Proposed electricity tariff:

Give incentives to limit peak demand

LIRNEasia is a regional think tank based in Sri Lanka and engaged in infrastructure regulation and policy research across the Asia Pacific. It is also engaged in research in Bangladesh, India and Sri Lanka on how customer relationships can be better managed in the mobile telecom and electricity sectors.

LIRNEasia Chairman Dr. Rohan Samarajiva said the immediate aim should be to adopt a tariff structure that will provide incentives to limit peak demand of electricity. If peak demand is lowered, the overall costs of supplying electricity will be reduced. He made these submissions in response to a letter sent to him by the Director General of Public Utilities Commission of Sri Lanka (PUCSL), calling for comments on the proposed electricity tariffs. Dr. Samarajiva in his letter has said electricity generation to meet peak demand is costly due to the use of expensive fuels such as diesel.

He said their calculations based on the assumption that the most expensive generation is used in the merit order, indicate that the last 5 percent of peak demand is responsible for close to 50 percent of costs. Even if the actual cost is half that, the importance of managing demand to lower peak demand would still remain true. If peak demand is lowered the overall costs of supplying electricity will be reduced. Therefore, the immediate aim should be to adopt a tariff structure that will provide incentives to limit peak demand.

To further reduce the demand, specifically the peak demand, PUCSL should require CEB to carry out a campaign with specific messages reminding consumers that peak time has started via television, radio and SMS and provide information about which energy-consuming appliances should be turned off for maximum reduction in demand at that particular moment in time. Taking a step further, positive behavioural change can be brought about by informing consumers about how their monthly bills compare to other/similar households. A redesigned and more informative electricity bill appears a necessity.

Bringing the proposed Norochcholai-II generators online by the promised 2014 date is crucial. The estimated cost savings from this plant are significant. After allowing for reasonable contributions to settle the considerable liabilities of the CEB, the remainder should be passed on to consumers in the form of rebates while maintaining the principle of bringing tariffs closer to costs.

Dr. Samarajiva in his letter has stated that implementation of the direction from the National Energy Policy and Strategies that prices should reflect costs require that peak prices be different from off-peak pricing because the costs of supplying at the peak and at off-peak differ. This requires meters capable of applying different prices at different time periods and mechanisms for giving actionable feedback to customers.

Dr. Samarajiva said at present nearly 3.6 million households consume less than 90 units so that they receive a significant subsidy on their electricity bills. Though this subsidy is lower in amount, it would continue even with the proposed tariff. Instead of subsidizing energy for low-consuming households, the Government should be subsidizing low-income households.