Japanese offer of a coal power plant


Prime Minister Abe and President Mahinda Rajapaksa

By Dr. Janaka Ratnasiri

A news item in The Island of 03.10.14 on a coal-fired power plant to be built by the Japanese reminds me of an incident that took place over 25 years ago at the Treasury. At that time, as a Deputy Director at CISIR (now ITI) I was asked to go to the Treasury to attend a meeting to discuss foreign assistance requested by CISIR. When I walked into the room at the scheduled time, the party summoned before us i. e. CEB, was still having discussions with a Japanese delegation, and I was asked to take a seat on a side. I was surprised at the manner in which the discussions were proceeding. Instead of CEB officials proposing priority projects for which they needed assistance, the Japanese were prompting CEB what projects they should undertake for which they were willing to provide funds. So, it was a case of Japanese delegation calling the shots.

It appears that what has taken place at the reported meeting the Japanese delegation had with officials of the Ministry of Power and Energy and CEB is a repetition of what I witnessed 25 years ago. The delegation comprising some bankers and officials of the Japanese Embassy has expressed willingness to set up the third coal-fired power plant in Sri Lanka. It appears that the Ministry of Power and Energy has accepted the offer. Though the report says that the Japanese will give Sri Lanka the latest technology which may result in low emissions per unit electricity generated, the fact remains that the overall pollution it causes by burning a given amount of coal remains the same. Particularly, the amounts of toxic heavy metals and radioactive substances released depend on the type of coal burnt irrespective of the type of plant. There is also no reduction of carbon emissions which again depend of the amount of coal burnt.

A coal power plant based on the latest technology operates on super critical (SC) or ultra-super critical (USC) technology. I believe what they are offering us is the former which has become the proven technology acceptable today. These plants naturally cost more than the conventional sub-critical plants. According to a document on "Updated Capital Cost Estimates for Utility Scale Electricity Generating Plants" published by US Energy Information Administration in April 2013, the overnight cost of a coal power plant with SC technology costs USD 3246/kW, which is a 65% higher than the cost of a coal plant with conventional sub-critical technology which is USD 1964/kW as given in CEB’s LTGE Plan 2014. However, we may assume a more conservative price difference of 25% which works out to USD 2,456/kW. The CEB Plan also gives the cost of a combined cycle gas turbine (CCGT) cost as USD 935/kW. Such a plant could operate on natural gas which is a clean fuel producing no ash whatsoever, no sulphur dioxide and much lower emissions of oxides of nitrogen and carbon dioxide.

Assuming the capacity of the plant offered is 300 MW as given in the CEB Plan, the capital cost of an SC coal plant will be USD 737 million, while that of a CCGT plant of the same capacity will be USD 280 million. The difference in the plant cost of nearly USD 457 is sufficient to meet the cost of the terminal necessary to receive natural gas from carriers of liquefied natural gas (LNG). Since Sri Lanka already has two deep harbours capable of berthing LNG carriers, the cost will be much less than what is quoted in literature. A smallest economical terminal is one with LNG throughput of 1 Mt/y and such a terminal should be able to meet the needs of future gas plants up to 1000 MW. If an agreement to purchase LNG is made in advance, we should be able to pay about USD 10 per million Btu for LNG on a long-term contract. The availability of newly found shale gas from USA and the possible restart of nuclear plants in Japan are expected to bring down the price of LNG in Asia in the short-term. Another factor that needs to be taken into consideration is the possible availability of domestic gas within Sri Lanka in the near future.

With the above capital costs, the price of coal in 2013 as given in CEB Statistical Digest and operational and maintenance costs of coal and CCGT plants given in CEB Plan, the levelized cost of coal power from the SC plant of efficiency 42% will be US cts. 9.07 per kWh, while that from a NG operated CCGT plant of efficiency 50% will be US cts. 8.4 per kWh. This is only the cost of production without considering any external costs of health damage which could be high as US cts 9 per kWh for a coal plant while it is less than US cts 1 per kWh for an NG plant. As such, the coal power is certainly not the cheapest. With the cost of externalities added, electricity from gas will cost only 50% of that from coal.

Further, a CCGT plant has the flexibility to adjust its output to suit the rapidly varying demand conditions which a coal plant is unable to do. A coal power plant for optimum performance needs to be operated uninterrupted at near full capacity. With the average daily load curve fluctuating between a minimum of about 1000 MW during the early hours and about 2200 MW during lighting time, having such flexibility is certainly an advantage. Once the 900 MW coal plant at Puttalam and the proposed 500 MW coal plant at Sampur are fully functional and operate round the clock, these two plants alone should be able to meet the projected minimum demand of 1400 MW up to about five years more. A third coal plant has no place unless the minimum demand rises to over 1700 MW by the time it is commissioned. This also means that all the hydro power plants and wind energy plants will have to be shut down during the early hours of the day to accommodate coal power. This will result in raising the average cost of production.

According to a news item in The Island of 04. 10. 2014 there appears to be a dispute with regard to the capacity of the proposed Sampur coal plant, and that the report on its environmental impact assessment (EIA) is getting further delayed. Earlier it had been reported that the heat rate or the efficiency of the plant was in dispute. I believe the plant the Indians are offering is a low efficient sub-critical plant. Today, the trend is to replace such plants with high efficient SC coal plants or go for natural gas fired power plants. It would therefore be logical that if Sri Lanka wishes to add capacity to the power system, and committed for a coal plant, it should be a plant with SC technology or otherwise it should be a gas plant. In any case, without making available the EIA report to the public and without considering their comments, the authorities should not take any firm decision to finalize the deal as it would be tantamount to violation of the law.

Coming back to the Japanese offer, when they offered a coal plant during the discussions, I wonder whether any of the CEB officials asked for a NG plant instead because of its many advantages. As far as Japanese are concerned, the Bankers who came offering the SC coal plant are only interested in offering a high priced plant to us in order to maximize their profits. We cannot expect them to be concerned about our environment or the operational problems that CEB will have to face. It is up to our professionals and decisionmakers to assess the suitability of project proposals the investors offer and accept only what is good for us.

The authorities will have to decide whether the Japanese offer of a coal plant should be rejected on economic, operational and environmental grounds or accept it disregarding them. My earnest appeal to them is to reject the offer and ask instead for a gas power plant which is economical, clean and flexible. It will be only then the Japanese financiers could honour truly the pledge given by their Prime Minister during his recent visit to Sri Lanka.


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