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Regulatory Environment and Small-hydro Development

This presentation by Professor Priyantha D.C. Wijayatunga of the Public Utilities Commission of Sri Lanka outlines the critical aspects of regulatory frameworks and policies for small hydro development. It covers the objectives, functions of the Public Utilities Commission, and the importance of separating regulatory functions from policy-making. Key topics include promoting efficiency, ensuring safety and service quality, and fostering investment through various policy interventions. The importance of local resources and minimizing environmental impacts are also addressed, alongside strategies for effective tariffs and incentives for small-scale renewable energy projects.

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Regulatory Environment and Small-hydro Development

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  1. Regulatory Environment and Small-hydro Development Professor Priyantha D C Wijayatunga Public Utilities Commission of Sri Lanka and University of Moratuwa

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

  3. 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

  4. 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

  5. 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

  6. 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

  7. 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

  8. 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

  9. 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

  10. 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

  11. 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

  12. 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

  13. 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

  14. 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

  15. 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

  16. 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?

  17. 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

  18. 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

  19. 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

  20. 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

  21. 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

  22. End

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