Managing the impacts of higher costs of renewable energy

Abstract

Certain emerging technologies to covert renewable energy to electricity come at a premium price.The reasons for these high prices are not only their higher capital costs in terms of cost per unit of capacity installed,but include the relatively low levels of maturity of such technologies, uncertainties of the resource availability owing to limited availability of historic information about resources and their variations, relatively smaller sizes of such conversion facilities, and the fact that the private investors are expected to develop such resources, whose cost of capital as well as expectation on return on investment are higher than those of state institutions. To encourage production of electricity from renewable energy, Sri Lanka has two key initiatives in operation: (i) the standardized feed-in tariffs available to electricity produced from any form of renewable energy and waste heat, on the basis of a standardized, non-negotiable power purchase agreement, (ii) a net metering facility afforded to any customer, to install a renewable energybased generating facility, and to bank any surplus energy with the grid at a zero banking charge. On feed-in tariffs,Sri Lanka commenced with an offer of the avoided cost of thermal energy since year 1996, followed by a policy revision in year 2007, which established a cost-reflective,technology-specific feed-in tariff. In certain years, for certain technologies, Sri Lanka�s feed-in tariffs have been the highest in the world. Key questions raised on the feed-in tariff from the point of view of prospective investors, are: (i) Why is the tariff limited to a number of technologies? (ii) Why are tariffs too low for certain technologies? Key questions on the net metering procedure are: (i) Why is the surplus energy not paid for? (ii) Why surplus energy cannot be sold by one customer to another customer? Key questions that should be raised by the policy makers and customers are: (i) Should renewable energy be purchased at higher prices and those costs passed-on to customers,in a developing country such as Sri Lanka? (ii) If more and more customers establish net metered generating systems, and if their bills approach zero, who will pay for the network investments and operational cost differentials for banked energy? In other words, the network charges for net-metered customers are paid by other customers who do not have net metered facilities. The paper proposes (i) a transparent, balancing mechanism to ensure that the portfolio average prices are transparently calculated and limits established, (ii) a banking charge for net metered energy to ensure fairness in the procedure, as net metered facilities grow in number and variety.