Are we to buy our solar energy with dollars?
Posted on August 4th, 2021

By Eng. Parakrama Jayasinghe Courtesy The Island

Email : parajayasinghe@gmail.com

A Presidential Press release, dated 13th June 2021; clearly defines the policy on our Energy Sector. The direction indicated is congruent with the presidential policy declaration Vision for Prosperity and Splendour”. This is not a moment to vacillate and get embroiled in personal or political agendas. The situation in the country is much too precarious with the Covid-19 raging and the spectre of the impact of Climate Change haunting us. The foreign reserves are falling, impacting the rupee and the cost of living. The agitation and indiscipline on the streets, in the midst of a Pandemic are signs of the social and economic instability creeping in. Sri Lanka can overcome the crisis but it needs sound leadership to mobilise and motivate the people to utilise its own resources in a prudent and fair manner.

A country, endowed with talented and educated human resources, abundant sun, wind, fertile soil and water. All these are valuable assets when it comes to opting to renewable energy. Renewable energy will not bring millions to individual businessmen but will give them sound incomes. However, a very large number of people will be become prosumers, that is those actively contributing to producing energy and at the same time using the generated energy themselves. The excess will be sold to the national grid as already practiced by the Solar Roof Top systems.

In this way, the country will save a large amount of foreign exchange, the environment will benefit as no fossil will be used and the consumers will benefit as they will be also producers and earning money as a result. There will also be a change in the economic scenario as power generation will be decentralised. The character of the Ceylon Electricity Board will be totally changed, from being a loss-making Colossus” to becoming a sophisticated research and development unit servicing the entire country with training and back0-up facilities. Singapore has very successfully graduated to this system.

The President, in a recent progress review meeting, left no room for the interpretation of his Policy Target of reaching 70% of Renewable Energy for Electricity Generation by 2030 (unfortunately diluted down from the original 80% RE) that his vision is for Renewable Energy and there should be no attempts to misinterpret this by calls for so called Clean Energy”. There is no such clean energy outside the realm of renewable energy and no fossil fuel can be given that distinction.

This national target has to be formalized now by a Cabinet decision and gazetted; otherwise, the President’s policy could very well be surreptitiously overturned.

Pursuing this goal, the contributions of various forms of indigenous sources of renewable energy have to be harnessed. Of these, Solar Energy holds pride of place with the progress made in recent years, particularly by Roof Top Solar PV systems , aided by the most visionary provision of the Surya Bala Sangraamaya which has to date reached a level of over 350 MW installed and many more in stages of implementation. The most challenging target set by the President however, would call for development of other larger installations both ground mounted and floating in the coming years.

The Ministry, as well as the CEB, have been working on several such projects with a 100 MW Solar Park in Siyambaladuwa for which the required land has already been earmarked and a proposed 150 MW Solar park in Pooneryn to follow shortly.

It is under these circumstances that I am compelled to raise alarm bells as noted in the title of this Paper. Are we to buy our Solar Energy in Dollars?

My article A Fresh Look at Solar Energy -Devoid of preconceptions and bias for and against.(https://island.lk/devoid-of-preconceptions-and-bias-for-and-against/) highlighted the many aspects of this most valuable resource, that mother nature has endowed on us in Sri Lanka and the need for most careful plans and programmes to gain the best advantage to Sri Lanka ,

The objective should be broader than the mere addition of energy to the grid. This would contribute to the national economy much more than what is given by the amount of electricity generated, by way of highlevel employment, development of local entrepreneurs and possibility of upstream and downstream integration not to mention the savings in foreign exchange.

With the current moves to implement the 100 MW Solar Park in Siyambaladuwa, it is most important that the other relevant issues are given due consideration.

Looking at the larger picture

The President’s goal of 80 RE as expressed in the 0Vision for Prosperity and Splendour” is based on a number of far reaching concepts. The reduction of Sri Lanka’s dependence on imported fossil fuels and thereby ensuring the future energy security, is the most apparent and noteworthy goal. But along with it should come the additional spin off benefits which would accrue, whether specifically stated or not. Only by ensuring these spin-off benefits, while reaching the primary goal, that the Splendour” of the vision would be achieved.

I am repeating here these important principles which should not be lost sight of at this critical juncture, and the opportunity be lost forever. These principles to ensure that Sri Lanka truly achieves future energy security and the additional advantages are

* The energy industry must at least now strive to become a National Industry. The competency of our entrepreneurs and technologists this is already well proven.

*The entrepreneurship in the energy sector should be viewed as a major potential contributor to the growth of the GDP, not a mere service in ensuring the energy supply for other sectors in the economy to grow.

*The development of Renewable Energy resources and services is a significant avenue of developing employment opportunities.

*The reduction of the drain on foreign exchange by eliminating the continued use of imported fossil fuels.

*In case of bioenergy the added advantage of multiple spin off benefits to the rural economy, with the added advantage of being a source of firm power, with no drain of foreign exchange

The challenge now is to ensure that the adherence to these principles is held as sacrosanct in the efforts to develop the larger solar and wind projects in the pipe line.

The Pitfalls to be avoided.

I am addressing these remarks on the Siyambaladuwa 100 MW solar project in particular, but similar consideration must be given for any other such solar and wind projects too.

The desire for the CEB to have large power plants in one location is acceptable from their point of view. However, both Wind and Solar Projects have the advantage that any size of project conceived however large, consists of a large number of solar panels currently reaching over 500 watts per panel and a discrete number of wind generators, which too have now reached capacities of 5 MW each. Therefore, the packaging of the number of individual units for a particular project is made purely on economic considerations.

What is important to realize is that such considerations must take into account, the principles outlined above to gain the greatest advantage to the country, which unfortunately seems to be glossed over by the planners, for various reasons. A holistic view in a national perspective would highlight the immense direct financial value and other economic and social benefits and energy security on one hand and the potential dangers in overlooking these on the other hand.

Let us look at the Siyanbaladuwa project as the example before any unwise decisions are made.

The project capacity – 100 MW installed

Targeted Grid Substation – Moneragala

Land Acquisition – Already made

Sri Lankan entrepreneurs and engineers have already proven their capacity of developing projects up to 10 MW. Therefore the logical policy should be to plan this project to be awarded to ten local entrepreneurs, to handle packages of 10 MW, properly structured and managed by the CEB, by National Competitive Bidding, so that the tariff would be in Sri Lanka rupee terms considering that we don’t have to pay for our sunshine. And there would be no drain on foreign exchange except for the initial one-time expenditure on import of the necessary equipment and a limited amount for any minimal spares imports only. The local entrepreneurs and the lending institutions and even the smaller investors in the stock exchange have shown their eagerness to contribute to this form of national venture. So, there is no validity in any argument on the availability of funds or the technical capabilities.

The alternative would be to invite foreign participation, usually couched in arguments of lack of adequate expertise, which as shown above are not tenable in the present situation, and the lure of so called ” Foreign Direct Investment ” and inward flow of Dollars at this critical juncture. But the question must be asked is, in how many such projects approved by the BOI, how much funds were sourced from the local banks limiting the credit available for the local entrepreneurs. The most blatant example is the Korean Investor in the Thulhiriya Textile Mill, who vanished leaving a multibillion loan unsettled for a local bank.

In the present situation the conditions are even worse. Let us assume that the investor would bring in the total capital required. Which may be assumed as US $ 100 Million for the 100 MW by one or more foreign investors. It is clear that they would have the advantage of the currently depleted cost of funds in the global market, which is not available for the local competitors in an open international tender. However, it is certain that the foreign investor in exchange would demand a Dollar Linked Tariff. Using an estimated final tariff of US $ 0.07/kWh, the following interesting numbers emerge.

(See image 1)

So against a dubious inflow of $ 100 Million we would be sending out 260 % , all of which other than the initial capital could have been retained in Sri Lanka. Moreover, with the ever depreciating rupee, this amount of dollar would be costing us much more in rupee terms. Let us be generous to assume that the a mere 3% depreciation of the rupee annually. Therefore this drain would amount to a colossal Rupees 75.8 Billions over the 20 year project life including cost of spares. .

Against this, for an initial foreign exchange cost of US $ 80,000,000 for a group of local companies the entire expenditure over the project period would be Initial capital on US$ . 80,000,000 plus the Import component of spares during project period @ 1.5 % of capital per year. If this is also adjusted @ 3% Depreciation per year the total foreign exchange drain is Rs 23.06 Billion only, against the Rs 75.8 Billion mentioned above.

These differences are illustrated in the chart below. (See images 1 and two)

This is the basis for my question in the title of this article. We will by spending in Dollars for the use of our own sunshine, which we could harness ourselves for a similar or lower cost in rupees and also ensure the much desired energy security and reduction of drain on foreign exchange.

The folly of a similar nature was permitted during the Mahaweli Project downstream development. The project packaging was done in a manner to exclude the local contractors and the awards were made to foreign companies. However, the actual work was done by local contractors on sub contracts very competently. But their experience still remains unaccepted for prequalification of the larger scale of projects. Many decades after, such monumental follies need not be repeated. We must not make the mistake of falling, during daytime, into the pit that we fell into at night, as the local saying goes.

One Response to “Are we to buy our solar energy with dollars?”

  1. Ratanapala Says:

    What Parakrama is saying is very true:

    “The folly of a similar nature was permitted during the Mahaweli Project downstream development. The project packaging was done in a manner to exclude the local contractors and the awards were made to foreign companies. However, the actual work was done by local contractors on sub contracts very competently. But their experience still remains unaccepted for prequalification of the larger scale of projects. Many decades after, such monumental follies need not be repeated. We must not make the mistake of falling, during daytime, into the pit that we fell into at night, as the local saying goes.”

    There is much expertise within the Island as well from Sri Lankans abroad. After all these are the products of Free Education in Sri Lanka, primarily. These resources should be harnessed. Samsung, Hyundai, LG, Daiwoo and others did not come up in South Korea with foreign investment. All these companies were highly supported by the then S Korea regime. Today they are world leaders.

    The decision making must not be left in the hands of the Administration – mainly SLAS pundits in Sri Lanka. It is these vultures who are always for getting involved in Forex Transactions and the implied ‘commissions’ to foreign accounts. They are responsible for driving away the intelligentisia in Sri Lanka to flee the Island in disgust, for they never allow any technocrats to make headway in Sri Lanka. These vermin are a permanent feature in every administration.

    The other is the entrenched self serving Electricity Mafia. Sri Lanka must get out of this ever loss making enterprise and not be a burden on the tax payer.

    FOREX INVESTMENT FOR THE SAKE OF ILLUSORY FOREX SHOULD NOT BE A CRITERIA FOR NATION-BUILDING.

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