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Over estimating the unit Cost of Puttalam Coal Power Plant (PCPP) by 165%

Subsequent clarifications sought by CEB staff have revealed that to arrive at the total of Rs 18.60/kWh, you have first calculated a unit cost of Rs 14.60/kWh based on costs submitted by CEB for October- December 2017 BST filing and further added Rs 4.0/kWh to the same as “finance cost”. However, the unit cost of PCPP based on actuals as per our accounting records is only Rs 8.58/kWh (for 20 16), Rs 11.34/kWh (for Jan-Aug 20 17) and NOT Rs 18.60/kWh as per your report.
We have given below following observations on your calculation, which resulted in the highly
inflated unit cost of generation for PCPP.

I. You have added a “finance cost” of Rs 4.0/kWh (pertaining to the repayment of the USD million 1,346 loan) where Rs 4.0/kWh include both the loan interest payment and principal (capital) repayment components. However, it is fundamentally wrong in considering the capital component of loan repayment as an expense when the other costs considered
already include Rs 6.7 billion as depreciation of assets of PCPP for 2017. Including repayment of loan capital had added an additional cost of Rs 14.6 billion thus severely inflating unit cost of Coal.

2. What is being calculated as Bulk Supply Tariff (BST) at present is a forecasted BST and not what is known hs the Actual BST. Hence, what is submitted by CEB for BST calculations too are estimated c~sts based on budgeted values. As there are provisions in the approved Tariff Methodology to adjust the forecast BST with actual BST later, for BST calculation purposes,
using of budgeted costs are acceptable. However, it would be misleading to use the same forecasted costs and use them to calculate unit cost of Coal power. It is even more misleading to do so without understanding what are the individual budgeted cost components submitted by CEB. For example, PUCSL has included a budgeted expenditure of Rs 4 billion for a
project in 2017 to extend Coal storage yard to arrive at the Rs 18.60/kWh unit cost. It is principally wrong to include such a large capital expenditure as a cost occurring in one year and use it to calculate the unit cost of a plant without spreading it to the remaining duration of the power plant.
3. As per the actual loan agreement for PCPP, the agreed loan interest rate is 2% whereas PUCSL has assumed a higher interest rate of 6.35% in calculating the PCPP unit cost, thus unduly overstating the unit cost of Coal power.
4. BST filing process for October to December 2017 starts in advance (required to start about 4 months in advance as per gazetted “Procedure for Review and Adjustment of Tariff’) and hence, a forecasted energy dispatch is used for the BST filing. As per forecasted dispatch submitted by CEB for Oct-Dec 2017 BST, the monthly estimated generation from PCPP for
October 2017 was 344.5 GWh whereas the actual dispatch for October is 475.2GWh. As the forecasted dispatch is lower than actual, the unit cost for Coal in your report (calculated based on the forecast) is higher than actual. This too further highlights our concern under #2 above of using forecasted values for BST filing to do unit cost calculations of power plants and publishing them instead of actuals.

Over Estimating Unit cost of 500MW Sampur Plant by 230%

1. We note that you have referred to the Sampur plant as “SOOMW Sampur- signed PPA”, which
is a conventional subcritical power plant having a capital cost ofUSD 1, 169/kW. However, you have considered for your calculation a capital cost of USD 1,786/kW citing CEB Long Term Generation Expansion Plan, without realizing that the latter capital cost is for an advanced subcritical high efficient power plant. As you have failed to realize the technological difference between the two power plant technologies, you have overestimated the capital cost of Sampur Coal plant in your calculations by Rs million 43,138.
2. Further, you have used a fuel rate of 0.44kg/kWh for your calculations whereas for the type of
plant that you have considered for calculations (advanced subcritical high efficient power
plant), the fuel rate should be 0.38kg/kWh.
3. You considered O&M cost ofSampur plant as same as the O&M cost of Norochcholai plant based on recent BST filing and hence the 4 billion coal yard extension project cost of Puttlam plant (mentioned before) too had inadvertently gone as an annual O&M cost to calculate the Sampur unit cost.
The correctly estimated unit cost for Sampur Coal plant as per our own calculations is only Rs 14.52/kWh and hence your figures have inflated the cost by 230%. However, without any detailed analysis, a cursory glance would have revealed that the unit cost of a base load coal steam plant could not be as high as Rs 33 per unit as even an off-the-shelf standby-by generator could generate a unit of electricity at a comparable cost.

True Cost of Wind and Solar

Unlike for the case of Coal plants, we fully agree with the costs of Rs 10.07/kWh for Wind and Rs11.86/kWh for Solar as published in your report. We are very happy to note that you have finally agreed with the CEB position that current prices that are paid under feed-in-tariff schemes for Solar and Wind (above Rs. 22/kWh as per 2016, 2017 actual payments made) do not reflect the true costs and the actual costs are in the range as indicated in your report. We hope you too would appreciate CEB’s pioneering effort to move away from feed-in-tariffs and move for competitive bidding for Solar and Wind, which resulted in the prices that you have published. However, we invite you to note that tariffs paid at present as feed in tariffs for Wind and Solar are twice the true cost for Solar and Wind (as in your report). We hope you too as the regulator
would do all that is possible to gradually bring down prices of Solar and Wind to the level to reflect the true costs as indicated in your report. We also trust that you would also do all what is possible to recommend lower prices for such technologies (reflecting the true costs as in your report) if and when you are called upon to device noncompetitive tariffs for Solar and Wind in the future.