This blog post was originally published at Worldwatch Institute.
As part of Worldwatch’s Caribbean Low-Carbon Energy Roadmap project, Climate & Energy Director Alexander Ochs and I made our first country visit to Jamaica. The trip, ten days in total, was a chance to formally meet with project partners at the Jamaican Ministry of Energy and Mining and other governmental departments as well as with stakeholders from across all sectors that are important to the country’s energy future. Throughout the visit, many issues came up repeatedly, including working with the IMF, net billing vs. net metering, calculation of avoided costs as it pertains to renewable energy projects and power purchase agreements, and the cost of taking out a loan for renewable energy investments. All of this led to a very clear initial observation: Jamaica is facing a serious energy crisis, one that can only be tackled with massive investments in renewable energy, energy efficiency, and smarter grid solution.
Jamaica’s GDP is currently around USD $13 billion. In 2010, the country spent USD $1.6 billion on fossil fuel imports, roughly 12 percent of its GDP. That figure was as high as 20 percent before the global economic crisis and it is likely to return to that level as oil prices continue their overall upward trend. Despite enormous renewable resources, fossil fuels comprise 91 percent of the island’s energy source. This dependency on fossil fuels plays a major role in a consumer’s utility bill, or “light bill” as it is commonly called. Currently, consumers pay roughly USD $0.38 to $0.40 per kilowatt hour (kWh) for electricity. By comparison, electricity rates in the U.S. average around $ 0.10 per kWh. As the burden of expensive electricity persists, there is growing support for the government to take action. As Hillary Alexander, Permanent Secretary for the Ministry of Energy and Mining, told us, “We need solutions that are practical, implementable and beneficial for the people of Jamaica – and we need them now!”
To date, some of the steps taken by the Jamaican government to deal with the current energy crisis have not been as effective as people had hoped. Net billing has been instituted but there have been few subscribers. One of the key reasons for this is the range in price between which electricity is sold to and bought from the consumer. It has been reported that the country’s sole distributor of electricity, the Jamaica Public Service Company (JPS), will sell electricity at roughly USD $0.35 and buy electricity generated by consumers at roughly USD $0.10 per kWh. This disparity often erodes any benefit a consumer might gain from installing something like photovoltaic (PV) solar panels to help offset their utility bill. The country’s Office of Utility Regulation, (OUR) currently has a contract offer for the net billing solution but that contract does not mention the price difference. The consumer discovers it later.
Further complicating the issue is the price at which JPS purchases electricity. The fore mentioned USD $0.10 per kWh is known as the “avoided cost,” meaning it is the fixed and running costs of an electric utility system that can be avoided by obtaining energy or capacity from qualifying facilities. This figure and the method by which it was calculated are the subject of debate and Worldwatch plans to research the topic to gain better clarity and will report on it as the project progresses.
Right alongside the debate of net billing is the debate over net metering. Proponents say this solution is the key to lower utility bills for consumers, a larger presence of renewable energy on the island, and a widespread fossil fuel reduction. Opponents point out that the cost of implementing this solution is out of reach for most consumers. They claim that net metering does not factor in delivery price of electricity and that truly measurable gains are likely to come from utility-scale projects only.
Further complicating the issue is the fact that some traditional measures for advancing renewable energy are off limits as a result of a USD $1.2 billion Standby Arrangement with the IMF. For example, until May 31st of this year, import duties on renewable energy equipment had been waived in an attempt to incentivize investment. Renewal does not seem to be on the horizon. Ending that exemption has led to an important source of revenue for the government, revenue that helps address some of the financial issues the country is trying to solve. But according to financial sector employees, the lack of the waived duty has also led to uncertainty and higher project costs and thus, lower investment in renewable energy projects.
Of course there is also the issue of financing. Worldwatch’s Energy & Climate Director, Alexander Ochs, presented to a high-level group of more than 30 professionals from the banking sector. During the conversation that followed, we were introduced to the issue of “the spread between the Development Bank of Jamaica (DBJ) and qualified Approved Financial Institutions (AFI).” DBJ borrows money from a fund that results from its PetroCaribe agreement with Venezuela and pays 6 percent interest on it. That money is then lent to AFI’s at an interest rate of 6.5 percent, to help spur investment in renewable energy and energy efficiency projects. AFI’s are allowed to loan this money out with an interest rate higher than the one they pay but within a limit set by DBJ. Currently, AFI’s are adding 3 percent to the interest rate, bringing the total to 9.5 percent. The hope is that this rate, down from the 11 or 12 percent rates in recent years, will be enough to stimulate interest in renewable energy, particularly among small-to-medium enterprises. Currently though, the spread – the difference between DBJ’s 6.5 percent and the AFI’s 9.5 percent – is seen as too high.
Worldwatch is now in the process of assimilating the research from this initial trip and using it to help plan the next steps of its Low-Carbon Energy Roadmap. The methodology Worldwatch has created for developing a sustainable energy roadmap should provide some clarity and offer some solutions to the complicated energy issues facing Jamaica.