Opportunities in the Electricity Sector in CARICOM
Hugh Sealy, Ph.D., M.Sc., B.Eng. (Chem.)
Key Messages:
1. The Caribbean is on the cusp of an “energy revolution.” In many nations the economics are favorable and the political will exists. Relatively little financial support would be required to effect a paradigm shift in the energy sectors of these small islands and the sustainable development co-benefits are enormous. Very few countries in the world can go 100% green in their energy sectors by spending less than US$1 billion. The barriers to wide scale deployment of RE in the Caribbean are financial, technological and institutional.
2. The cost of electricity for the majority of CARICOM countries is amongst the highest in the world (~US$0.40/kWh) and has become a severe constraint to further economic development. Fossil fuel imports for electricity generation and transport represent ~ 5-15% of total import bills, ~ 20-40% of export earnings; are a drain on foreign exchange and affect national security.
3. The political will to effect a paradigm shift in the energy sector is evidenced by several national energy policies & low carbon development strategies, the recently agreed (2013) CARICOM Energy Policy and CARICOM Sustainable Energy Roadmap and Strategies (CSERMS) and voluntary commitments made in the Barbados Declaration as part of the SG’s SE4LL initiative. The region is blessed with abundant sources of indigenous renewable energy (solar, wind, geothermal – all volcanic islands, ocean energy, hydro – Guyana & Dominica, biomass – Guyana).
4. Wind energy and distributed solar are now cost-competitive in the region without the need for on-going subsidy through preferential Feed-in-Tariffs. Distributed solar in particular represents a significant threat to the current centralized generation paradigm and the privately owned electric utilities are well aware of this. Geothermal presents a very special opportunity for some of the islands to achieve very high if not 100% RE use for electricity generation and an opportunity to bring the transport sector (which in some cases represents up to 50% of primary energy usage) onto a “greened” grid.
5. The barriers to wide scale deployment of RE in the Caribbean are financial, technological and institutional/legislative.
6. Two types of financial support are required:
a. Grants and concessionary loans to subsidise the capital costs of purchasing and installing the RE equipment. Note that many countries in the region have very high debt to GDP ratios (>100%) and further borrowing is constrained by IMF programmes.
b. Financial assistance to compensate the electric utilities for loss of stranded fossil fuel assets and perceived loss of future earnings when the legislation is amended and existing monopolistic contracts are determined.
7. Technological assistance is required to design innovative storage to maximize grid penetration rates for variable RE and to create smart grids.
8. Institutional and legislative capacity building is required to assist CARICOM member countries to design project proposals and implement “bankable projects”; and to amend their legislative and regulatory frameworks to make them more conducive to RE deployment. Several Caribbean governments, particularly the smaller islands within the Organisation of Eastern Caribbean States (OECS), are constrained by Electricity Supply Acts and long term contractual arrangements, which have created monopolistic electric utilities with the rights to pass on 100% of the risk of escalating fossil fuel prices to the consumer.
1.0 Introduction
Caribbean Community (CARICOM) member states are on the cusp of an “energy revolution” in their electricity sectors. Conditions are now favourable for a paradigm shift from centralised generation, distribution, and supply of electricity by monopolistic electric utilities using imported fossil fuels to a more distributed model using primarily solar photovoltaic (PV) and wind.
The recent global drop in prices of PV technology in particular has made household PV systems competitive with electricity purchased from the national grid. Some of the member states also have potential access to geothermal energy and may have the capacity to completely decarbonise their electricity sectors by 2030 for less than US$1 billion per territory. Indeed, the costs of mitigation per tonne of CO2 avoided or reduced has been estimated at – US$48 (i.e. a savings of almost US$50/tonne – see Table 5.1) on average for CARICOM countries if they displaced 5% of their fossil fuel usage for electricity generation with solar PV[1].
Paradoxically, it is not climate change but simple economics that is driving this shift to indigenous renewable energy in the Caribbean. In her address to the region (June 2014), Christine Lagarde, Managing Director of the IMF stated the following[2]:
“A big issue is high energy costs. Electricity costs three times as much in Jamaica as in the United States. It costs even more in Barbados. So conserving and renewing energy, alongside efforts to bring more competition and dynamism to the energy sector, will be important.”
For the majority of Caribbean SIDS, lack of access to abundant, clean and affordable electrical energy is severely constraining economic development. For some CARICOM member states, fossil fuel imports can represent 20- 40% of export earnings and almost total dependence upon importation of primary energy is affecting national security.
2.0 Key Characteristics of the Electricity Sectors in CARICOM
A 2011 survey of the tariffs charged by 15 electric utilities in the region indicated (see Figure 1.1 below) that the mean tariff was ~ US$0.32/kWh, rising to US$0.36/kWh if T&TEC (Trinidad and Tobago) and NVEBS (Suriname) are excluded. The highest rate was US$0.60/kWh (BELCO – Bermuda).
Figure 2.1: 2011 Caribbean Electric Utility Tariff Survey (CARILEC, 2011) [3]
Most Caribbean countries have small, open economies, heavily dependent upon imported fossil fuels and as evidenced in Figure 1.1 they are crippled by some of the highest electricity costs in the world despite being blessed with abundant potential sources of indigenous renewable energy.
Several Caribbean governments, particularly the smaller islands within the Organisation of Eastern Caribbean States (OECS), are constrained by Electricity Supply Acts and long term contractual arrangements, which have created monopolistic electric utilities with the rights to pass on 100% of the risk of escalating fossil fuel prices to the consumer.
The political will to break this dependence upon imported fossil fuels and generation monopolies and spur further economic development is evidenced by the recent approval (March 2013) of a CARICOM Energy Policy and a Caribbean Sustainable Energy Roadmap and Strategy (C-SERMS)[4]. Table 2.1 below is a partial summary of regional energy sector data that was compiled by a consultant (Worldwatch Institute) for the C-SERMS project.
Share of Regional Electricity Consumption (%) / Current Installed Capacity (MW) / Current Installed RE Capacity (MW)Antigua & Barbuda / 0.6 / 113 / 0.05
Bahamas / 10.4 / 575 / 0
Barbados / 5.7 / 240.4 / 1.4
Belize / 3.6 / 136 / 80.24
Dominica / 0.5 / 24.22 / 4.76
Grenada / 1 / 52.77 / 0.3
Guyana / 3 / 435 / 54.2
Haiti / 1.3 / 261 / 54
Jamaica / 17.8 / 925.2 / 64.8
Montserrat / 0.1 / 2 / 0
St. Kitts and Nevis / 0.7 / 63 / 12.2
St. Lucia / 1.9 / 76 / 0.065
St. Vincent-Grenadines / 0.7 / 47 / 7
Suriname / 8.3 / 410 / 189
Trinidad & Tobago / 44.1 / 2335 / 0
TOTAL / 100 / 5695.59 / 468.05
Table 2.1: Regional Electrical Energy Data as compiled by the Worldwatch Institute for the CARICOM Secretariat (Worldwatch Institute, 2013)[5]
As is evident from Table 2.1, Trinidad and Tobago dominates the electricity sector within CARICOM with 44.1% of the total regional consumption, with Jamaica, a distant second at 17.8%. Total annual electricity consumption for CARICOM is estimated at approximately 18,000 GWh, with annual emissions of approximately 13 million tonnes of CO2 equivalent (See Table 2.2 below). The majority of the other smaller islands, especially those within the regional subgroup – the Organisation of Eastern Caribbean States (OECS) have less than 120 MW of installed generating capacity. Hydro in Dominica, Belize, Guyana and Suriname dominates the very small market penetration achieved to date by renewable energy (~ 8% in 2012).
Country[6] / Annual Electricity Consumption (GWh) / Estimated Grid Emission Factor (tonnes CO2/MWh) / Annual Estimated Emissions from Electricity Sector (Kilotonnes of CO2)Antigua & Barbuda / 250 / 0.5 / 125
Bahamas / 1930 / 0.723 / 1,395
Barbados / 918 / 0.883 / 811
Belize / 462 / 0.2278 / 105
Dominica / 90 / 0.5 / 45
Grenada / 199.7 / 0.613 / 122
Guyana / 833 / 0.948 / 790
Jamaica / 3957 / 0.7324 / 2,898
Montserrat / 10 / 0.5 / 5
St. Kitts & Nevis / 130 / 0.5 / 65
St. Lucia / 385 / 0.5 / 193
St. Vincent & the Grenadines / 130 / 0.5 / 65
Suriname / 1310 / 0.5 / 655
Trinidad & Tobago / 7722 / 0.725 / 5,598
Total / 18326.7 / 12,872
Table 2.2: Estimated CO2 Emissions from CARICOM’s Electricity Sector
3.0 CARICOM Renewable Energy Targets
In 2013, CARICOM leaders agreed to the following targets for the contribution of renewable energy to electricity generation (by capacity) (Table 3.1):
Table 3.1: C-SERMS Targets for % RE in Electricity Generation (by capacity)
These aggressive renewable energy targets are recognition that many of the economies (especially the smallest) in the region have the capacity to achieve almost 100% "greening" of their energy sectors within the next two decades with support from their development partners. The Caribbean may be one of the few regions where a transition to renewable energy for electricity generation can be achieved without substantial direct ongoing subsidy.
Transitioning the domestic energy sector to indigenous renewable sources (geothermal, wind, solar and waste-to-energy) would have substantial transformative impacts on the economies of many Caribbean economies. However, the lack of domestic institutional capacity, the lack of an enabling regulatory framework and the lack of the initial financing to do the preliminary feasibility to prepare "bankable projects" have thwarted the transition and prevented the achievement of considerable national economic and environmental benefits, whilst also contributing to the global climate change mitigation effort.
4.0 Barriers to Wide Scale Deployment of RE
In 2013/2014, a team from the Reiner-Lemoine Institut in Germany conducted a study of the barriers to renewable energy deployment in the Caribbean[7] by interviewing 30 energy experts from around the region.
The five top ranked barriers to wide scale renewable energy deployment, as perceived by the polled experts, were as follows:
1. Gap between policy targets and implementation
2. Lack of regulatory framework and legislation for private investors
3. Diseconomy of scale
4. Lack of legal framework for Independent Power Producers (IPPs) and Power Purchase Agreements (PPAs)
5. High initial investments
The respondents ranked the lack of a regulatory framework to allow for competition in electricity generation (both centralised and distributed) as a high priority. However, this barrier should not be considered solvable merely by the provision of legal advice and capacity building. Indeed, the critical constraint appears to be the threat of expensive litigation by the existing utility if its monopolistic terms and conditions are altered by amendments to the current legislation governing the sector. Therefore, the solution must include financial support to the governments to allow for either a buy out of existing monopolistic contracts or to allow compensation to be paid to the utility for any “stranded assets” or perceived loss of future profit.
It may be concluded that any requested support from CARICOM countries is likely to consist, inter alia, of the following elements:
§ Legal/technical advice as to how best to create a favourable environment for renewable energy independent power producers (both centralised and distributed), whilst maintaining a stable grid and a viable grid operator,
§ Financial support to determine existing monopolistic generation contracts, and
§ Financial support to defray high initial investment costs.
5.0 Draft Results of Preliminary Financial Feasibility Study of Solar PV in the Caribbean[8]
The Caribbean has abundant sources of several forms of renewable energy, including hydro (Belize, Suriname, Guyana & Dominica), geothermal (Dominica, Grenada, St. Kitts & Nevis, St. Lucia, St. Vincent & the Grenadines), biofuels (Guyana, Suriname, Belize). Wind energy is being produced commercially in Jamaica. Barbados has recently signed a contract with a private investor to produce electricity from solid waste[9]. However, solar photovoltaic technology is perhaps the renewable energy technology, although intermittent, with the greatest potential to transform the electricity sectors in the Caribbean.
The region experiences average insolation rates of 5.6 – 6.1 solar hours (5 - 6 kWh/m²/day)[10]. Unlike other RE sources, solar is accessible to the individual householder and is an opportunity to “democratise electricity generation”. Distributed generation using solar PV represents an existential threat to the existing generation monopolies.
The cost of solar PV technology has decreased significantly in recent years, according to a report completed in 2012 by the National Renewable Energy Laboratory and the Lawrence Berkeley National Laboratory.
A decline in prices has also been experienced in the Caribbean, although prices still appear higher than the global average. In Grenada, and in Barbados, the installed price of a 4kW PV system has declined from ~US$6,000/kW to ~US$4,000/kW during the period from 2010 to 2013[11].
A preliminary financial analysis[12], conducted on behalf of the World Bank, assumed the following scenario:
§ Installation of solar PV units with a total capacity of 20% of the peak demand in each CARICOM state. If achieved by 2017, this would meet the short- term target set by CSERMS.
§ The installed Solar PV units would displace 5% of fossil fuel usage annually.
Net mitigation costs were determined (without revenue from carbon offsets) assuming either US$2,000 or US$3,000 per installed kW of solar PV. The results are shown below in Table 5.1.
Country / Net Mitigation Costs without revenue from carbon credits @US$2000 per installed kW.(US$/tonne of CO2) / Net Mitigation Costs without revenue from carbon credits @US$3,000 per installed kW.
(US$/tonne of CO2)
Antigua & Barbuda / -116.4 / 40.4
Bahamas / -2.1 / 86.8
Barbados / -89.3 / -11.6
Dominica / -124.2 / 28.7
Grenada / -128.9 / -30.2
Guyana / -16.8 / 59.2
Jamaica / -39.7 / 57.9
St. Kitts & Nevis / -4.6 / 143.1
St. Lucia / -129.4 / -4.1
St. Vincent & the Grenadines / -15.4 / 156.9
Trinidad & Tobago / 141.2 / 225.6
Average / -$ 48 / 68.4
Table 5.1: Net Mitigation Costs for Selected CARICOM Countries with 5% Solar PV (by consumption).