1. Eng. K A Noel Priyantha Chief Engineer (Renewable Energy) Ceylon Electricity Board 21 October, 2007 Pricing policy for renewable energy - Cost Based Technology Specific Tariff

2. Introduction  Principles of tariff fixing  Cost based, technology specific & three tiered tariff calculation methodology  Tariff applicable for year 2007  Principles of tariff fixing  Cost based, technology specific & three tiered tariff calculation methodology  Tariff applicable for year 2007

3. Principles of Tariff Fixing  Cost based, technology specific and three tiered tariff Tier 1: Years 1- 6 Tier 2: Years 7 – 15 Tier 3: Years 16 - 20  This tariff will be limited to small power producers ( Capacity up to 10 MW)  CEB pays only 90 % of the avoided cost  Any difference will be provided by the GOSL through Sustainable Energy Authority (SEA)

4. Principle of Tariff Fixing  This tariff have been designed to eliminate the problems of negative cash flows experienced by many small power producers during the period of loan repayment.  Tariff will be revised once a year due to rapid changes in the project costs, exchange rates and interest rates, etc.  20 year term of the power purchase agreement

5. Three tier tariff estimation  Capital costs used for the tariff calculation in year 2007 TechnologySL Rs. Million/MW Small Hydro121 Wind158 Biomass147

6. Three tier tariff estimation  Plant factors used for the tariff calculation in year 2007 TechnologyAnnual Plant Factor Small Hydro43 % Wind32 % Biomass80 %

7. Three tier tariff estimation O&M rates as a percentage of the capital cost (base value) TechnologyYear 1 - 15Year 16 onward Small Hydro3 % Wind3 % Biomass4 %5 %

8. Three tier tariff estimation applicable O&M base value for 2007 in SLRs./kWh TechnologyYear 1 - 15Year 16 onward Small Hydro0.96 Wind1.69 Biomass0.841.05

9. Three tier tariff estimation Escalation of O & M.  This will be calculated using the average of Sri Lanka Consumer Price Index (SLCPI) rates of change and SLRs/USD rates of change for the five preceding years. Source for SLCPI & SLRs/USD – Central bank The five year average SLCPI – 8.75 Depreciation of rupee against the USD – 6.11% Applicable O & M escalation rate – 7.43 %

10. Three tier tariff estimation  Debt equity ratio - 60:40  Interest rate - 12.45%  Loan repayment - 6 years  Construction period - 2 years  Discount rate - 16.27 %  Return on equity - 22 %

11. Three tier tariff estimation Third Tier The base rate will be 1.00 SLRs./kWh as of year 2007. This will be escalated at a rate of 2/3 of O & M escalation rate ( 7.43 %)

12. Three tier tariff estimation Biomass fuel cost escalation The base fuel cost - 5.00 SLRs./kWh for 2007. This will be escalated at a rate of 2/3 of O & M escalation rate ( 7.43 %)

13. Three tier tariff estimation  Royalty to GOSL 10% of generation as royalty for mini hydro and wind projects from 16 th year

14. Cost based tariff for 2007 SLRs/kWh

15. Interpretation of the cost based tariff 2007 (based on the escalation rates applicable for year 2007)

16. Thank You Energy Purchases Branch Transmission Division Ceylon Electricity Board Web: www.ceb.lk