Research on Electricity Subsidies in Sri Lanka

A subsidy is assistance to a business or economic sector or producers. Most subsidies are set in place by the government for producers or are distributed as subventions in an industry to prevent the decline of that industry. Subsidies are one powerful policy tools in the hands of the government to rectify the economic and social impacts. In many countries used subsidies for decades to achieve a range of economic, social and environmental objectives. Indeed, one of the most challenging responsibilities of a government is allocating financial resources to achieve public good. There are number of criteria by which a subsidy policy may be assessed. Sometimes it may be serving a public, rather than a private interest. Sometimes it may be achieving its intended objective efficiently, whether it has any negative, unintended consequences, such as corruption or environmental degradation. Only when citizens are in possession of this information can they make an informed decision on whether their government is spending money wisely.

The focus of this research is to find the negative impacts of electricity subsidy in Sri Lanka. In addition to forming a large part of government expenditure in Sri Lanka, subsidies for electricity have a tremendous impact on the lives of citizens. At the most immediate level, these subsidies affect how much people pay for energy. But digging deeper reveals that they have a profound effect on the environments in which people live and the economies in which they earn their living.

The system for providing electricity subsidies is more complex than other products, since policies and tariff rates on electricity differ between consumer categories and among different blocks. Moreover, state governments not only provide subsidies on tariff rates (by providing electricity to consumers at discounted rates), but also grant capital subsidies to the state utilities. The utilities then approach the state government and the respective state electricity regulatory commissions for approval of the tariff rates. The final seal of approval is provided by the regulatory commission called Public Utility Commission of Sri Lanka (PUCSL). The approved tariffs are often lower than those petitioned for by the utilities. This markdown is done with the aim of meeting social and development objectives for different consuming categories.

In Sri Lanka block tariff structure is applicable to domestic electricity consumers. Each block is consisted 30 kWh. Average consumer details taken of the country are given below. These data has been extracted from the consumer details of Ceylon Electricity Board in 2012.

Blocks	Average No of Consumers	Consumer Percentage in Blocks	Consumption (kWh Units)	Consumption Percentage	Average Charge per Account  (Rs)	Actual Cost (Rs)
Units <= 30	818,374	19.68%	15,488,111	5.40%	78.02	397.43
30 > Units <= 60	1,257,004	30.23%	56,780,577	19.80%	237.41	948.60
60 > Units <= 90	1,136,860	27.34%	84,574,379	29.49%	518.92	1,562.25
90 > Units <= 120	512,048	12.32%	52,291,083	18.23%	1,162.83	2,144.55
120 > Units <= 150	217,271	5.23%	28,582,917	9.97%	2,064.88	2,762.64
150 > Units <= 180	98,819	2.38%	15,951,746	5.56%	3,107.53	3,389.90
Units > 180	117,134	2.82%	33,143,785	11.56%	6,864.23	5,942.08
Total	4,157,510	100.00%	286,812,598	100.00%

According to the above data first four blocks are receiving electricity subsidy. Consumer in blocks over 120 units of electricity charged more than amount the consumed. The consumption pattern among these consumers and electricity equipment are different. To have an idea of distribution of energy inefficient apparatus usage a data survey has been done. Incandescent lamp is the common energy inefficient equipment in Sri Lanka. As a pilot project sample data has been collected from a randomly selected houses in Kahawaththa DS Division. These sample data can be used for a prediction of whole country. The data collected format and the calculation is given below.  

No	From	To	Incandescent Lamps							Energy saving (kWh)
			15 W	25 W	40 W	60 W	100 W	Total (W)	Possible Saving (W)
1	17:30	18:30			1	1		100	80	0.24
2	18:30	21:30			2	2		200	160	0.48
3	21:30	06:00			1			40	32	0.272
										0.992

Energy consumption of CFL lamp (5 stared rating) is about one fifth of the consumption of incandescent lamp. Quantify the electricity wastage caused by energy inefficient equipment. Hence 80% of power could be saved by using CFLs instead of incandescent. Consumption pattern and usage among different tariff blocks were investigated from random sample of 648 houses. Then the data sorted for the blocks and got the sum of demand saving and the energy saving. The summary of the data survey is given below. Average possible demand saving for a individual consumer of a given block per day and Average Energy saving per day by a individual consumer in a given block has been calculated.

Block	Consumers	Possible demand Saving (W)	Average demand Saving (W)	Energy Saving (kWh)	Average Energy Saving (kWh)
Below 30	162	14,077	87	61.56	0.38
31 to 60	276	31,035	112	132.78	0.48
61 to 90	170	19,616	115	84.57	0.5
91 to 120	26	3,146	121	18.93	0.73
121 to 150	12	1,148	96	5.23	0.44
151 to  180	2	75	38	0.23	0.11
Total	648	69,097		303.3

Those data can be extended for the country values since the total number of consumers in each category is known. The predicted possible energy saving for the country would be shown in below.

Category	Average consumers in the population	Possible saving per one consumer (kWh)	Possible saving (MWh)
Below 30	818,374	0.38	310.98
31 to 60	1,257,004	0.48	603.36
61 to 90	1,136,860	0.50	568.43
91 to 120	512,048	0.73	373.8
121 to 150	217,271	0.44	95.6
151 to  180	98,819	0.11	10.87
Total			1,963.04

According to the Poverty Indicators on Household Income and Expenditure Survey - 2009/10, (Volume 1 - Issue 2) published by Ministry of Finance and Planning on May 2011  latest calculation of poverty indices shows that poverty level of  the country is 8.9% and Ratnapura District is 10.5%. Then the estimated energy saving  is about 1.7 GWh. However the average daily energy consumption in Sri Lanka is about 30 GWh as per "Generation Statistics “ of Ceylon Electricity Board. Hence the possible energy saving is about 5.7 %.  Further the average generation cost around *Rs. 18 per kWh. Then eestimated saving would be about Rs. 30 million per day.

Similarly the peak demand reduction also could be predicted as follows. The actual value would be less than the predicted value. To rectifier the error 0.7 factor could be introduced. Then the possible demand would be around 300 MW.

Category	Average consumers in the population	Possible saving per one consumer (W)	Possible saving (MW)
Below 30	818,374	87	71.2
31 to 60	1,257,004	112	140.78
61 to 90	1,136,860	115	130.74
91 to 120	512,048	121	61.96
121 to 150	217,271	96	20.86
151 to  180	98,819	38	3.76
Total			429.30

Predicted daily demand curve is shown below. Normal daily demand curve has been extracted from system control data of Ceylon Electricity Board.

Intention for the electricity subsidy is lack of intelligent of reality. It is clear that 90% of electricity wastage due to energy inefficient equipment is responsible subsidized electricity users.  By other hand objectives of electricity subsidies are not achieved. As a result Government has to bear the unnecessary burden of wasted energy inside the subsidized electricity consumers since electricity subsidy encourages the usage of energy inefficient equipment. In the country view, it is wide to provide subsidy on energy efficient equipment such as CFLs and promoting LED lamps for street lighting to minimize the electricity wastage.

References

Ø    Domestic consumer account details, Billing Section, Ceylon Electricity Board.

Ø    Generation Statistics - 2011, Ceylon Electricity Board.

Ø    Energy consumption specification and cost of incandescent and CFL manufacturers.

Ø    Tariff details, Public Utility Commission, Sri Lanka.

Ø    System Control data of daily demand curve, Ceylon Electricity Board.