Energy security vital for development

By Lalin FERNANDOPULLE

The world is on the brink of a major energy crisis due to the trade embargo and a imminent attack on Iran, a large oil producing country.

Trade experts said that developing countries will be the most affected due to the staggering rise in world fuel prices. Sri Lanka is already facing serious trade and commercial issues due to the crisis in the Middle East which has boosted oil prices to $ 125 a barrel.

- Dr. Nishantha Nanayakkara

Oil rose to a 10-month high above $125 a barrel last week, prompting responses from policymakers around the world including U.S. Europe may have more to fear as its fragile economic growth falters. Italy and Spain look for alternative sources to the crude they currently import from Iran, where an EU oil embargo, intended to make Iran abandon what the West fears are efforts to develop nuclear weapons, comes into force in June.

Major operation

Analysts said that the United States and NATO allies are planning a major operation in the Gulf region which could be a direct attack on Iran. Instability and escalation of tension in the Middle East would skyrocket oil prices.

Energy sector experts said that coal prices will also jack up and it would affect the newly built coal power plants. Sri Lanka would face not only an energy crisis but also a foreign reserve crisis due to its dependence on imported energy. Hence a strategic plan for the energy sector is vital to face crises and boost industrial and economic growth in the country.

Chairman/ Managing Director HPI Group of Companies and International Expert for Renewable Energy for United Nations Industrial Development Organisation, Dr. Nishantha Nanayakkara said energy security is vital for the development of a country. “We need to have strategic plan by recalling the famous saying by King Parakramabahu which is applicable even to date. We need to have a strategic plan to accomplish that vision.

The vision should be energy security and self sufficiency in energy needs,” he said.

Dr. Nanayakkara said a strategic plan will ensure that very citizen will have access to electricity and a good public transportation system with a reduction of traffic congestion in the cities.

“Promoting renewable energy sources on a cost-based tariff structure, introduction of alternative fuel, encouraging private sector investments, phasing out dependency on imported oil with an electricity generation plan by the Ceylon Electricity Board (CEB) with the Public Utilities Commission of Sri Lanka to phase out oil-based power generation are vital to achieve the goals of the strategic plan”, Dr. Nanayakkara said.

We need to take into account the foreign exchange drain we incur for truck transport service from source to consumer demand point. We need to go up to grassroot level to calculate how much we spend in foreign currency for traffic in Colombo, traffic along the Kandy Road, transport of sand from Mahiyangana to the Central Province and the transport of cement from source points to cities. Should we use any other alternative and energy efficient transport system even at a heavy initial infrastructure cost.

Secondly, household energy consumption is not efficient and rural electrification is not at all commercially viable due to heavy distribution losses for which other consumers have to pay the price. It is time to consider a stand-alone energy system for households.

Hydrogen generation

He said Sri Lanka should focus on hydrogen generation by means of wind power and use fuel cell technology which is the most clean source of energy. Since solar power is expensive and limited in capacity, we can generate energy for cooking and lighting, if we use fuel cells.

What is required is to change the hydrogen tank similar to replacing a gas tank. The need of energy for hydrogen generation can be eliminated, by using wind power for hydrogen generation. This will ease our electricity bills and will be a massive saving for the CEB thus reducing the heavy dependency on oil and coal.

He said that “We have come to a critical point as far as energy security and self-sufficiency in energy are concerned, due to the crisis situation in Sri Lanka as well as in the world.

Almost 100 percent of our oil imports were from Iran but we are compelled to find another source before July 2012, which is not an easy task. According to statistics, we fall into the 65th slot, with around 90,000 barrels of oil imports per day, whereas the US consumes 20 million barrels per day.

In other words, our annual import of oil is just below two days consumption of the US (the US produces it’s own oil of 7.4 Million Barrels per day)”.

Sri Lanka uses very little as far as petroleum and electricity is concerned. We are able to manage consumption without being dependent on oil imports. We had plans to refurbish the Sapugaskanda refinery with Iranian assistance but those plans are crippled due to the recent oil embargo on Iran.

We will have to depend on our ageing refineries which cannot produce a high percentage of light distillates compared to modern refineries.

The Sapugaskanda refinery produces a larger percentage of furnace oil, while we have to import substantial quantities of auto diesel and petrol to cope with the demand. For instance, the 2010 statistics show that from 1.819 million tonnes of crude oil from which we could produce 157,900 tones of petrol, 441,500 of diesel and 685,800 tonnes of furnace oil, whereas we had to import another 326,000 tonnes of petrol, 984,000 tonnes of diesel and 365,000 tonnes of furnace oil.

The Central Bank expected to reduce oil imports after commissioning the 300 MW coal plant but expected results could not be achieved due to constant breakdowns of the coal plant and its under -tilisation during off-peak hours. Commercially exploitable wind potential in Sri Lanka can go to even more than one thousand Megawatts, but system control restrictions of the CEB have limited wind power penetration to less than 100 MW. Even the CEB never expected a mini hydro to boom. The annual transfer of mini hydro units to the National Grid is 190 million units which saved 60.5 million litres of auto diesel if the same power had to be generated by CEB- owned diesel engines. Even a much higher amount of 77.1 million litres of diesel would be consumed if 190 million units of energy had to be produced by CEB-owned gas turbines.

In the recent past, the CEB has shown a favourable response and supporting role for all non-conventional renewable energy sources to reduce it’s dependence on imported fuels and to harness low cost energy sources by extending a conducive policy framework.

“If we are looking for energy security and self -sufficiency in energy, we should catch both ends of the energy picture, i.e. saving as well as cheap and reliable energy sources for power generation.

This can only be achieved by cost reflective tariff policy and visionary government policy with long-term objectives. The Public Utility Commission of Sri Lanka (PUCSL) should play a major role in this game and it was established to play an independent role while adhering to government policy guidelines.

The PUCSL can be the government arm to advise law makers and the Treasury on tariff policy to save energy and to reduce government debt due to loss- making energy consumption and generation”, Dr. Nanayakkara said.

Subsidies

Whether we like it or not, we should accept the fact that we live in a country where the Government takes the debt burden to give subsidies to the public to release consumer burden. It is due to the subsidy package in all sectors, not restricting to electricity or transport, that the cost of living is far lower than it should be.

We practised a cost- reflective pricing, while increasing salaries of the government and private sector employment enabling them to lead a comfortable life. It is due to the subsidies in education, farming, health, transport, electricity and food that we don’t know where we are heading to and whether this country can bear all the burden.

It would have been much better if a market-driven economy and cost-reflective tariff is in place, while the Government concentrates on subsidising or giving free supplies to identified poor people and also to have a well-planned scheme to upgrade the poor to middle class, by some sort of capacity building.

“Our energy sector is a very good model case to study on how cross subsidy and adhoc policy decisions affects the economy of the nation which was dragged down by the insecurity of energy and unreasonable tariff and the suffering caused to one sector, while some people enjoy heavy subsidies.

It is due to this wide disparity that the CEB is faced with technical constraints in system control and not the low cost generation principle”, he said.