April 17, 2013, 8:13 pm




By JayanthaRanatunga


Past President of the Institution of Engineers.
Former Chairman of the National Engineering Research & Development Centre


Anyone who generates electricity in excess of his immediate need has to store that excess for his future use. This was customarily done by storing it inrechargeable batteries. Such a system is somewhat costly and also suffers due to about 25% loss of energy during the charging and discharging process. In an attemptto avoid such losses and also to encourage own generation of electricity, particularly the use of green renewable energy, USA initiated the net metering facility as far back as 1983. Many other countries such as Australia, Canada, and Denmark followed suit. Sri lanka implemented this system in the year 2011.


Let us see how consumers can use this system within our very complicated tariff system. Usually own generation systems are equipped with large plants such as standby generators, combined cycle power plants and municipal waste burning steam plants. At domestic levels such systems are not financially and technically feasible. Only forms of technically viable renewable generation arethe use of solar PV panel sand micro hydro plants.


I shall restrict this discussion for solar PV systems only, as domestic wind power plants are not common in our country. First of all let us examine how CEB along with private generating companiesadd on the generation plants to the system as the demand increases. Starting with the lowest cost hydro power plants generating at a cost well below LKR 5 per unit and then Coal power plant at Norochchelai producing below LKR 10 per unit, they keep adding thermal plants which are generating over LKR 20 per unit. There are few plants whose generating costs are over LKR 50per unit. Such very high cost plants are used only in extreme situations when hydro is unavailable due to extreme droughts. Weighted average cost of generation using a combination of these plants to CEB is around LKR 17 per unit. When this power is brought to the homes it cost LKR 20.50 per unit due to wire losses and thefts along the way.


CEB selling price has become very complicated due to government policies aimed at helping certain deserving sectors such as domestic users who consume very law number of units, to make it affordable to them as well asfor industries to make them globally competitive. At the same time heavy domestic users and general purpose users are called upon to pay a surplus to help CEB to raise the funds needed to maintain the above stated subsidies.


Let us now look at the cost of solar PV generated electricity. Most salutary benefit of solar power is that it does not contribute to the global warming. However, contrary to the conventional wisdom, the solar power is not a form of free energy derived from sun shine available to all and sundry irrespective of his or her social standing. The real picture is not immediately clear to many proponents of solar power. The purpose of this article is to shed some light to this myth.


The widely used slogan in promoting solar energy is 'you get all your electricity for the next 25 years absolutely free' This statement is not an untruth, but it is not the whole truth either!. It has conveniently avoided the question of the initial payment you make to install the solar panels. Let me explain this with an analogy familiar to most of us. If you live in a rented out house you are burdened with the monthly rent payments. One possible remedy to this is to build your own house and avoid rent payments altogether. But there is a hitch; you need a lot of money to build the house! One may also think of putting that money in a savings account and use the interest to pay the rent and also benefit from the balance interest. Say for instance LKR 10 million you spend on acquiring land and building a house, if invested in NSB you will receive over LKR 100,000 per month interest which is much higher than the monthly rent you would be paying for the house. However this argument may not hold water due to appreciation of the real-estate value with time. In contrast to this,solar panels depreciate in value with time. Another important difference is that building construction costs are known to increase with time, where as solar panel costs are coming down with the technological advances happening in the world.


Keeping the above argument in mind, let us now explore the cost of solar panels. Current cost of a solar panel, along with inverters, controllers and cost of installations, capable of generating 1.5 kw of power at noon time on a clear day when the sun is right above with the solar panel arranged perpendicular to the sun's rays, is around LKR 700,000. Such a PV system can produce on the average 6kwhr electrical energy per day, or 180kwhr per month. Let us now work out the opportunity cost of the LKR 700,000. Assume it is deposited in a Gilt Edged investment such as treasury guaranteed NSB savings at 14% annual interest; it will yield LKR 8100 per month. Let us also conservatively assume that this panel requires no maintenance cost throughout its full life time of 25 years.


CEB bill for the user who consumes 180 units under the current tariff is LKR 3850 and LKR 5355 under the proposed tariff. Therefore the consumer will lose heavily by switching on to solar power as he has to forego LKR 8100 interest he could have safely got for his LKR 700,000 investment. Let us consider a second user who consumes 300 units per month. His electricity bill under the present tariff is LKR9900 and under new tariff it will be LKR11235. He will be able to drop his net consumption down to 120 units, where his bill will be LKR1835 and LKR2835 under the two systems. His corresponding savings will be LKR7065 and LKR8400. Accordingly his solar PV investment will be marginally profitable under the new tariff.Table given below shows other possible combinations of solar panels. It shows the best value can be derived by a user consuming 360 units in installing one 180 unit panel. This way he will reduce his net consumption to 180 units with a corresponding financial benefit of LKR 2988 under the proposed tariff and LKR 972 under current tariff.


This calculation is an approximation as it disregards the LKR 700,000 left in the savings account after 25 years. I resorted to this approximation to make it easy to understand by the average reader. Nevertheless the consequent error is small as the present value of LKR 700,000 discounted at the rate 14% per annum over 25 years is around LKR 26,000.


See the table


Above computations show that some of the heavy users of electricity will be tempted to use solar panels and reap some financial befits. This, while being helpful to the consumer, will be unfavorable to the CEB. Those high end customers who are paying CEB nearly LKR 50 for each marginal unit are the cash cows of the CEB. That surplus is essential for CEB to maintain the heavy subsidy to the consumers who are at the lower end of the spectrum. Another significantloss is that the electricity CEB receives from these consumers is during the day time and what they draw from the grid is at the peak time. As we know that the peak time electricity costs CEB much more as those units are most of the time generated using high cost generating plants.


Not being contended with the financial benefits to few affluent consumers shown above, it is extremely important to look at the impact on the national economy due to the use of solar PV panels for the generation of electricity. This country has a strategy of burrowing money for its development activities, which of course needs to be paid back at a future date. That is how we have built our hydro plants. For solar it is exactly the opposite. We are required to pay now in foreign currency for the future benefits of few individuals. Such policies may be acceptable to rich countries where their foreign reserves are very healthy. Same argument is true for wind energy as well.


At current market prices the up-front foreign currency capital investment is so heavy that the cost of electricity generated using solar PV panels is around LKR 45 per unit generated. This makes solar energy one of the highest cost options for electricity generation. Therefore our policy makers need to take a closer look at this net metering scheme which has distorted the financial benefits to individual consumers, while being a heavy burden to the economy of the country. Even the much maligned Diesel power plants are generating at a far lower cost and further its payments are staggered;unlike the up-front payments for the Solar PV systems.

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