Archive for March, 2014

Why is Rain Important? A Quick Note*

*The Frontier Blog’s Quick Notes series will focus on articles that will explore topics related to the work we do in research and our passion for business innovation, in keeping with our fundamental purpose of making economics, finance and everything else we do sensible, accessible and relevant.  Our blog posts are aimed at a broad audience and as such do not necessarily reflect the work we do for our clients.

Rain is important to the economy, most obviously in terms of agriculture and flooding. But also in terms of energy. If there’s rain the country can rely more on hydro power, if rain fails to arrive, this means Sri Lank must rely more on thermal power leading to increased imports of fuel. Which in turn causes problems in our external account and the economy as a whole.

In 2013 Sri Lanka was significantly benefited by comfortable levels of rainfall which helped improve food supply and also reduced the requirement of thermal energy for the generation of electricity. This in turn helped Sri Lanka on its external accounts (through less fuel imports) and was a key driver for improved performance of State Owned Enterprises namely the Ceylon Electricity Board (CEB).

However, according to latest data and news reports rainfall has been quite low in the last few months especially in early 2014. According to the rainfall data recorded by the Department of Meteorology, rainfall declined 77.6% from a year earlier in February 2014.

chart1

Rainfall in the last 12 months or so has seen a major decline from the previous year

Reservoir storage capacity utilization levels which has been on a declining trend since October 2013 declined under 50% in early February 2014. Reservoir storage capacity levels for the first three months of the 2014 were on average at 40% utilization.

chart 2

Reservoirs have seen a lot of under-utilized storage space as of late

This change in rainfall patterns is evident in the CEB electricity generation mix (the mixture of Hydro vs Thermal energy used). As of 24 March 2014, 83.9% of our energy came from thermal sources while only 15.8% was generated from hydro. To compare this with last year, in the first nine months of 2013 only 39% of our energy came from thermal sources, with a significant 61% coming from hydroelectric sources**.

What’s happening to Sri Lanka’s weather? It used to be pretty regular, now not so much. Call it global warming or anything else you like, but it’s quite apparent that the regular monsoon, dry-spell cycle is faltering. And rainfall especially is increasingly unpredictable.

**Fiscal Management Report (FMR)