A New Coal Power Station the Coal Industry Won't Boast About

When the US$1.35 billion coal-fired Norochcholai Power Station is commissioned bythe Chinese President Xi Jinping on his visit to Sri Lanka this week, it is unlikely that the global coal industry will be waxing lyrical.
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When the US$1.35 billion coal-fired Norochcholai Power Station is commissioned by
the Chinese President Xi Jinping on his visit to Sri Lanka this week, it is unlikely that the global coal industry will be waxing lyrical about the world's latest coal-fired power station being "reliable."

Since the first of the plant's three 300-megawatt-generating units was commissioned in March 2011, the Chinese-funded-and-built power station has become an example of a coal plant that is hopelessly unreliable.

Back in August 2005 -- while the civil war was still raging -- Prime Minister Mahinda Rajapaksha dusted off the long-stalled proposal for Sri Lanka's first ever coal-fired plant at Norochcholai.

At the time there seemed to be limited power generation options for Sri Lanka. Over half of the country's electricity generation capacity was based on expensive oil-fired power plants with a few gas-fired plants for peak time loads. However, as Sri Lanka produces no oil and gas, the ever increasing cost of imported oil and gas was prohibitive. There was limited scope for further hydro schemes and at the time solar power and wind power were expensive options.

With a population of approximately 20 million, a rapidly growing economy, low per capita electricity consumption and total generation capacity of just over 2000 megawatts -- half the size of just one of the big new coal plants in neighboring India -- additional generating capacity of some variety was needed.

So the government-owned utility, the Ceylon Electricity Board (CEB), opted for coal. The Chinese government offered a deal which seemed too good to refuse.

The Export-Import Bank of China provided a US$450 million loan for the first 300 megawatt (MW) unit at the proposed power station at the cut-price interest rate of two 2 percent on two thirds of the loan and 6 percent on the remainder. As the CEB had no experience with coal plants, the China Machinery Engineering Corporation (CMEC) would design and build the plant then hand it over to the utility.

The troubles begin... and keep on going.

From the outset there have been problems with the plant. In October 2010, during a test run, a fire broke out in the chimney due to clogging. Then there were splits in the cooling system piping which triggered a multi-day shutdown down of the plant. As a result, the Ceylon Electricity Board instituted blackouts for three hours a day until the fault was repaired.

Just before Christmas 2013, more leaks were discovered in the plant's cooling system, prompting the CEB to decide the plant was too dangerous to operate. When they turned to CMEC for assistance, the Chinese company said that it would take as long as six weeks fix the problem. After frantic negotiations, the plant was repaired by CMEC and brought back online. But just a day later it failed again and this time was shut down for six days.

Other problems at the plant have been caused by faulty valves, faults in piping, leaks in seals, fires in the coal mill and problems with water pumps. To cap it all off, instruction manuals for the plant and labels on parts were in Chinese.

Earlier this year the Minister of Power and Energy, Pavithra Wanniarachchi, told parliament that of the 1086 days since the plant had been operating, it had been offline for 271 days. Since then it has had even more down time.

Despite this, the government has pressed ahead with CMEC constructing the second and third 300 MW units at the plant at a cost of another US$891 million, also funded by Export-Import Bank of China.

These too have encountered problems including a recent shutdown of the second unit due to a problem with its turbine blades, a fault which was estimated could take 10 to 15 days to repair. Towards the end of August, jellyfish clogged the water intake for the plant and, due to rough seas, teams of divers were delayed from cleaning the filters.

Where the CEB had been expecting the coal plant to increase its profitability by reducing diesel and oil consumption, the frequent shutdowns have caused unexpected losses and fueled controversy. The National Electricity Consumers Movement, unions and opposition political parties have called for a Parliamentary Select Committee to investigate the project.

In a last ditch effort to resolve the problems -- as this week's plant commissioning neared -- the CEB negotiated a three-year maintenance agreement with CMEC.

Big plans for more coal plants.

Undeterred by the debacle with the Norochcholai Power Station, the CEB has grand dreams of even more coal-fired power stations. The next coal plant on the CEB's wish list are four 250 MW units at the proposed Sampur power station near Trincomalee. After that, the CEB's Long-Term Generation Plan 2013-2032 proposes 10 new 300 MW coal-fired units be commissioned between 2020-2032.

The consequences for Sri Lanka of CEB's ambitious coal-centered plan could be profound. Local groups have raised concerns about the impacts of more coal plants on air quality, on the need for coastal land and the disposal of increasing quantities of coal ash.

But, as Sri Lanka has no coal to mine itself, the killer factor could be the rising costs of imported coal.

Since August 2005, when the decision to proceed with the Norochcholai plant was made, the cost of coal sold on the global marked in U.S. dollars has increased by 40 per cent. Due to the depreciation of the Sri Lankan rupee against the U.S. dollar, the cost of coal in local currency is double that.

Prices could go way higher if the claims of the coal industry that coal demand will grow rapidly and coal prices will need to rise if the profitability of coal mining is to be restored. How much and when they could rise is speculative, but coal producers would relish the thought of them climbing back to the 2011 highs of over US$130 a tonne.

While higher coal prices would be good for coal exporters, it would be bad for Sri Lanka.

While coal power costs are only likely to go up, the costs of renewable power have come down. Since 2005, according to US Department of Energy, the installed costs of wind have fallen by 30 percent. The installed cost of solar photovoltaic systems has plummeted by approximately 75 percent over the same period, according to investment analysts Citi.

While the Norochcholai Power Station is now built, controversy rages on over how Sri Lanka came to get such a dud of a plant.

Kumar David, a retired electrical-engineering professor who initially backed the construction of the plant, now argues the project should be scrapped. Earlier this year, David -- a former Director of the CEB -- wrote of the first unit at the Norochcholai plant:

Junk the wretched thing, sell it for scrap, collect insurance, get the Chinese Government to write off the loan; in the long run this will be cheaper and less annoying than pottering around with this Lemon in the hope that it may come right one day... the failures are endemic and betoken [of] defective manufacturing, poor quality materials and probably dumping on one sucker garbage that could not be passed off on some other sucker.

If nothing else, the Norochcholai Power Station debacle stands as a cautionary tale that if governments and power companies come touting deals for coal plants that seem too good to be true, they probably are.

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