Energy Economics & PricingNational Energy Policy & PlanningRenewable Energy DevelopmentStudy on Small Power Purchase Tariffs, Sri Lanka

The World Bank initiated the Energy Services Delivery (ESD) project in Sri Lanka to support the development of renewable energy-based power generation. ESD project provided substantial amount of financing for small hydropower plants operating in the grid-connected mode selling electricity to the national utility – Ceylon Electricity Board (CEB) on a standardized power purchase agreement.

The purchase tariff is calculated and announced by CEB at the beginning of each year. This tariff calculation is based on the principle of avoided costs to the utility as result of inputs to the grid from small power plants.

Concerns had been expressed about the methodology adopted by CEB to calculate the tariff, and the suitability of the principle of avoided costs itself. Furthermore, small power developers have claimed that they too should receive a capacity charge similar to what is paid to the large independent power producers. Views had also been expressed about the lower levels of the tariff, which was not adequately stimulating a rapid development of the remaining small hydroelectric sites and other renewable sources of energy.

The World Bank under the ESD project assigned RMA to conduct a study to analyze and propose improvements to the present method of CEB tariff calculations, and to examine whether capacity credits accrue to the utility with the embedded generators.

The work extensively used CEB’s WASP and METRO planning models.