aspects of energy policy such as sources of energy, generation, usage and pricing, must take into consideration the possible long term impacts.
The decision to adopt oil based power generation in Sri Lanka ignored the various studies available even at the time the decision was made. This was blatantly short sighted. Even then the Concept “Peak Oil” and the unavoidable price escalations was common knowledge. Today we are mesmerized with the thought that coal power is the panacea.
This is an aspect which receives little attention in Sri Lanka, due to an inability to recognize the importance of retaining control over the sources of energy in the country. The daily life of all citizens is technology driven, even those with humble lifestyles. Here energy plays an inescapable role. The fair access and sustainability to supplies of energy, is therefore is almost a fundamental right of all citizens. At the nation level it should occupy the central place in any national energy policy.
Maintaining a stance of non dependence on sources of energy for Sri Lanka is not only prudent policy but is of utmost importance.
An adjunct to this important requirement is the development of indigenous sources of energy. At least in the field of electrical power, Sri Lanka maintained an enviable record of over 95% contribution from indigenous sources till the late 1990’s. Any new policy must work to regain this advantageous position. Sri Lanka not having any proven fossil fuel resources has to accept the challenge of developing several sources of renewable energy. This is a blessing in disguise. Harnessing indigenous sources will not only ensure energy security but will help Sri Lanka to retain its position as a low carbon footprint country with the attendant numerous advantages.
All energy generation has environmental and health impacts. Any new energy policy must examine this aspect carefully. The current policy has no mention of these aspects at all. It must also be mentioned that some energy technologies actually have positive environmental impacts and that should given due credit.
As quite rightly stated in the current energy policy, access to basic energy needs is the right of all citizens and providing it is the responsibility of the state. Among the basket of needs cooking energy takes a predominant position as shown in the Energy Balance Chart shown above.
The most important ingredient of a National Energy Policy is the review of the available sources of energy, not for the next year or even the next ten years, but for a much longer time span, due to the long time lag and the difficulties of reversing any trends.
In this regard the first priority has to be on the identification of viable indigenous resources by careful review of emerging technologies in the world and by exercise of foresight, which we saw in the exemplary work of outstanding thinkers like Eng D.W. Wimalasurendra and Dr. Ray Wijewardena.
Sri Lankais blessed with ample resources of indigenous energy potential, which have the double advantage of being renewable and carbon neutral. A prudent National policy will have to concentrate on exploiting this advantage.
The development of the local energy resources can be an important factor in the economic development of the country. Dependence on imported energy for most of our energy needs and the predominant place they get in policy decisions is the cause for overlooking this important factor.
The result has also been that other relevant segments of the public and private institutions have been denied an opportunity to contribute positively, in the policy making process and thereby not been able to exploit their fullest potential.
Sri Lanka depends on imports for many basic needs and in recent times the import of fossil fuels has escalated to danger levels. The foreign exchange has surpassed our earnings from the primary agricultural products Tea, Rubber and Coconuts. This trend has to be arrested without further delay.
Deficiencies of the Current National Energy Policy
The development of the current energy policy has been a major step forward as it identifies very important and essential aspects of Sri Lanka energy scene. What is essential is to remove the mismatch between the defined objectives and the targets and strategies, outlined in the document. Moreover, the experience of the past six years is that this document has not served as a national policy accepted by all relevant sectors. Even the Ministries, other than the Ministry of Power and Energy, and even some institutions within the Ministry itself have deviated from the National Policy .
The Specific Targets, Milestones and Institutional Responsibilities listed in the document lack of relevance to the broader aspects of energy. The focus is 100% on electricity. There is only a passing reference to fuel switching from petroleum and on oil and gas exploration. The specific targets have been set only for the power generation and this has obviously been done to reinforce the preconceived decision to promote coal power as the third energy resource. This highly questionable decision has been reached on the basis of an erroneous notion that the coal prices in the world are stable and will remain low, and are not linked to the price of oil and gas.
All other qualitative strategies without any quantified targets, also deal mainly with electricity supplies and do not suggest any tangible goals and targets for other segments of energy, and do not assign the responsibility of addressing even the spelt out initiatives to any government agency. The specified targets are at complete variance with stated policy objectives viz:
1.4 “Promoting Indigenous Resources
· Indigenous energy resources will be developed to the optimum levels to minimize dependence on non-indigenous resources, subject to resolving economic , environmental and social constraints.”
Oil to Coal: From the Frying Pan into the Fire
The “National Energy Policy and Strategies of Sri Lanka” of October 2006, which is essentially an “Electricity Policy” document, is heavily biased towards coal based electricity generation.
Fig. 2: Coal and Oil Prices: 1985 – 2003
In fact, the above mentioned policy under Section 3.2 Energy Security, specifically gives the following guidelines:
“Fuel diversity in electricity generation will be ensured through diversifying into generation technologies that do not use oil or fuels of which the price is indexed to oil prices.”
Based on the values in Fig. 2 above, there was some financial justification for changing from oil based generation to coal based generation at that time.
However, the situation quickly changed in the period after 2004. From 2004 onwards countries such as China and India decided to import coal to meet the massive energy demand. This has changed the situation dramatically with sharp increase in coal prices.
Fig, 3 : Coal and Oil Prices: 2004-2011
Source : World Bank Data on Commodity Prices
The price of coal is very much linked to that of oil. Also the only reason that may have supported the dependence on coal, based on low price, has also evaporated with the coal prices tripling over the past six years. Therefore the present plans to develop several coal based power plants are patently against the current energy policy which specifically states
3.2 Ensuring Energy Security
· Fuel diversity in electricity generation will be ensured through diversifying into generation technologies that do not use “oil or fuels of which the price is indexed to oil prices”
In fact we should follow a more relevant guideline specified in the Policy Document in the same Section 3.2: Energy Security: “The use of biomass will be promoted by elevating its status to a modern, convenient energy source.”
Development of indigenous energy resources, which is the most practical choice Sri Lanka has to ensure some measure of energy security, is closely linked to the activities of a multitude of other Ministries and state and private institutions. Of these the Ministries of Agriculture, Mahaweli, Lands, Environment and Ministry of Transport are paramount. Their inputs to the process of formulating current energy policy is therefore essential.
The importance of biomass has been recognized by a cabinet decision relating to Gliricidia about the same time the energy policy was developed, under the initiatives of the Ministry of Plantation Industries. But this important decision has not received any recognition in the formulation of the energy policy.
It is not too late to implement the wide ranging proposal made under this Cabinet decision of June 2005, including the establishment of an institution to promote the development of biomass resources.
Even though the focus of the strategies and targets has been on electricity, there has been no attempt to consider the possible additional and parallel gains that could have been made by the correct approach, in the areas of
to name a few.
Targets for Energy
The targets assigned only for the power generation, have no justification.. These commit the country to more and more imports, particularly coal, and the targets for the NCRE segment is hardly challenging. Considering that the contribution by NCRE, mainly mini hydro, even at the time of policy formulation, was already at 3.5%, without the benefit of a National Energy Policy a 10% target by 2015 is far from adequate. (Already in 2010 it exceeded 6%). Fortunately His Excellency the President has set a target of 20% by year 2020 a figure which can be improved upon.
Adequate Stakeholder Participation
Since energy is every citizen’s right, the process of policy formulation must necessarily provide for adequate stakeholder participation. Hitherto what is claimed as stakeholder participation, has been ignored. Primarily adequate only those connected to the electricity industry were called in to the so stakeholder consultation meetings. A meeting of a few dozen people, conducted in English, can hardly be called a nationwide stakeholder consultation, required on a matter of national importance. A much broader consultation and consensus was necessary.
The outcome of the meeting led to zero amendments to the already decided and documented National Energy Policy. This is far from satisfactory for formulating a policy document of such great importance.
The present revision, which has come in after six years, will provide for a much more acceptable form of stakeholder consultation and open to discussing and accepting any viable suggestions from a much wider segment of the populace, truly representative of the stakeholders in the energy sector.
In this regard the PUCSL (Public Utilities Commission of Sri Lanka ) has set a valuable example when it called for wide representation through media advertisements and gave adequate time for public comments for the Review of NCRE ( Non Conventional Renewable Energy )Tariff Structure in November 2010.
Where does it leave us?
There is no dearth of indigenous energy sources in Sri Lanka. While some sources may require further research and development, there are many which can be harnessed with very little effort immediately. A case in point is the mini hydro sector. At the time the pioneers of this now vibrant industry devoted their entire wealth, knowledge and time, there were many who scoffed at the idea and sadly created many obstacles to prevent its development.
How much Does it Cost ?
There is a myth often repeated that indigenous resources would cost more than the use of imported fossil fuels, mainly coal which is clearly disproved by the comparison of the relative cost of using different fuels for generation of the equivalent of 10,000 kCal , which is the approximate energy content of a litre of oil.
Fig 4: Relative Costs of Different Fuels
Thus even with the 50% subsidy enjoyed by industries, the cost of fuel wood is 50% of the cost of the cheapest oil sold by the Petroleum Corporation. However, Sri Lanka spends more than $ 200 million annually to import petroleum products for the generation of heat alone.
Sadly the authorities are unable to understand this reality and continue to subsidize the furnace oil sold to the industries absorbing a massive loss of Rs 7000 Million annually. This is mainly due to the lack of a truly National Energy Policy which is owned and adopted by all sectors of the government and the public.
The issues related to cost of power generation are more clouded. This is mainly because the comparisons are made without using a common base line.
A fair comparison of cost of generation must be done on a common base which takes into account all the factors not limited to the direct costs of machinery and fuel.
At the time the new NCRE tariff structure was announced in 2007 there were clear pronouncements, declaring that the cost of renewable sources are more favourable than that of oil. With the faster rise of the price of coal this would be true now even in case of coal.
An examination of the movement of the price of fossil fuels and the NCRE tariff since 2007 will illustrate this situation clearly.
Table I : Price movement of Fossil Fuels and NCRE Tariff
|
Year |
Price of Coal ( FOB Australia ) $/ton |
Price of Oil Avg for the year $/bbl |
NCRE Tariff- Starting Tariff Rs /kWh |
||
|
|
|
|
Biomass |
Mini Hydro |
Wind |
|
2007 |
60 |
71 |
|
|
|
|
2008 |
65 |
97 |
13.57 |
13.15 |
20.80 |
|
2009 |
80 |
42 |
16.88 |
15.73 |
24.99 |
|
2010 |
100 |
60 |
17.97 |
14.57 |
20.81 |
|
2011 |
120 |
118 |
? |
? |
? |
Source. WB Commodity Prices
Externalities
In addition to the direct costs of different energy options, there are many additional impacts, both positive and negative, that any mode of power generation would create. Considering the nationwide and large scale operations, such impacts can be substantial and therefore cannot be ignored. These are termed “Externalities.” In addition to the impacts on the environment, there are substantial impacts on public health, social aspects and other related areas,. While quantification of and contribution to the cost of generation due to these factors are difficult, at least a qualitative assessment of these impacts must be made when choosing the different options.
Global Environmental Issues
Sri Lanka, at present can boast a very low carbon foot print, particularly in the power generation field. However, we will reach the acceptable limit per capita as dictated by the UN (IPCC) , to limit the global warming to 2 deg by year 2050, if all the currently planned coal power plants are implemented disregarding all the adverse effects. Although Sri Lanka will not be under any obligations stipulated by any of the existing treaties, there are clear indications that the developed countries will impose various non tariff barriers to our export products in the coming years, linked to the carbon foot print.. One such demand is already in place by the EU demanding that Sri Lankan Airways reduces its carbon foot print by 15% although Sri Lanka is still way below the stipulated emission levels.
Moreover, keeping a low carbon foot print gives our exports a strategic advantage over other countries, who continue to use fossil fuels. This is certainly applicable to our tea industry and other food products. This is one more reason that the NEP cannot be determined only by those in the energy sector alone, based on narrow considerations of convenience, and a tendency to hang on to pre-conceived ideas, in spite of the changing global realities.
The Way Forward
In conclusion, the deliberations for a new National Energy Policy must take into account
A National Energy Policy affects all of us to a large or small degree and it is the right of every citizen to ensure the development of a correct and pragmatic policy instrument. We would like to invite all interested individuals and institutions to enter into a dialog on this subject and also actively participate in any public stake holder meetings, which we hope would be done in a proper manner. Information on the indigenous sources of energy and other related details can be obtained by visiting our website www.bioenergysrilanka.org or the web site of the Sustainable Energy Authority www.energy.gov.lk or by contacting us directly by email on bioenergy@sltnet.lk
Parakrama Jayasinghe
President
Bio Energy Association of Sri Lanka
465/1, Sunethradevi Road
Pepiliyana, Borelesgomuwa
Sri Lanka