The impacts of fuel price variation on Electricity pricing in sri lanka

Abstract

This thesis report presents the analysis of the fuel price variation in the global context and review its impact to the power generation cycle of the country. Due to the delay caused in implementation of proposed generation plan during the period of 1990 to 2000, country suffocated from a power crisis where scheduled power cuts were common in nature. And further the Ceylon Electricity Board (CEB); the state owned institution which owned the monopoly of power generation, transmission is operating under a huge loss where it cannot cover its operating expenditures by selling electricity. This further created a huge financial crisis in the country where treasury has to fund in order to maintain the operation. In this analysis, impact of fuel prices on electricity pricing is analyzed for the period from 2013 to 2025. This analysis is carried out based on the Long Term Generation Plan developed by CEB in 2010. According to the analysis, generation cost shows a negative trend in real terms where the Generation cost reduces from 16.54 LKR to 9.96 LKR. This mainly due to fact that, power generation sector will be governed by coal power generation. And further, when power generation prices are determined subjected to current inflation rate prevail in the country, it is only 60% increase over the period of study (12 years) where in the past, electricity prices has shown a rise of more than 120% over similar period of time even though the published fuel prices are subjected to influences emerged from the political arena, where those were not calculated solely based on the cost of production. Further it is required to consider the fact that coal prices can be increased more than the forecasted values as Sri Lanka entered into the coal power business after 12years where it is supposed to come into the operation by 1998. As per the sensitivityanalysis carried out based on the fuel price variation, it is calculated that, even if the prices of both crude oil and coal are increased by 50% than the current predictions,generation cost will be less than the generation cost as at 2013 until the year 2025.