Last week I had an opportunity to chair a panel at the annual Caribbean Renewable Energy Forum (CREF) hosted by New Energy Events. The conference is the premier gathering of energy sector professionals working in the region. I have attended this event multiple times since it began in 2010 and was privileged to do so again.
The panel, The C&I Showcase: High-Impact Models that Work, included in-depth discussion of the potential of solar photovoltaic (PV) to impact the region’s commercial and industrial (C&I) sector, which consumes a significant amount of energy. For this discussion I was joined by Angella Rainford, Managing Director of Rekamniar Frontier Ventures, Wayne Myers, Senior Director at the Eastern Caribbean Central Bank, Rahul Srinivasan, Senior Energy Specialist at The World Bank, Marc Lopata, President of Solar Island Energy, and Jesus Martinez-Cantu, Business Development and Sales Manager at SMA America.
Solar Power in the Caribbean
Solar PV projects have flourished in the Caribbean over the last decade, offering consumers various benefits including cost-competitive electricity, increased awareness of energy consumption, and, in some cases, backup power during grid outages. However, project development has been uneven even across sectors. Smaller projects, for residential use, have boomed. Rooftops across Caribbean islands are often dotted with panels for either electricity or water heating. Utility-scale projects have significantly boosted the region’s overall installed renewable energy capacity and grab headlines because of their size, inexpensive power, and ability to curb imported fossil fuel reliance.
However, for a variety of reasons, the C&I sector has lagged in smaller Eastern Caribbean islands. While larger markets like Jamaica and the Dominican Republic have had more success reforming long-standing restrictions, similar changes the Eastern Caribbean have been very slow. Those markets, which still suffer from exorbitant electricity prices, may be more susceptible to instability from intermittent sources and overly reliant on the traditional business model tying revenue only to kilowatt-hours sold.
Barriers to Solar PV in the C&I Sector
Still, there are economic benefits that can be captured from solar PV development, so why has there not been more uptake? That question connects the CREF panel with some research I am currently conducting alongside experts from The Cadmus Group, HOMER Energy, and Nathan Associates. Sponsored by The World Bank, the report examines three C&I-scale solar PV pilot projects and the barriers they encountered from procurement through commissioning.
The report’s goal is to bring those barriers to light and suggest ways to remove them for further solar PV development in the C&I sector. The pilot projects are located at a hospital in Saint Lucia, a community College in Saint Vincent and the Grenadines, and a community college in Grenada.
Through site visits, in-person interviews, and regular meetings, our team has successfully identified common challenges in many Eastern Caribbean islands, as well as a few singular barriers in particular markets. Although the report is not yet finished, key lessons are emerging in the areas of policy, financial markets, capacity building, and effective business models. Conveniently, the panel’s participants have personal experiences that dovetail nicely with the pilot projects and corresponding research, and it all made for a very dynamic conversation.
Early in the panel discussion, Angella Rainford highlighted the importance of a clear regulatory framework for project developers. When asked what she and her firm look for when evaluating markets, she noted the importance of understanding the varying constraints between them. In addition, she pointed out how some project owners, who may have been burned while being early adopters of new technology, will be skittish if the regulatory market does not clearly define roles, responsibilities, goals, and enforcement mechanisms.
The World Bank pilot projects and corresponding report agree. For example, Saint Lucia’s recently-established regulator has a mandate to promote independent power producers (IPP), electricity generators outside the local utility. However, the local utility has a long-standing exclusivity license over the generation, transmission, and distribution of electricity; a direct conflict with the regulator’s mandate.
This type of unintended consequence can be common. In 2014 I saw something very similar while leading research into electricity and water regulation of Caribbean islands. Utilities in this situation have clear grounds to dispute IPP development, even if a new government policy allows them. Then again, a regulator, buoyed by official government policy, would have a sound argument too. This type of misalignment can significantly delay project development as parties wait for cases to be resolved in court. Further, such delay can imperil a project as supporting finance – very time-dependent – withdraws due to prolonged and unforeseen delays.
The Local Utility
The report also emphasizes the importance of a good working relationship with the local utility, and how it must be part of any long-term conversations or plans regarding a country’s transition to more renewable-based electricity. National Energy Transition Strategies (NETS) have been completed for each of the three countries in which a pilot project has been placed. The utility has been instrumental in developing these plans, providing technical details regarding what the system can handle and the investment necessary to upgrade it to such a transition.
The pilot projects our team has been following bear this out. They all moved forward because the local utility companies were involved early and often in aspects like technical design, grid impact, interconnection, and pricing structures that would benefit both it and the end user.
This is not easy to do. Renewable energy development has often had a contentious relationship with local utilities, often with the latter being easily cast as the problem. However, it is not as simple as that. As noted earlier, sometimes the barrier is a legal one that the utility does not want to violate. Other times, the utility may be concerned that an intermittent source like solar PV may result in violation of service and quality metric enforced by a regulator. In many cases, the economic viability of the utility is vital to the overall island economy. Rapid uptake of solutions that have not been properly examined vis-à-vis pricing can negatively impact already-struggling utilities. Therefore, it is extremely important to involve a utility early and consult it often with initiatives such as expanding solar PV in a particular sector.
Fortunately, our panel discussion included an example of the type of collaboration between a utility and a C&I customer that yields effective results. Wayne Meyers explained how the Eastern Caribbean Central Bank is one of Saint Kitts’ largest energy consumers. The Saint Kitts Electric Company (SKELEC) has, at times, requested ECCB to adjust its electricity consumption to maintain grid stability.
To alleviate this issue, SKELEC and ECCB are installing solar car ports to co-locate generation and consumption and reduce grid congestion and demand. Further, it assists the island’s long-term goal to significantly reduce its carbon footprint. Because both SKELEC and ECCB play significant roles in St. Kitts’ electricity landscape, a fluid and cooperative relationship is a real plus when it comes to managing the island’s energy needs.
Resilience is foremost in many peoples’ minds given the destructive hurricanes the Caribbean has experienced in recent years. Rahul Srinivasan, a member of the World Bank team overseeing the report’s development, weighed in with some key insights on this topic. He suggested finding ways to compensate a project owner for the role they play in being a standby asset.
Indeed, the pilot project in Saint Lucia, is on the roof of a local hospital. In addition, Rahul mentioned how large structures like the two community colleges at which the other two projects are placed in Grenada and Saint Vincent and the Grenadines, can serve as fallback positions or gathering points for large numbers of people during an outage as the project provide some basic level of electricity for such needs during times of crisis.
In line with those thoughts, the report examines the benefits of distributed generation in this context. Large electricity generating assets strategically placed along the grid can provide significant amounts of power – if operable – during prolonged outages. In fact, along with a transition strategy like NETS, a resilience plan could ensure that transition to more sustainable use of energy can also function as a backup to provide vital services like electricity, water, and refrigeration for medicine or other vital supplies.
However, resilience strategies are only as good as the construction of the distributed generation (DG) asset. And it was in that spirit that Marc Lopata offered some key insights regarding effective solar PV project development in the C&I sector. The World Bank selected his firm to provide guidance and parameters for the pilot projects covered in our report. In his words, “hurricane engineering” is needed more than ever. This includes ensuring rooftops are designed for and able to support projects that meet strict codes for survivability. In his view, much of the limited rooftop space that might be used for solar PV development – at any scale – is insufficient. Therefore, the region could benefit greatly from integrating educational programs like energy and architecture, to ensure long-term resilience of solar PV projects.
Pairing with Battery Storage
Complementing modern design considerations is the deployment of modern battery technology. Batteries are following a downward sloping cost curve similar to the one experienced by various renewable energy technologies in the last fifteen years. They are becoming more and more prevalent as solutions for addressing the intermittency of solar energy, extending the usefulness of solar energy by extending discharge into hours after sunset, and providing some reliability and use during widespread outages post-hurricane.
Jesus Martinez of SMA America had a lot to offer our discussion on this point. His role at RMA provides him a front row seat to some of the more successful battery deployments in the region. In his view, battery technology is serving many functions. It helps with peak demand on-site, which can reduce a customer’s overall demand charge with the local utility. In addition, storing excess solar energy allows for its use at different times of the day, which can lead to a customer consuming solar-generated electricity during times when utility tariffs are higher than the cost of solar-generated energy. Battery storage solutions can be configured to provide better reactive power, benefiting both the end user and the utility as it seeks to manage congestion and power quality issues.
Business Model Efficacy
A significant factor the report examines is business models that successfully promote further solar PV investment. Given the variety of monopolized and partially decentralized electricity markets in the region, there is no one size fits all solution. In some cases, business models that allow a third-party to generate electricity from a solar PV asset and sell it directly to a consumer have worked well. However, if that C&I customer is disconnected from the wider grid as a result, there are questions of reliability during outages caused by storms.
Hybrid business models exist where a third-party generator works through the utility to deliver solar-generated electricity, but benefits can be diluted as interconnection and demand charges are applied when adding more middlemen. Some countries allow customer to install their own system and reward them for any excess electricity they sell to the utility. Underpinning the pilot projects of this study is a Buy-All/Sell-All arrangement wherein the C&I customer constructs its own solar PV asset, sells all of the electricity to the utility, and continues buying electricity from the utility. It provides no backup power during outages (since everything would be going to the utility) but may create some economic benefit.
Again, Mr. Lopata offered a potential idea that might satisfy the interests of many stakeholders. Utilities, recognizing the benefits solar PV assets bring, could effectively sponsor projects large enough to meet a C&I customer’s needs. The utility would ultimately own the asset, but a local solar PV installer – with expertise the utility may lack – can bid for the project, build it, maintain it, and be rewarded through some form of long-term contract. The C&I customer can take advantage of competitively priced solar-generated electricity, the solar PV industry in that market can grow, and the utility is able to continue meeting reliability and quality metrics demanded by the regulatory framework because it maintains control of the assets on its grid.
All panel participants touched on – in one form or another 0 capacity building, which is also a main lesson from the pilot projects and our report. It is of the utmost importance that stakeholders increase their respective knowledge of and comfort with solar PV development in the C&I sector. For banks, this means becoming better-versed in the terminology and broad strokes of solar PV development so as to tailor financing solutions to would-be developers and project owners. C&I customers need to be more familiar with the interplay between a utility, regulator, and financial stakeholders to get a better picture of how their generating asset impacts a delicate and balanced electricity system. Utilities can either develop solar PV support services of their own, or help bring that new industry to their market, which can be a strong job creator. Policymakers and regulators should have a thorough understanding of the technical impacts their long-term goals and plans may have on an island-wide system.
So What Comes Next?
With respect to the panel and its participants, the dialogue among industry professionals continues. Each of them is playing an important role in continuing a necessary energy transition. As for the pilot projects, they are all up and running, providing significant amounts of clean and affordable power to their local markets. The corresponding report will be forthcoming in a few months. Some final analysis remains. When it is ready, my colleagues and I will be sure to let you know.