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Regulatory Environment Regulatory Environment and Small-hydro and Small-hydro
DevelopmentDevelopmentProfessor Priyantha D C WijayatungaProfessor Priyantha D C Wijayatunga
Public Utilities Commission of Sri LankaPublic Utilities Commission of Sri Lanka
and University of Moratuwaand University of Moratuwa
Presentation OutlinePresentation Outline
IntroductionIntroductionPublic Utilities Commission of Sri LankaPublic Utilities Commission of Sri LankaRegulatory agency ObjectivesRegulatory agency ObjectivesFunctionsFunctionsFramework for Small-hydro developmentFramework for Small-hydro developmentPolicy and Regulatory interventionsPolicy and Regulatory interventionsFinal remarksFinal remarks
IntroductionIntroduction
Traditionally Policy-making, regulation and Traditionally Policy-making, regulation and operationsoperations Not clearly separatedNot clearly separated
In most cases line-minister regulatesIn most cases line-minister regulates Increasing trend to separate these functionsIncreasing trend to separate these functions
Assist development of the power sectorAssist development of the power sector Also renewable energy industryAlso renewable energy industry
In Sri Lanka Public Utilities Commission In Sri Lanka Public Utilities Commission established to take over regulation of the established to take over regulation of the electricity industryelectricity industry
Public Utilities Commission of Sri LankaPublic Utilities Commission of Sri Lanka
Established under the Public Utilities Established under the Public Utilities Commission of Sri Lanka Act, No. 35 of Commission of Sri Lanka Act, No. 35 of 20022002
A multi-sector regulatory agencyA multi-sector regulatory agencyFirst of that kind in the regionFirst of that kind in the regionElectricity and water industriesElectricity and water industriesDown-stream petroleum industry later Down-stream petroleum industry later
addedaddedNot yet fully empoweredNot yet fully empowered
Public Utilities Commission of Sri Lanka …Public Utilities Commission of Sri Lanka …
Independence ensured throughIndependence ensured throughProcess of appointing and removal of Process of appointing and removal of
membersmembersConstitutional Council and ParliamentConstitutional Council and Parliament
FinancingFinancingLicense feesLicense feesRegulatory leviesRegulatory levies
TransparencyTransparencyStakeholder consultationStakeholder consultationPublication of orders and advice provided to te Publication of orders and advice provided to te
government government Annual report to the parliamentAnnual report to the parliament
Objectives of a Regulatory RegimeObjectives of a Regulatory Regime
Protect the interest of all consumersProtect the interest of all consumersPromote competition where appropriate Promote competition where appropriate
and possibleand possiblePromote efficiency in both the operations Promote efficiency in both the operations
of, and capital investment in public utilities of, and capital investment in public utilities industriesindustries
Promote efficient allocation of resources in Promote efficient allocation of resources in public utilities industriespublic utilities industries
Objectives ….Objectives ….
Promote safety and service qualityPromote safety and service qualityBenchmark utility services against Benchmark utility services against
international standardsinternational standardsEnsure that price controlled entities acting Ensure that price controlled entities acting
efficiently, do not find it unduly difficult in efficiently, do not find it unduly difficult in financing its activitiesfinancing its activities
Eventually leading to investor and Eventually leading to investor and consumer confidence in the utility sectorconsumer confidence in the utility sector
FunctionsFunctions
Advice the Government on industry policy on Advice the Government on industry policy on all matters concerning any industry falling all matters concerning any industry falling within its purviewwithin its purview
Collect, record, analyze and disseminate Collect, record, analyze and disseminate information with an informed opinion, information with an informed opinion, concerning any public utilities industryconcerning any public utilities industry
Exercise licensing, regulatory and inspection Exercise licensing, regulatory and inspection functions functions
Regulate tariffs and other charges levied by Regulate tariffs and other charges levied by regulated entitiesregulated entities
Functions ….Functions ….
Mediation in disputes arising in any public Mediation in disputes arising in any public utility industry utility industry
Set and enforce technical and other Set and enforce technical and other standards relating to safety, quality, standards relating to safety, quality, continuity and reliability of the public utility continuity and reliability of the public utility industries industries
Consult any person or group affected by Consult any person or group affected by its orders when taking it decisionsits orders when taking it decisions
Framework for Small-hydro Framework for Small-hydro DevelopmentDevelopment
Indigenous resource replacing imported fuelsIndigenous resource replacing imported fuels Recognition of avoidance of adverse Recognition of avoidance of adverse
environmental impactsenvironmental impacts Emissions with local impactsEmissions with local impacts Those impacting globally - GHGThose impacting globally - GHG
Recognition ofRecognition of avoidance of high cost generation avoidance of high cost generation National resource as a primary energy sourceNational resource as a primary energy source
RoyaltyRoyalty Benefits flowing to local populationBenefits flowing to local population
Framework for ….Framework for ….
Recognition of pioneering effortsRecognition of pioneering effortsSite allocationSite allocation
Minimum transaction costs encouraging Minimum transaction costs encouraging small investors – large numbersmall investors – large numberStandardised arrangementsStandardised arrangements
Adequate compensation for generation Adequate compensation for generation costs and incentive to operate efficientlycosts and incentive to operate efficiently
Minimum impact on consumer priceMinimum impact on consumer priceBidding for capacity allocation Bidding for capacity allocation
Policy and Regulatory InterventionsPolicy and Regulatory Interventions
Renewable energy portfolio standardsRenewable energy portfolio standardsUtility compelled to achieve given level of Utility compelled to achieve given level of
penetration penetration 10% of supply by NCRE by 201510% of supply by NCRE by 2015Portfolio of technologiesPortfolio of technologies
Additional burden on the utilityAdditional burden on the utilityProvided by the central governmentProvided by the central government
Final Economic impact needs to be justifiedFinal Economic impact needs to be justifiedOr financed through cross-subsidiesOr financed through cross-subsidies
Impact on the final consumer priceImpact on the final consumer price
Policy and Regulatory …..Policy and Regulatory …..
Feed-in tariffsFeed-in tariffsStandardised tariffsStandardised tariffsEncourage all those having costs below feed-Encourage all those having costs below feed-
in tariffin tariff Investment incentivesInvestment incentives
Overcome high investment cost barrierOvercome high investment cost barrier Increased investmentIncreased investmentTax credits on investmentTax credits on investment
Policy and Regulatory …..Policy and Regulatory …..
Production incentivesProduction incentivesAttractive tariffAttractive tariffEfficient operationEfficient operationTax incentives for a given periodTax incentives for a given period
Net-meteringNet-meteringEncourage low cost development and useEncourage low cost development and useEnergy banking Energy banking
Research and developmentResearch and development Incentives for research Incentives for research
Policy and Regulatory …..Policy and Regulatory …..
Competitive biddingCompetitive biddingFor a given allocation within a pre-specified For a given allocation within a pre-specified
penetration levelpenetration levelFor supply priceFor supply priceFor royalty at a given supply priceFor royalty at a given supply price
Pricing MethodologiesPricing Methodologies
Cost based tariffsCost based tariffsTechnology specificTechnology specificCan be project specific or based on a typical Can be project specific or based on a typical
projectprojectCovers costs of the investor including a Covers costs of the investor including a
reasonable rate of returnreasonable rate of returnMay be more than the average cost of May be more than the average cost of
conventional generationconventional generationSubsidies to be determinedSubsidies to be determinedWho pays for subsidies?Who pays for subsidies?
Pricing Methodologies …Pricing Methodologies …
Shadow/opportunity cost based tariffShadow/opportunity cost based tariffAvoided cost in the central generation systemAvoided cost in the central generation systemCredit for avoided environmental cost may be Credit for avoided environmental cost may be
givengivenCan be long-term or short termCan be long-term or short termCan be average or marginalCan be average or marginalTechnology/resource independentTechnology/resource independentConvenient implementation hence low Convenient implementation hence low
transaction coststransaction costs
Pricing Methodologies …Pricing Methodologies …
Efficient low cost projects reap windfall Efficient low cost projects reap windfall profitsprofitsNo adverse impact to the utilityNo adverse impact to the utility Increased investmentIncreased investment
Developers likely to reinvest in other not so Developers likely to reinvest in other not so efficient projectsefficient projects
Pricing Methodologies …Pricing Methodologies …
Fixed price published examining the Fixed price published examining the average generation costaverage generation costNo direct relation to cost of projects or No direct relation to cost of projects or
avoided cost in the central systemavoided cost in the central systemCan be adjusted from time to time depending Can be adjusted from time to time depending
ononthe response of the developersthe response of the developersOr government policyOr government policy
Convenient to implement and hence minimum Convenient to implement and hence minimum transaction coststransaction costs
Implementation StrategyImplementation Strategy Government policy passed down to the regulatorGovernment policy passed down to the regulator
Eg 10% of supply by NCRE by 2015Eg 10% of supply by NCRE by 2015
Regulator implement the policyRegulator implement the policy Licensees ordered to abide by the penetration levelLicensees ordered to abide by the penetration level Flexibility can be left with the utility how to ensure the Flexibility can be left with the utility how to ensure the
level of penetrationlevel of penetration Can be given the parameters such the pricing Can be given the parameters such the pricing
methodology etcmethodology etc Can be a higher level of intervention by even Can be a higher level of intervention by even
approving prices approving prices Direct subsidy or cross-subsidy examined in tariff Direct subsidy or cross-subsidy examined in tariff
determinationdetermination
Final RemarksFinal Remarks Unaccounted benefits of small-hydro needs to Unaccounted benefits of small-hydro needs to
be always considered when making decisionsbe always considered when making decisions Avoided adverse environmental impactsAvoided adverse environmental impacts Socio-economic benefits to the local communitySocio-economic benefits to the local community Indigenous nature of investment Indigenous nature of investment
A separate regulatory agencyA separate regulatory agency Provides a place for all the stakeholders to come for Provides a place for all the stakeholders to come for
their grievancestheir grievances Can mediate for speedy resolution of issues for fast Can mediate for speedy resolution of issues for fast
development of the renewable energy sector development of the renewable energy sector
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