Regulatory Environment and Small-hydro Development

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Regulatory Environment and Small-hydro Development

• Professor Priyantha D C Wijayatunga
• Public Utilities Commission of Sri Lanka
• and University of Moratuwa

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Presentation Outline

• Introduction
• Public Utilities Commission of Sri Lanka
• Regulatory agency Objectives
• Functions
• Framework for Small-hydro development
• Policy and Regulatory interventions
• Final remarks

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Introduction

• Traditionally Policy-making, regulation and
  operations
• Not clearly separated
• In most cases line-minister regulates
• Increasing trend to separate these functions
• Assist development of the power sector
• Also renewable energy industry
• In Sri Lanka Public Utilities Commission
  established to take over regulation of the
  electricity industry

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Public Utilities Commission of Sri Lanka

• Established under the Public Utilities Commission
  of Sri Lanka Act, No. 35 of 2002
• A multi-sector regulatory agency
• First of that kind in the region
• Electricity and water industries
• Down-stream petroleum industry later added
• Not yet fully empowered

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Public Utilities Commission of Sri Lanka

• Independence ensured through
• Process of appointing and removal of members
• Constitutional Council and Parliament
• Financing
• License fees
• Regulatory levies
• Transparency
• Stakeholder consultation
• Publication of orders and advice provided to te
  government
• Annual report to the parliament

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Objectives of a Regulatory Regime

• Protect the interest of all consumers
• Promote competition where appropriate and
  possible
• Promote efficiency in both the operations of, and
  capital investment in public utilities
  industries
• Promote efficient allocation of resources in
  public utilities industries

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Objectives .

• Promote safety and service quality
• Benchmark utility services against international
  standards
• Ensure that price controlled entities acting
  efficiently, do not find it unduly difficult in
  financing its activities
• Eventually leading to investor and consumer
  confidence in the utility sector

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Functions

• Advice the Government on industry policy on all
  matters concerning any industry falling within
  its purview
• Collect, record, analyze and disseminate
  information with an informed opinion, concerning
  any public utilities industry
• Exercise licensing, regulatory and inspection
  functions
• Regulate tariffs and other charges levied by
  regulated entities

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Functions .

• Mediation in disputes arising in any public
  utility industry
• Set and enforce technical and other standards
  relating to safety, quality, continuity and
  reliability of the public utility industries
• Consult any person or group affected by its
  orders when taking it decisions

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Framework for Small-hydro Development

• Indigenous resource replacing imported fuels
• Recognition of avoidance of adverse environmental
  impacts
• Emissions with local impacts
• Those impacting globally - GHG
• Recognition of avoidance of high cost generation
• National resource as a primary energy source
• Royalty
• Benefits flowing to local population

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Framework for .

• Recognition of pioneering efforts
• Site allocation
• Minimum transaction costs encouraging small
  investors large number
• Standardised arrangements
• Adequate compensation for generation costs and
  incentive to operate efficiently
• Minimum impact on consumer price
• Bidding for capacity allocation

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Policy and Regulatory Interventions

• Renewable energy portfolio standards
• Utility compelled to achieve given level of
  penetration
• 10 of supply by NCRE by 2015
• Portfolio of technologies
• Additional burden on the utility
• Provided by the central government
• Final Economic impact needs to be justified
• Or financed through cross-subsidies
• Impact on the final consumer price

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Policy and Regulatory ..

• Feed-in tariffs
• Standardised tariffs
• Encourage all those having costs below feed-in
  tariff
• Investment incentives
• Overcome high investment cost barrier
• Increased investment
• Tax credits on investment

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Policy and Regulatory ..

• Production incentives
• Attractive tariff
• Efficient operation
• Tax incentives for a given period
• Net-metering
• Encourage low cost development and use
• Energy banking
• Research and development
• Incentives for research

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Policy and Regulatory ..

• Competitive bidding
• For a given allocation within a pre-specified
  penetration level
• For supply price
• For royalty at a given supply price

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Pricing Methodologies

• Cost based tariffs
• Technology specific
• Can be project specific or based on a typical
  project
• Covers costs of the investor including a
  reasonable rate of return
• May be more than the average cost of conventional
  generation
• Subsidies to be determined
• Who pays for subsidies?

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Pricing Methodologies

• Shadow/opportunity cost based tariff
• Avoided cost in the central generation system
• Credit for avoided environmental cost may be
  given
• Can be long-term or short term
• Can be average or marginal
• Technology/resource independent
• Convenient implementation hence low transaction
  costs

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Pricing Methodologies

• Efficient low cost projects reap windfall profits
• No adverse impact to the utility
• Increased investment
• Developers likely to reinvest in other not so
  efficient projects

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Pricing Methodologies

• Fixed price published examining the average
  generation cost
• No direct relation to cost of projects or avoided
  cost in the central system
• Can be adjusted from time to time depending on
• the response of the developers
• Or government policy
• Convenient to implement and hence minimum
  transaction costs

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Implementation Strategy

• Government policy passed down to the regulator
• Eg 10 of supply by NCRE by 2015
• Regulator implement the policy
• Licensees ordered to abide by the penetration
  level
• Flexibility can be left with the utility how to
  ensure the level of penetration
• Can be given the parameters such the pricing
  methodology etc
• Can be a higher level of intervention by even
  approving prices
• Direct subsidy or cross-subsidy examined in
  tariff determination

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Final Remarks

• Unaccounted benefits of small-hydro needs to be
  always considered when making decisions
• Avoided adverse environmental impacts
• Socio-economic benefits to the local community
• Indigenous nature of investment
• A separate regulatory agency
• Provides a place for all the stakeholders to come
  for their grievances
• Can mediate for speedy resolution of issues for
  fast development of the renewable energy sector

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End