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Executive Summary: The balance of power I. Strong shift to coal-fired power not enough II. A 2013 price hike of 25-30% necessary to buy time III. Oil & Water: Raindrops arent enough Appendix 1: Sobering Stats
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In Search of Plan B
High cost diesel/fuel oil and inefficient gas comprise 1420MW of power capacity that needs to be phased out
As a stop gap, prices in 2013 must rise 25-30% to compensate for the inefficient thermal power output
Adding coal-fired power partly provides an affordable electricity generating option ( c.LKR 8.3/KWh in 2013E)
If GDP grows 6% in 2013, Sri Lankas oil import bill may reach USD 6.7bn, of which USD 1.3bn is for electricity
Hydro has limited potential to further improve the energy balance unless record rainfall occurs
High cost diesel/fuel oil and inefficient gas comprise 1420MW of power capacity that needs to be phased out
Cost/KWh (LKR) 50 45 40 35 30 25 20 15 GAS TURBINE 215MW 1205MW 305MW
300MW
1383MW
The power ministry indicates that c.42% of available generation capacity comes from higher cost thermal sources (gas and diesel)
* Cost/KWh are estimates by PUCSL for 2013 and costs reflect peak/off-peak energy production allocation
DIESEL/FUEL
10
5 0% 20%
RENEWABLE
COAL
HYDRO
40%
60%
80%
100%
Renewable includes mini-hydro
Installed Capacity
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Source: Sri Lanka Sustainable Energy Authority, Ministry of Power and Energy, PUCSL and CAL Research
As a stop gap, prices in 2013 must rise 25-30% to compensate for the inefficient thermal power output
Cost/MWh (LKR) 40,000 35,000 30,000 25,000 20,000 15,000 10,000 5,000 Thermal Coal Hydro Total Cost/MWh Total Revenue/MWh
The average sales price of a KWh in 2011 was LKR 13.6. Based on the 2012E energy mix, the avg. sales price needs to increase to c.LKR 18 (+c.30%) for energy production to break-even
* Hydro production has no cost. Refer Appendix (slide 38) for a detailed cost break-down
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Source: Sri Lanka Sustainable Energy Authority, PUCSL and CAL Research
Adding coal-fired power partly provides an affordable electricity generating option (c.LKR 8.3/KWh in 2013E)
GWh 9,000 8,000 7,000 6,000 12,409 5,000 c.36% 4,000 3,000 2,000 1,000 1,038 Puttlam Coal Phase I (2011) Puttlam Coal Phase II (2014E) 300MW Power Plant Additional 300MW
* By 2016E, the capacity factor at both coal plants is expected to be c.70%
Utilized Capacity
Unutilized Capacity
2,492
16,208
Both coal plants are expected to run at a c.70% capacity factor once fully operational. By 2016E, coal may comprise c.35%+ of energy generated. The Public Utilities Commission of Sri Lanka (PUCSL) estimates power generated by coal to be LKR 8.3/KWh in 2013
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Source: Sri Lanka Sustainable Energy Authority, Ministry of Power and Energy, PUCSL and CAL Research
If GDP grows 6% in 2013, Sri Lankas oil import bill may reach USD 6.7bn*, of which USD 1.3bn is for electricity
USD millions 8,000 7,000 6,000 1,218 5,000 4,000 3,000 2,000 1,000 (855) (1,000) (2,000) 2011 2012E CALs 6% GDP 2013E 1,799 Total Oil Import Bill (USD mn) CPC Loss (USD mn) 694 931 Addition to Oil Import Bill (USD mn)
(701)
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Source: Sri Lanka Sustainable Energy Authority and CAL Research
Hydro has limited potential to further improve the energy balance unless record rainfall occurs
70% 60% 50% 40% 30% 20% 10% 0% 2008 2009 2010 2011 2012E 2013E Plus 25% Plus 45% Rainfall Rainfall Contribtuion to Power from Hydro Average rainfall catchment (mm)-RHS 7,000 6,000 5,000 4,000 3,000 2,000 1,000 -
Record rainfall in 2010 resulted in a c.53% hydro contribution. Rainfall may have to increase by 45% from the 10-year average of c.3500mm (base case 2013E) for a c.60% hydro contribution
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Source: Sri Lanka Sustainable Energy Authority, CBSL and CAL Research
Hydro appears mostly tapped; wind and solar remain too expensive near term
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In 2011, the energy source mix resulted in a cost/KWh of c.LKR 15* (vs. an avg. sales price of LKR 13.6)
GWh 7,000 6,000 5,000 26 4,000 20 3,000
Avg. cost of production: c.LKR 15/KWh
40 35 30 25
34
15 10 5 0
2,000 1,000 4 Thermal (Diesel/Fuel) Gas Turbine Hydro, Coal and Renewables Cost/KWh (LKR)-RHS Power Generated (GWh)
* Cost does not include transmission, distribution and debt payment (c.LKR 3.8/KWh in 2013E) and average cost incorporates peak/off-peak energy production allocation
Source: Sri Lanka Sustainable Energy Authority, PUCSL and CAL Research
Cost/KWh (LKR) 13
The story worsens in 2013 as PUCSL estimates c.50%+ of energy to be produced via high cost diesel/fuel oil
GWh 18,000 16,000 14,000 12,000 10,000 64% 8,000 6,000 4,000 2,000 0 Hydro Coal Utilization (GWh) Renewable Diesel Gas Excess Capacity (GWh) 34% 70% 27% 4%
CAL expects total energy generated to reach c.13,000 GWh in 2013, with PUCSL expecting energy demand to reach 10,950 GWh. The PUCSL estimates c.50%+ of energy generated to come from diesel/fuel power plants
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Source: Sri Lanka Sustainable Energy Authority, PUCSL and CAL Research
In 2013E, PUCSL expects IPPs to provide c.35% of total power at an average combined c.LKR 21 cost/KWh
Cost/KWh (LKR) 25.0
20.0
15.0
A larger proportion of CEB power comes from hydro, thereby reducing generation costs (peak hours supplied by lower cost sources)
10.0
IPP
5.0
CEB*
* Cost does not include transmission, distribution or debt payment (which will bring non-IPP cost to c.LKR 16)
0% 10% 20% 30% 40% 50% 60% 70% 80% 90% 100% Contribution to Power Generated
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Source: Sri Lanka Sustainable Energy Authority, PUCSL and CAL Research
HYDRO
COAL RENW
In 2013E, the PUCSL estimates a majority of contribution to meet demand to come from diesel/fuel sources at an average cost of c.LKR 22/KWh
Cost does not include transmission, distribution or debt payment (an additional c.LKR 3.8/KWh)
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Source: Sri Lanka Sustainable Energy Authority, PUCSL and CAL Research
By 2016E, the Govt expects c.36% of energy to be sourced from coal-fired plants, up from 15% in 2013E
2013E Total Energy Generated c.13k GWh 2016E Total Energy Generated c.16k GWh
Thermal (Gas) 2% CEB Hydro 32% Thermal (Diesel/Fuel) 51% Thermal (Diesel/Fuel) 21%
Coal 15%
Renewable 9%
Coal 36%
Renewable 4%
The 2016E energy mix may result in an avg. cost/KWh of LKR 10.51, down LKR 6.5 (38%) from 2013E
GWh 25,000
LKR 0/KWh LKR 8.3/KWh LKR 19/KWh LKR 22/KWh LKR 46/KWh
20,000
18% 47%
5,000
39% 0 Hydro Coal Utilization (GWh) Renewable Diesel Gas Excess Capacity (GWh)
1Cost
Total energy generated is expected to reach c.16,000 GWh, while generation capacity is expected to be c.34,600 GWh. Coal is expected to provide c.36% of energy generated. The avg. cost/KWh may be reduced to c.LKR 10.5 from current c.LKR 17
does not include distribution, transmission and other expenses (c.LKR3.8/ KWh in 2013E) and are based on 2013E
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Source: Sri Lanka Sustainable Energy Authority, PUCSL and CAL Research
However, a total cost of c.LKR 14.3/KWh1 would still be 5% above the average selling price of LKR 13.6/KWh
Cost/KWh (LKR) 16 14 12 10 8 6 10.5 4 2 Cost to Generate a KWh Additional Cost/KWh
1Cost
3.8
Sri Lanka can still benefit from new, cheaper energy sources. At a c.36% contribution from coal, total cost/KWh still falls short of the current selling price/KWh of LKR 13.6.
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Source: Sri Lanka Sustainable Energy Authority, PUCSL and CAL Research
The additional 360MW coal-fired capacity may cost c.USD 800mn by 2016
USD/MWh 300,000
250,000
200,000
150,000
100,000
By 2016E, the coal power plant is expected to generate c.5800 GWh, which indicates a capex on coal power expansion of c.USD 808mn over the next 3 years at USD 256k/MWh of new capacity
50,000
COAL
HYDRO
RENW
THERMAL
* Costs are calculated based on total estimated project costs as published by the Power Ministry
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Source: Ministry of Power and Energy, Bloomberg and CAL Research
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In March, the PUCSL proposed a 26% blended tariff increase to LKR 20.1, which now awaits legislative action
Tariff Category Domestic Religious General Purpose Hotel Purpose Industrial Street Lighting Total Total/KWh (LKR) Estimated Revenue at Existing Tariff for 2013 (LKR mn) 50,700 420 64,791 3,928 54,000 0 173,839 15.9 Estimated Revenue at Proposed Tariff (LKR mn) 84,987 420 69,923 4,632 60,170 0 220,132 20.1 Estimated Cost of Estimated Subsidy/ Generation for 2013 (Surplus) at Proposed Tariff (LKR mn) (LKR mn) 86,715 1,375 55,163 4,948 76,879 3,043 228,151 20.8* 1,728 955 (14,760) 316 16,709 3,043 7,991 0.7
* Cost includes transmission, distribution and debt payment (c.LKR 3.8/KWh in 2013E)
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Source: Sri Lanka Sustainable Energy Authority, PUCSL and CAL Research
On the 2012E energy mix, the avg. selling price needs a c.30% increase for energy producers to break even
2012E
Gross Generation (GWh) Generation Cost/MWh (LKR) Avg. Sales Price/MWh (LKR) Profit/(Shortfall) (LKR) Price Adjustment Required/MWh (LKR)
33,900 8,300
22,100 -
17,800*
CAL has assumed coal to form c.12% of the energy mix in 2012E (c.9% of the energy mix in 2011) The above energy mix is estimated to have contributed to c.94% of energy produced in 2012E Cost incorporates peak/off-peak energy production allocation
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Source: Sri Lanka Sustainable Energy Authority, PUCSL and CAL Research
In 2013E, high cost thermal energy (44% sales) predominates over hydro (37%) and coal (15%)
GWh 14,000
10,000
8,000
6,000
2,000
* Cost does not include transmission, distribution and debt payment (c.LKR 3.8 in 2013E)
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Source: Sri Lanka Sustainable Energy Authority, PUCSL and CAL Research
A c.15% contribution from coal would require c.70%1 capacity utilization at the 300MW coal plant...
GWh 3,000
2,500
2,000
1,500
c.70%
The 300MW coal power plant may produce c.2,600 GWh of power if at full capacity. CAL assumes a capacity factor of c.70% in 2013E, which would translate into c.600k tons of coal required, resulting in coal providing c.15% of the energy mix
1The
PUCSL has estimated a c.70% capacity factor for the coal plant in 2013
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Source: Sri Lanka Sustainable Energy Authority, PUCSL and CAL Research
which may reduce the required price increase to break even to only c.25%
2013E
Gross Generation (GWh) Generation Cost/MWh (LKR) Avg. Sales Price/MWh (LKR) Profit/(Shortfall) (LKR) Price Adjustment Required/MWh (LKR)
Thermal Hydro
5,800 4,800
33,900 -
13,600 13,600
(75,000,000) 65,000,000
21,000 13,600
1,900
8,300
13,600
10,200,000
13,600
17,000
Price adjustment does not include distribution, transmission and other costs (c.LKR 3.8/ KWh in 2013E)
CAL has assumed coal to form c.15% of the energy mix in 2013E (c.9% of the energy mix in 2011) Cost incorporates peak/off-peak energy production allocation
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Source: Sri Lanka Sustainable Energy Authority, PUCSL and CAL Research
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However, only c.20% of Sri Lanka petroleum imports go towards power generation
Even when hydro comprised c.53% of power generated in 2010 (highest rainfall in past 10 years) savings from petroleum imports for power generation amounted to just c.USD 146mn A 60% (vs. 37% expected) hydro contribution might result in a c.USD 660mn savings in 2013E CALs 2013E includes a c.USD 180mn savings due to greater coal-fired power and normal 3500mm rainfall
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In 2012, over c.30% of Sri Lankas import bill was for petroleum products
Import 14.1 Bill USD (bn) 25% 10.2 13.5 20.3 19.1
22%
24%
25%
32%
75%
78%
76%
75%
68%
As a result of sanctions on Iranian oil exports, the overall cost of oil imports in 2012 rose to c.30% of the total import bill
2008
2009 Rest
2010
2011
2012E
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Source: Sri Lanka Sustainable Energy Authority, CBSL and CAL Research
However, only c.20% of Sri Lanka petroleum imports go towards power generation
Millions Litres 10,000 9,000 1,606 8,000 1,385 1,862
7,000
6,000 5,000 4,000 3,000 1,320 1,326 1,021
2,000
1,000 -
Majority of petroleum imports are required to drive economic growth and not power plants. As real GDP grows, the amount of fuel needed by the private sector will increase
2008
2009
2010
2011
2012E
2013E
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Source: Sri Lanka Sustainable Energy Authority and CAL Research
Even when hydro comprised c.53% of power generated in 2010 (highest rainfall in past ten years)
GWh 14,000 5,000 4,500 12,000 4,000 10,000 3,500 3,000 2,500 6,000 2,000
8,000
Over the past 10 years, the average contribution from Hydro has been c.40% and thermal has been c.57% to total power generated
* Renewables include wind and mini-hydro
4,000
1,500
1,000
2,000
500 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012E -
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Source: Sri Lanka Sustainable Energy Authority and CAL Research
savings from petroleum imports for power generation amounted to just USD 146mn
USD Thousands 700,000
400,000
200,000
(21,128) (100,000)
The avg. price per barrel of oil increased by 26% in 2010, partly offsetting the savings from the volume decline
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Source: Sri Lanka Sustainable Energy Authority and CAL Research
A 60% (vs. 37% expected) hydro contribution might result in a c.USD 660mn savings in 2013E
2010
Rainfall (mm) Fuel for power generation (thsd ltrs) Savings due to volume decline (USD) % Hydro Contribution to Power 4,333 1,021,360 146,416,336
2011
3,217 1,385,000 (219,477,611)
+25% Rainfall
4,375 1,287,422 257,180,277
+45% Rainfall
5,735 766,884 656,838,682
53%
35%
35%
37%
46%
60%
* Base case: 3500mm rainfall is the average rainfall for the past 10 years
Even with a 40%+ increase in rainfall from our base case of 3500mm, savings would amount to only c.USD 660mn (c.10% of the 2012 and c.11% of CALs expected 2013 petroleum import bill)
CAL has assumed petroleum price/barrel for Sri Lanka to be USD 117 in 2013E CAL expects energy generation by sources other than thermal oil and hydro to amount to c.20% in our 2013E base case (of which c.15% is from coal)
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Source: Sri Lanka Sustainable Energy Authority and CAL Research
CALs 2013E includes a c.USD 180mn savings due to greater coal-fired power and normal rainfall of 3500mm
2011
Power from Coal (GWh) Coal Used (MT) Fuel Saved (ltrs mn) 1,028 435,502 277
2012E
1,535 479,347 192
2013E
1,918 599,184 240
163
147
176
* The PUCSL has estimated a c.70% capacity factor for the coal plant in 2013
CALs 2013E includes a c.USD 180mn savings from the decline in fuel used due to an increase in coal generated power. CAL assumes c.15% of energy needs in 2013 to be provided by coal
CAL has assumed petroleum price/barrel for Sri Lanka to be USD 117 in 2013E CAL expects energy generation by sources other than thermal oil and hydro to amount to c.20% in our 2013E base case (of which c.15% from coal)
35
Source: Sri Lanka Sustainable Energy Authority and CAL Research
36
Historical coal prices and futures suggest actual 2013 supply costs could be below PUCSLs USD 140/MT est.
37
Capacity generation and transmission, distribution and debt costs are for the whole year (2013). Cost/KWh for generation only is LKR 16.2 for the 6-mos Cost/KWh is based on expected generation by the specified plant for the specified month
38
Source: Sri Lanka Sustainable Energy Authority, PUCSL and CAL Research
Energy losses in transmission and distribution have averaged a high 18% since 2006
GWh 13,000
12,000
11,000
10,000
9,000
8,000
7,000 2006 2007 2008 Gross Generation (GWh) 2009 2010 Power Sold (GWh) 2011 2012E
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Source: Sri Lanka Sustainable Energy Authority, PUCSL and CAL Research
Historical coal prices and futures suggest actual 2013 supply costs could be below PUCLs c.USD 140/MT est.
USD/Ton
130 120
Australian Thermal Coal (FOB)
110 100 90 80 70 60 50 40 Jan-12 Feb-12 Mar-12 Apr-12 May-12 Jun-12 Jul-12 Aug-12 Sep-12 Oct-12 Nov-12 Dec-12 Jan-13 Feb-13 Mar-13 Apr-13 May-13 Jun-13 Jul-13 Aug-13 Sep-13 Oct-13 Nov-13 Dec-13 Jan-14 Feb-14 Mar-14 Apr-14 May-14 Jun-14 Jul-14 Aug-14 Sep-14 Oct-14 Nov-14 Dec-14 40
Source: IndexMundi, NYMEX, CAL Research
Central Appalachian Coal (FOB) For 2013E, the PUCSLs estimated coal price: c.USD 140/MT (including freight)
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This document has been prepared and issued on the basis of publicly available information, internally developed data and other sources, believed to be reliable. Capital Alliance Securities (Private) Limited however does not warrant its completeness or accuracy. Opinions and estimates given constitute a judgment as of the date of the material and are subject to change without notice. This report is not intended as an offer or solicitation for the purchase or sale of any financial instrument. The recipient of this report must make their own independent decision regarding any securities, investments or financial instruments mentioned herein. Securities or financial instruments mentioned may not be suitable to all investors. Capital Alliance Securities (Private) Limited its directors, officers, consultants, employees, outsourced research providers associates or business partner, will not be responsible, for any claims damages, compensation, suits, damages, loss, costs, charges, expenses, outgoing or payments including attorneys fees which recipients of the reports suffers or incurs directly or indirectly arising out of actions taken as a result of this report. This report is for the use of the intended recipient only. Access, disclosure, copying, distribution or reliance on any of it by anyone else is prohibited and may be a criminal offence. APPROVAL IS REQUIRED PRIOR TO PUBLIC DISCLOSURE OF CONTENTS HEREIN
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Contacts
Research Team Tel No: +94 11 231 7777 (General) Email: teamresearch@capitalalliance.lk Head of Research Purasisi Jinadasa Tel No: +94 11 231 7786 Email: purasisi@capitalalliance.lk Udeeshan Jonas Tel No: +94 11 231 7746 Email: udeeshan@capitalalliance.lk Reshan Wediwardane Email: reshan@capitalalliance.lk
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