Tuesday, March 13, 2012

Losses at the CEB and private power

I was at dinner with some people this evening. At our table were seated a person who works for a company that runs some private power projects and someone who works for the CEB. I spent some time talking to these people and this is what I gleaned over the course of the evening.

The person working for the private power firm said that they sell power to CEB at Rs.13 per unit for hydro and Rs.21 per unit for wind power. The return on investment on wind power is apparently about 22% while that on hydro is 17%. I asked if there was any risk in the power business, in the opinion of the person involved in the business there was none. The CEB buys all output at the set price.

When talking to the CEB employee she claimed that the main reason for the losses at the CEB was private power. According to her, about 60% of the CEB's revenue is spent on private power. Quite apart from the tariff charged by the private companies there is apparently a hefty surcharge that is charged by the companies for delayed payment. She claimed that transmission losses were small in comparison to the losses on generation.

The information that I obtained tends to square up with what I have gathered from other sources so I believe it is largely correct. There are plenty of other inefficiencies that can be improved upon, from overstaffing to power piracy but these appear to be the big ones.

The CEB sells a unit at around Rs.8 but buys it at around Rs.13 from private producers, thus incurring a huge loss. I have no problem with private enterprise, which need to earn a fair return for investors. However are they charging too much? Given that they have a low risk business should they only earn the risk-free rate of return ie the rate on treasury bills (currently in the range of 10-11%).

However if all the private producer is going to earn is the risk free rate they may as well as put their money in the T bills and save themselves the hassle of running the business, therefore no private power would be generated. Therefore a premium is necessary, but how much? A difficult question, so why not let the market resolve the question? Let private power producers bid every quarter to supply the CEB at whatever rates they may determine. The CEB can then buy from whoever quotes the lowest price. This is a simplistic model, there probably needs to be a floor price to at which the CEB buys as the buyer of last resort and, possibly, options for the private producer to sell direct to consumers, but the general principle of the auction is best.

In the meantime, the CEB engineers should lobby to move to daylight saving time, a painless means of saving power that will help ease losses to some extent at least.


sbarrkum said...

When talking to the CEB employee she claimed that the main reason for the losses at the CEB was private power.

I think that statement is incorrect. I very much doubt that private power generation is any significant percentage of total power supplied by the CEB. Think the massive hydro power projects such as Mahaveli, Kotmale etc and the Thermal power generation such as Kelanitissa and Noracholai.

Consider the fixed price to small and medium scale private Wind and Hydro power to be a subsidy to encourage investment in alternate to oil/thermal power and reduce oil imports.
This would then be very similar to the German subsidies for Solar Power. This has in someways become a loss because of its success, to much power (during daytime) and not enough storage (for use at night time).

N said...


Take a look at the following link


sbarrkum said...

N, Jack Point,
Did a little more digging.
See List of IPP Thermal power plants and owners.
Too long to do here.