This blog post was originally published at Worldwatch Institute
Recently I was asked to participate in a Sustainable Energy Conference hosted by the Embassy of the Federal Republic of Germany in Kingston and the University of Technology, Jamaica (UTech). The four-day event, which included considerable participation from the Caribbean Renewable Energy Development Program (CREDP), was a great opportunity to highlight the importance of renewable energy and energy efficiency in Jamaica. It was also a chance to continue the important debate over how quickly renewable energy can be adopted on the island.
[The Most Hon. Edward Seaga (UTech President & former Prime Minister), The Most Hon. Portia Simpson-Miller (Prime Minister) and H.E. Josef Beck (German Ambassador) at the Opening Ceremony on 16 May 2012. Photo courtesy of the German Embassy in Kingston.]
Jamaica is currently one of three Caribbean countries for which Worldwatch is preparing a Sustainable Energy Roadmap. This project, sponsored by the International Climate Initiative of the German Ministry of the Environment, will provide decision-makers in the Dominican Republic, Haiti, and Jamaica with a Roadmap containing concrete recommendations for promoting a more sustainable energy future.
The unsustainable energy situation in Jamaica has been well-documented and is a priority of the Jamaican government. Its citizens pay a high price for electricity – around US$0.40 per kilowatt-hour (kWh). (The average price in the U.S. is around $0.09 per kWh.) Fossil fuel imports meet 95 percent of Jamaica’s total energy needs, while domestic renewable resources meet only the remaining 5 percent. Of these renewable resources, the lion’s share comes from hydropower with a small contribution from two wind farms.
During the conference, I had an opportunity to participate in a roundtable discussion that looked at some of the “hot topics” related to Jamaica’s energy crisis. Among them were the current transmission and distribution monopoly held by the island’s sole electric utility, the Jamaica Public Service Co. (JPS), the potential fuel switch to coal or petcoke as an energy source, the introduction of liquefied natural gas (LNG) into Jamaica’s fuel mix over the next two to three years, the potential for nuclear power to play a role in Jamaica’s energy future, the recently-enacted net-billing provision, and the use of avoided cost to set electricity prices.
There is no arguing that Jamaican citizens need relief from high electricity prices. Today, most of the electricity generated in Jamaica is fueled by automotive diesel oil (ADO), one of the most expensive fuel sources. Switching to coal or petcoke would be cheaper, which has led the Jamaican government to consider these options. However, this fuel switch would mean that Jamaica would incur the health and environmental costs associated with coal power without resolving the country’s dependence on fossil fuel imports.
The Jamaican government is pursuing an energy diversification strategy heavily centered on LNG. In fact, JPS has recently been awarded a contract to bring 360 megawatts (MW) of natural gas-fired power plants into the country’s energy mix in an effort to decommission old, inefficient, and costly petroleum-fueled plants that have been in use for decades. The planned energy transition will take effect gradually, with the first new natural gas capacity to be commissioned no sooner than 2014.
In an effort to help consumers help themselves, Jamaica recently passed a net billing provision. Net billing allows consumers to generate their own electricity and then sell their excess electricity to JPS, thereby offsetting their monthly utility bill. This legislation, in addition to the National Housing Trust’s (NHT) program that helps consumers with loans for solar photovoltaic (PV) systems on their homes, is aimed to encourage consumers to take advantage of Jamaica’s tremendous solar resource. Leading by example, Phillip Paulwell, Minister of Science, Technology, Energy and Mining recently installed a solar PV system at his own home.
However, Jamaican consumers are not flocking to install solar PV systems, largely because of limitations in the net-billing system. Rather than a net metering system in which a single meter charges or pays electricity consumers based on whether they are taking electricity from or adding electricity to the grid, the net billing provision stipulates that consumers must buy electricity from the grid at the current rate (US$0.40 per kWh) but can only sell electricity back to the grid at US$0.10 per kWh. For many, this discrepancy in rates diminishes the incentive to invest in a solar PV system.
The rate at which electricity is purchased from the consumer is not an arbitrary figure. It represents the avoided cost of electricity, or more simply, the cost the utility would have incurred to produce the electricity itself. In Jamaica, avoided cost is determined by factoring in planned expansion which includes new renewable energy sources and LNG, improved efficiency, and reduced losses over an extended horizon. Over that horizon, the cost of new generation averages out to $0.10 per kWh.
Avoided cost is at the center of one of the hottest debates in the Jamaican energy system. Criticisms include that the method used to derive the avoided cost is not in keeping with internationally recognized standards and best practices. In addition, the switch to LNG is touted as one of the key elements that will bring down electricity prices because of its lower cost. But the plans to install LNG are behind schedule which begs the question: if the price was derived assuming a certain timetable for LNG to be introduced, shouldn’t it be recalculated now that the initial assumptions have changed?
Some measures are being taken that will address some of these concerns. According to Minister Paulwell, consumers will soon receive a higher rate for electricity sales to the grid, between US$0.18 and US$0.25 per kWh, which would help to close the gap and shore up consumer confidence that a move to solar PV is beneficial. This revised rate has yet to be incorporated into official regulations, however.
During my visit, I heard well-received two ideas for reducing electricity prices in Jamaica. The first was a more dynamically calculated avoided cost. By taking into consideration fluctuating variables such as like delays or more rapid introduction of renewable energy sources, the resulting avoided cost might offer slightly higher offtake price that incentivizes the consumer self-generation in the short term while still fairly compensating JPS. This adjusted avoided cost level will also guarantee a higher price for renewable energy generators, which will ultimately lead to lower electricity prices for Jamaica in the long term.
The other strong suggestion I heard was an aggressive campaign to address electricity system losses. Currently, technical and non-technical losses combined total 23 percent, about 6 percent higher than global averages, and were increasing until recently. JPS has announced that tackling the high rate of losses will be one of the fastest and most immediate ways to reduce the current price of electricity. In fact, if JPS succeeds, these efforts will likely have a faster and more immediate impact on electricity prices than a fuel switch. And that’s good news because given a recent shocking statistic about the country’s financial situation and heavy debt, the government has limited resources for hefty fuel switching investments.
Worldwatch is currently putting together initial findings and research in a first draft of its Sustainable Energy Roadmap for Jamaica. We are starting to see some of the key issues Jamaica will have to tackle in a meaningful way if it is going reduce its costly fossil fuel dependence, high electricity prices, and carbon emissions. The price for importing fossil fuel is simply unsustainable, as pointed out by this latest statement from the IMF. Our early findings indicate that for this energy transition to happen, issues such as stronger support for renewable energy, addressing system losses, an accurate calculation of avoided costs, the adoption of net metering instead of net billing, and a truly levelized cost of electricity that considers negative externalities associated with fossil fuel use, must be addressed. Failure to do so will only prolong the unsustainable costs of Jamaica’s current energy system.