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ECOSOC 2010 General Segment

Panel discussion on: “Opportunities for Small Island Developing States (SIDS)”

Tuesday,20 July 2010

ENERGY SECURITY AND ENERGY OPTIONS IN THE SIDS REGIONS

Vasantha Chase

BACKGROUND

1.Small Island Developing States (SIDS)share a number of characteristics that affect the provision of energy services including: limited internal markets; lack of economies of scale; very high transportation costs resulting from relatively small quantities; grave vulnerability to natural disasters; significant difficulties in attracting foreign direct investments; limited availability of human and institutional capacity; and the high cost of domestic capital. For SIDS, the nexus between energy services and economic development is further complicated by four factors: (a) heavy dependence on imported petroleum for commercial energy needs, (b) ongoing loss in preferential access to OECD markets, (c) vulnerability to natural disasters and the adverse impacts of climate change, resulting primarily from the growth of fossilfuel related emissions, and (d) limited integration of the energy sector with the other sectors so as to maximize synergy and the efficient use of financial resources.

2.For the majority of SIDS, imported petroleum (mainly end-use products) is the chief source of primary commercial energy and is used largely for transportation and electricity generation. Consequently, the cost of petroleum products in SIDS is among the highest in the world. The cost of electricity generation using petroleum products is much higher in SIDS given the added costs of fuel distribution for small-scale generation systems, made acute by the geographic dispersion of SIDS and the distance from suppliers. The ratio of petroleum imports to total merchandise exports in most of SIDS remains comparatively higher than in other developing countries and has remained almost unchanged since 1992. The almost total dependence of SIDS, with the notable exception of a few countries, on imported petroleum and the relatively low level of conversion efficiency for their commercial and domestic energy needs continues to cause imbalances in trade.

3.On average, more than 90 per cent of energy is sourced from oil imports, which account for the largest claim on foreign exchange earnings in SIDS. The fuel import bill for the English Speaking Caribbean and Haiti rose from US$6.5billion in 2004 to US$12 billion in 2007. The Caribbean like the other SIDS regions is one of the more oil import dependent regions globally. Some countries in the Caribbean region spend about 50% of foreign exchange earnings to purchase fuel. In the Pacific Island Countries (PICS), energy imports account for 15-25% of total importsand over 40% of the gross domestic commodity exports. The ratio of petroleum imports to total exports averages between 40 - 80%, and alarmingly so for some countries where the figures are as high as500%[1]. Energy often accounts for more than 12% of importsfor SIDS in the Atlantic and Indian Oceans Region.

4.Consequently, over the past few years, energy security and sustainable development have moved up the SIDS and also the globalagenda. There are two main reasons for this: first, the impact of high and often volatile energy prices; second, concerns over environmental sustainability and particularly about the global climate.Both issues are critically important for all SIDS regions. SIDS are price-takers for oil imports -- if oil prices go up, we have neither the massive stockpiles, the production capacity, nor the geopolitical influence to change the price. It is true that there are some SIDS which produce oil and gas. It is produced in Bahrain, Barbados, Cuba, Papua New Guinea and Trinidad and Tobago. Trinidad and Tobago is the largest SIDS producer of oil and gas with a daily production averaging 165,000 barrels(bbl/d)of crude per day and approximately 1.4 trillion cubic feet of natural gas per year, leaving a sizeable amount for export[2]. Nevertheless the Trinidad and Tobago Gas and Oil Report for Q3 2010 predicts that the country will account for just 0.48 percent of Latin American oil demand by 2014, while providing 1.17% of regional supply[3].

5.Island arc basins in the Caribbean Sea and the south-western Pacific have been investigated for their hydrocarbon potential. However, since 1985, virtually all licensed acreage in the Caribbean Sea[4] has been surrendered. Elsewhere, in Seychelles, in the Indian Ocean about 22,000 km2 is still under licence for exploration, where marine seismic surveys of about 4,700 line-km were last conducted in 1987/88, and in Maldives, where licensed acreage was relinquished in 1991. In most of the countries in the south-western Pacific, only preliminary reconnaissance exploration activities have been carried out. All licences in Fiji, Tonga and Vanuatu have been relinquished since the mid-1980s. In Fiji, four exploratory wells were drilled in 1982, but all tested dry with minor gas shows.

5.With the exception of Trinidad and Tobago, all other oil producing SIDS still remain net importers of oil and gas. Even those SIDS – primarily in the Caribbean, Bahrain and in Papua New Guinea[5]- that have oil refining industries, donot havethem sufficient leverage to be an overall price-setter.

6.Fuel imports as a percentage of merchandise imports in SIDS rose from just over 14 per cent in 2000 to about 27 per cent in 2008[6]. Fuel imports account for a greater percentage of merchandise imports in SIDS than in LDCs. This percentage is also increasing at a faster rate in SIDS than in most other countries in the world. Given the multi-island nature of many SIDS, transport is the fastest growing consumer of oil, with fuel needs for transport to remote islands especially high. Consequently, SIDS are increasingly exposed to the volatility of oil prices, as demonstrated by the severe impacts that the global energy crisis has had on the balance of payments of many SIDS. In monetary terms, an increase of US$10 in the world crude oil price translates to a 1.5 per cent decrease in GDP in Pacific SIDS. In addition, the fragmented markets, numerous players and poor economies of scale lead to inefficiencies in the supply chain, asset redundancy and underutilization of distribution vessels. There are also diseconomies of location. This is particularly true for the Pacific and Indian ocean SIDS. In some cases, these economic stresses have also translated into social instability[7]. Island vulnerabilities are compounded by this fossil fuel dependency. In the Marshall Islands, where oil imports are over 200% of total exports[8] , an 'economic state of emergency' was declared due to the government-owned electricity supplier's inability to pay for fuel[9].

RENEWABLE ENERGY TECHNOLOGY APPLICATIONS IN SIDS

7.Despite the heavy dependency on fossil fuels, SIDS also depend on a range of renewable technologies for generating energy, albeit with inadequate levels of efficiencies. The renewable energy resources endowments of SIDS, however, vary greatly. All have substantial solar resources, which have still not been developed to their full potential. Wind potential is highly variable with location, both within and between countries. Hydroelectric power is a possibility only for some islands. Biomass endowment is common but unequal. Studies of the potential for geothermal, ocean thermal energy conversion and wave energy are continuing.

Biomass

8. Energy generated from biomass is an important source for SIDS. Fuelwood and charcoal is most commonly used for cooking, especially in rural households. Almost all fuelwood for cooking is obtained at no financial cost from natural forests. Also widely used are coconut residues (shells, husks and stemwood) and residues from coffee, cocoa and such other crops as maize, cassava, peanuts and rice. Biofuel is also used in small-scale agro-industry for process heat for drying copra, coffee, tea, fish and other foodstuffs.

9.Biofuels have always been a traditional source of energy in many SIDS. In those island countries where sugar cane is grown in large quantities, bagasse was used as fuel for sugar mills. Notably, in Fiji, about 30 per cent of the peak electricity demand is produced from bagasse, including electricity used in the sugar mills themselves. Similarly, Mauritius has successfully implemented bagasse energy cogenerationon a commercial basis. Jamaica, in collaboration with a Brazilian Company will be producing about 138 gigawats ofelectricity from about 80 million litres of ethanol produced from sugar cane. Infact what is happening with ethanol production in the Caribbean is that under the Caribbean Basin Initiative (CBI), Caribbean countries enjoy duty-free access for ethanol to the US market. Consequently, Trinidad and Tobago, Jamaica and the US Virgin Island import ethanol from Brazil, dehydrate ethanol from its original state and then ship it to U.S. refiners, who add gasoline to make the fuel useable in American cars.

10.Although coconut oil has yet to be adopted on a large scale for electricity generation, several demonstration projects have been carried out in the South Pacific region. The first was at Ouvéa in the French territory of New Caledonia, where generators running on crude coconut oil were installed in 1999 to provide power totalling 315 kW to an oil mill and two desalination plants[10] . More recently, urban utility companies in Vanuatu and Samoa have successfully trialled the use of small quantities of coconut oil blended with diesel in their existing generators[11] . Rural electrification schemes have also been carried out using coconut oil as a fuel source. An early demonstration project was on the Fijian islands of Vanubalavu and Taveuni, where dual-fuel generators capable of using coconut oil together with diesel were installed by the government in 2001. The intention was to provide the communities with both affordable electricity and an economic boost through the purchase of locally-produced coconut oil. At the time of installation the cost of electricity was estimated at US$0.25/kWh from coconut oil and US$0.43/kWh from diesel, with 68% of the former being recycled into the local economy. However, three years later both generators were being run entirely on diesel. A cyclone and lack of cooperation from oil producers had prevented adequate supplies of coconut oil being obtainable locally, and coconut oil imported from farther afield proved more expensive than diesel[12]. Nevertheless, in the Cook Islands, coconut oil is being used as fuel in normal diesel engine, and has been used in Vanuatu to fuel buses, taxis and other vehicles, as well as generators that power a hydroponics project. The government of Vanuatu uses coconut oil (blended with diesel or kerosene) for its vehicle fleet, and in the Marshall Islands there are cars and boats running on coconut oil. The oil will also come from outer islands once mini-electricity systems have been installed for processing copra into oil.Given that nearly every Pacific island country has a large supply of coconuts, the fact that diesel engines and generators can be run on coconut oil holds exciting possibilities for the future of renewable energy in that region.

Hydroelectric

11.Hydropower resources for primary electricity production in SIDS range from zero in the Low Countries (e.g., Maldives, Niue and Tuvalu) to moderate (many island countries have mini-hydro power capacity of a few megawatts), to extensive (e.g., Fiji, Solomon Islands and Vanuatu, with capacity of a few hundred megawatts). Hydropower has been developed in 11 SIDS, where it accounts for 4 to 13 per cent of total commercial energy supply:Comoros, Mauritius and Sao Tome and Principe in the Atlantic and IndianOceans and adjacent areas; Fiji, Palau and Samoa in the Pacific; and Dominica and Saint Vincent and the Grenadines in the Caribbean Sea.InFiji, the Vaturu and Wainikasou Hydro project, when completed,will produce about 38 GWh of electricityannually, displacing diesel generation on thenational grid and reducing emissions by about25 kilo-tonnes. The relative scarcity of hydropower development in SIDS, while technically successful, is in large part attributable to many financial and institutional problems associated with their development and, not least, environmental considerations.

Solar

12.The principal uses of direct solar energy in SIDS are for heating and drying, for solar water heating in urban houses as well as commercial establishments and drying of crops for consumption or processing, as well as for solar water purification and distillation on a limited scale. Solar energy is also used for photovoltaic systems as electric power sources in some rural areas and remote islands. Solar photovoltaic systems have been used on many islands, mainly in dispersed settings, for telecommunication transmission and reception, lighting, small medical refrigerators and water pumping.In Kiribatisolar panels are being used as a power source for rural health centres and remote radio-telephone sites. The largest concentration of photovoltaic modules (more than 8,000) is in the French Polynesian islands, with a combined generating capacity of more than 280 kW (on average about 50 watts per unit, sufficient for an incandescent light-bulb). Also, in Tuvalu, photovoltaic-based electricity is used for lighting needs in a number of households in the outer islands and customer growth is limited only by the availability of new photovoltaic units, constrained by lack of capital and reliant on donors.In Papua New Guinea, a hybrid renewable energy system (involving wind turbines and solar panels) provides an independent supply of power to a highlands school.Two demonstration photovoltaic schemes supplying non-grid electricity to 45 homes indeep rural communities have been established by Jamaica.Photovoltaic cells are also quite common in Saint Lucia and Barbados. Mauritius is hoping to increase the use of solar heaters from 15% to 92 % by providing loans and a grant through the Bank of Mauritius for the purchase of solar heaters.

Wind

13.Prospects have been improving for electricity generation by wind turbines, but much depends on site availability. In the tropics, locations with favourable wind regimes are scarce. However, several SIDS have favourable sites for wind energy, perhaps prone to severe storm conditions;Cape Verde has a number of grid-connected wind turbines in operation. Wind energy use in the Caribbean is most developed in Curacao and Guadeloupe whereapproximately 3 megawatts and 1 megawatt, respectively, are produced. The Wigton Wind Farmin Jamaica sells 7 megawatts of wind energy to the Light and Power Company.

Geothermal

14.Guadeloupe has the only functioninggeothermal plant in the region with an output of 5 megawatts of electricity. There are currently developments in the field of Geothermal Power in Fiji, Vanuatu, Solomon Islands and Samoa. Studies may identify further potential in Tonga, New Caledonia and the Loyalty Island Groups. In PapuaNew Guinea (PNG), geothermal energy willgenerate 411 GWh of electricity per year,saving about 90 kilo-tonnes of fuel and 279kilo-tonnes of GHG emissions annually[13]. The Nevis Geothermal Power Plant Project is the construction of a geothermal power plant to produce 10 MWs of electrical power. If this capacity is implemented, it will be sufficient to supply all of Nevis – and St. Kitts, via submarine transmission cable – with baseload power. The project developer is now investigating two other sites for sale of Nevis’ geothermal energy.

BARRIERS TO SUSTAINABLE ENERGY IN SIDS

15.Over the past couple of years, it has become clear that the world, and SIDS, in particular,isin the midst of a so-called “perfectstorm” of high energy, food and commodities prices, occurring at the same time that growthis faltering in key global economies. Aselsewhere, SIDS are scrambling to react, with policies andprojects intended to reduce the impact of thesituation on already fragile economies. The SIDS have largely been caught napping. The rising costs during the past decade ofimported fossil fuels should haveresulted in far more widespread use ofrenewables than has actually occurred. We have an impressive list, through all the SIDS regions, of the various renewable energy technologies that have been used.Recently there has also been increasing evidence in the Caribbeanof more private sector funding being channeled into the application of these technologies. The barriers have not been technical: We have the technologies.

16.Most islands have abundant solar and ocean resources and considerable wind and hydropower potential, as well as geothermal resources in a number of them. Given the remote location of many SIDS, particularly in the Pacific, Indian and AtlanticOceans, their small energy demands and high costs of oil imports, the development of renewable energy sources seems ideal. However, in spite of efforts to develop indigenous energy resources, the overall contribution of renewable energy sources to the energy balance of most SIDS has been disappointing.What than continues to be the problem?

17.In many SIDS renewable energy has mainlyinvolved small-scale power generation.While the technical issuesof installation have largely been resolved there are stilldifficulties in maintaining the services. This is less of anissue for small-scale rural solar electrification projects—as in Tonga and Kiribati, where the implementingorganizations routinely provide training for the smallnumber of local technicians needed to operate andmaintain them. However, it is more difficultto sustain a pool of capable designers, installers andtechnicians more broadly throughout the SIDS region.