Business

Future proofing the Caribbean energy sector

By INGRID CHRISTIAN-BAKER

Wednesday, October 11, 2017

Print this page Email A Friend!


Electricity continues to be one of the most expensive inputs into the manufacturing process as well as a significant cost in the budgets of households in the Caribbean.

Consequently, the governments of the day are faced with this being an agenda item during each term they spend in office. The question being: “What policy can be introduced to assist with reducing the cost of this essential input into the lives of their constituents?”

The Ministry with responsibility for Energy in Jamaica released the National Energy Policy 2009-2030 in 2009. The policy envisages “A modern, efficient, diversified and environmentally sustainable energy sector providing affordable and accessible energy supplies with long-term energy security and supported by informed public behaviour on energy issues and an appropriate policy, regulatory and institutional framework.”

The policy lays out 7 fundamental elements essential to achieving this goal, and as the principal director in the ministry told the Jamaica Chamber of Commerce recently, the three main elements involve:

• Seeking to adjust the institutionalised behavioural pattern of the citizens by ensuring they are more aware of the impact on the demand and cost of electricity driven by their consumption pattern.

• The diversification of fuel so as to de-risk the supply as well as to reduce the price

• Improving the governance framework to ensure that it fosters investment, competition, efficiency and transparency.

While the government is to be applauded for trying to do its part by introducing policy, we must also look to the private sector and ask, how can the CFOs and other finance professionals working in energy companies as well as those with financial responsibilities in other organisations assist in finding a solution to this conundrum?

AGEING INFRASTRUCTURE

Many of the electricity-generating units in the region are fairly old. In Jamaica, the electricity generators include plants over 40 years old. This speaks to the age of the technology, which gives a strong indication of the efficiency to be expected from these older plants as opposed to newer units. Admittedly, there are some plants on the grid which, though aged, are still operating with excellent efficiency based on the technology employed.

The government's push to have new electricity-generating plants installed should be commended. However, there needs to be a concerted evaluation of what has been preventing the attraction of some of the more significant investors to the region.

Some commentators believe international investors and developers shy from investing in the Caribbean because of the perceived corruption and lack of an effective regulatory framework. It is good then that the Jamaican energy policy has a focus on developing investments and ensuring that there is increasing transparency in the process.

ARE RENEWABLES THE ANSWER?

Economists teach us that we need to learn to use our competitive advantages. So renewable sources would naturally be the resource to give the Caribbean an edge. After all, the sun is shining in abundance on every island, and wind and geothermal activity is fairly abundant on some islands.

Yet the sector continues to be predominantly fuelled by petroleum-based sources such as diesel and heavy fuel oil, which are not produced on most Caribbean islands, with the obvious exception of Trinidad and Tobago.

As we look to this new means of differentiating ourselves and attempting to ensure our sustainability, why then has the development of renewables not been introduced more rapidly? True, the recent fall in the price of oil released some of the pressure on the high cost of energy.

It can be argued that the cost of implementing these solutions in small island states is prohibitive, as most of these economies find it difficult to obtain financing for grid-sized projects. This, of course, is also linked to the risk profile of the Caribbean which attracts higher rate financing.

Countries such as Barbados have implemented a framework which encourages private citizens to install solar solutions, the success of which is evident in the many solar water heaters observed on their roofs. Other governments who are yet to catch this train should get on board quickly, as this could assist in cushioning the hurt when the price of oil and gas increases in the future.

For grid-sized projects, solar and wind do add a variability issue to the grid, therefore there is still the need for what is considered firm energy. This means more traditional-type plants, importation, and a vulnerability to world market prices, given the previously highlighted lack of oil and gas resources.

DVERSIFICATION OF FUEL

Unlike our close neighbours in Central America, the Caribbean has no opportunities to benefit from economies of scale in energy generation. Those jurisdictions can benefit from “cross border” trading in energy with neighbouring countries who are connected, as they are part of the same land mass.

The beautiful Caribbean Sea which attracts tourists — the main source of economic activity in the Caribbean islands — is also the hindering factor to this type of connectivity. The high cost of energy is also having a backward impact on this major industry, contributing to making the provision of the tourism product and other manufacturing sectors more expensive. Many of the hotels implemented and others are looking to implement their own energy solutions.

A number of large manufacturers have also looked at installing their own solutions. This means that the smaller users will be left to absorb the infrastructure cost, thereby paying more per unit of energy.

In 2008 and again in 2014, world gas prices skyrocketed and the cost of energy was unbearable for many. Caribbean governments commenced looking at introducing cheaper fuels which at the time included natural gas, which proved initially difficult to source at reasonable prices that would reduce the cost of electricity as the volumes to be used by our small inland states proved insufficient to absorb the cost of the infrastructure and the transportation.

In the Dominican Republic, AES operates an LNG terminal, and in Jamaica, New Fortress Energy has been approved and is well on the way to establishing another terminal. Both these terminals have an intention to supply the region with LNG, which would ensure the volumes are more economical. In addition, the Jamaican government is also exploring the possibility of natural gas in public transportation.

Now as these countries move away from diesel, and to natural gas, the conversation on the comparative cost of heavy fuel oil to gas needs to remain at the forefront, for fear we move too far from being vulnerable to one particular source of fuel for energy to being vulnerable to another.

Diversification is what is needed to ensure it remains on the table, not a total change in fuel.

In order to assist in achieving the required transformation, Caribbean leaders and leading energy partners need to get together to pursue a joint regional framework for energy development. In this way all the nations in the Caribbean could actually benefit from the reduction in prices that diversification can bring.

Many of the smaller islands are incapable by themselves to obtain any economies of scale which could reduce their energy costs; therefore, we need cooperation in order for the solution to succeed in the Caribbean.

An agenda such as this was discussed at the Caribbean Energy Security Summit in Washington D.C. in 2015. Agenda items included “Overcoming Barriers to Investment” and “Comprehensive Approaches to Energy Transformation”. Now this is where the business leaders and the financial geniuses amongst us can run the numbers and make the case to encourage governments to implement policies to facilitate cooperation to facilitate the security of economical, efficient and environmentally friendly energy in the Caribbean, which can react quickly to the vagaries of global occurrences which can impact the future pricing of energy.

Ingrid Christian-Baker is a certified chartered accountant with an MBA in International Business from Mona School Of Business. She is the General Manager for the Jamaica Private Power Company Ltd; a board member of the Jamaica Chamber of Commerce, as well as the Vice Chair for Professional Accountants in Business Committee of The Institute of Chartered Accountants of Jamaica.

ADVERTISEMENT




POST A COMMENT

HOUSE RULES

1. We welcome reader comments on the top stories of the day. Some comments may be republished on the website or in the newspaper � email addresses will not be published.

2. Please understand that comments are moderated and it is not always possible to publish all that have been submitted. We will, however, try to publish comments that are representative of all received.

3. We ask that comments are civil and free of libellous or hateful material. Also please stick to the topic under discussion.

4. Please do not write in block capitals since this makes your comment hard to read.

5. Please don't use the comments to advertise. However, our advertising department can be more than accommodating if emailed: advertising@jamaicaobserver.com.

6. If readers wish to report offensive comments, suggest a correction or share a story then please email: community@jamaicaobserver.com.

7. Lastly, read our Terms and Conditions and Privacy Policy



comments powered by Disqus
ADVERTISEMENT
here:1056

Poll

ADVERTISEMENT
ADVERTISEMENT

Today's Cartoon

Click image to view full size editorial cartoon
ADVERTISEMENT