ICRA Lanka, a group company of Moody’s Investor Services says recent developments in Sri Lanka’s hydropower sector to be credit positive.
The rating agency in a report on the recent developments in the power sector in Sri Lanka said their assessment is based on three factors:
(1) Availability of sufficient water flows (run off river flow) due to favorable weather conditions that prevailed last year
(2) The Ceylon Electricity Board’s (CEB’s) decision to renew Power Purchase Agreements (PPAs) with hydro power producers with expired contracts, and
(3) Likely increase in Avoided Cost tariff structure due to volatility in oil prices.
However, ICRA Lanka has noticed that the power producers have recently experienced a longer payment cycle from the CEB and therefore, this remain as a concern.
According to ICRA Lanka, the Power sector is a critical sector in the economy and it is worth over Rs. 291 billion (2018). About one third of the electricity generation is generally consumed by the industrial sector.
“Going forward, with the revival of economic activities, we expect the demand for power to grow by 5 – 6% over the next two years, thereby aiding private power producers to benefit from the surging demand,” the report said.
The Hydro power segment, (including the major hydropower plants) in the country, is the second largest contributor to the total installed power generation capacity in Sri Lanka (43% in 2018).
Privately owned mini-hydro plants (which are less than 10 MW capacity each) account for about 6 – 8% (366 MW in 2018) of the total installed capacity. In the 4Q of 2019, Sri Lanka’s hydropower generation was at a higher level due to favorable weather conditions that prevailed in the country. This is a credit positive for the mini-hydro producers as they would benefit from the increased power generations (in the absence of the deemed hydrology clauses in their PPAs with the CEB).
However, going forward, given the vagaries of the weather conditions of Sri Lanka, the ability for these mini-hydro power producers to operate at optimum level will be subdued.
