Eng. K A Noel PriyanthaChief Engineer (Renewable Energy)

Ceylon Electricity Board

21 October, 2007

Pricing policy for renewable energy

- Cost Based Technology Specific Tariff

IntroductionIntroduction Principles of tariff fixing

Cost based, technology specific & three

tiered tariff calculation methodology

Tariff applicable for year 2007

Principles of tariff fixing

Cost based, technology specific & three

tiered tariff calculation methodology

Tariff applicable for year 2007

Principles of Tariff FixingCost based , technology specific and

three tiered tariff

Tier 1: Years 1- 6

Tier 2: Years 7 – 15

Tier 3: Years 16 - 20This tariff will be limited to small power

producers ( Capacity up to 10 MW)CEB pays only 90 % of the avoided cost Any difference will be provided by the GOSL

through Sustainable Energy Authority (SEA)

Principle of Tariff Fixing

This tariff have been designed to eliminate the problems of negative cash flows experienced by many small power producers during the period of loan repayment.Tariff will be revised once a year due to rapid changes in the project costs, exchange rates and interest rates, etc. 20 year term of the power purchase

agreement

Three tier tariff estimationCapital costs used for the tariff

calculation in year 2007

Technology SL Rs. Million/MW

Small Hydro 121

Wind 158

Biomass 147

Three tier tariff estimationPlant factors used for the tariff

calculation in year 2007

Technology Annual Plant Factor

Small Hydro 43 %

Wind 32 %

Biomass 80 %

Three tier tariff estimation

• O&M rates as a percentage of the capital cost (base value)• O&M rates as a percentage of the capital cost (base value)

Technology Year 1 - 15 Year 16 onward

Small Hydro 3 % 3 %

Wind 3 % 3 %

Biomass 4 % 5 %

Three tier tariff estimation

• applicable O&M base value for 2007 in SLRs./kWh• applicable O&M base value for 2007 in SLRs./kWh

Technology Year 1 - 15 Year 16 onward

Small Hydro 0.96 0.96

Wind 1.69 1.69

Biomass 0.84 1.05

Three tier tariff estimationEscalation of O & M. This will be calculated using the average of Sri Lanka Consumer Price Index (SLCPI) rates of change and SLRs/USD rates of change for the five preceding years.

Source for SLCPI & SLRs/USD – Central bankThe five year average SLCPI – 8.75

Depreciation of rupee against the USD – 6.11%

Applicable O & M escalation rate – 7.43 %

Three tier tariff estimation

Debt equity ratio - 60:40Interest rate - 12.45%Loan repayment - 6 yearsConstruction period - 2 yearsDiscount rate - 16.27%

Return on equity - 22 %

Three tier tariff estimationThird Tier

The base rate will be 1.00 SLRs./kWh as of year 2007.

This will be escalated at a rate of 2/3 of O & M escalation rate ( 7.43 %)

Three tier tariff estimationBiomass fuel cost escalation

The base fuel cost - 5.00 SLRs./kWh for 2007.

This will be escalated at a rate of 2/3 of O & M escalation rate ( 7.43 %)

Three tier tariff estimationRoyalty to GOSL

10% of generation as royalty for mini hydro and wind projects from 16th year

Cost based tariff for 2007 SLRs/kWh

Technology Escalable Escalable

Base O&M (year 1-20)

Base Fuel (year 1-20)

Year 1-6 Year 7-15 Base Tariff

Mini-hydro 0.96 none 8.28 3.07 1.00Wind 1.69 none 14.52 5.39 1.00Biomass 0.84 5.00 5.40 2.01 1.00Escalation per year from 1st January after the commercial operation date 7.43% 4.95% 4.95%

Royalty to Govt, paid direct by the power

purchaser10% of total tariff10% of total tariff

No royalty

Non-escalable fixed Escalable Year 16+

Interpretation of the cost based tariff 2007(based on the escalation rates applicable for year 2007)

0

2

4

6

8

10

12

14

16

18

20

1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20

Year of Commercial Operation

All I

nclu

siv

eT

ariff

Paid

(LK

R/k

Wh)

Mini-hydro

Wind

Biomass

Thank YouEnergy Purchases

Branch

Transmission Division

Ceylon Electricity Board

Web: www.ceb.lk