Opportunities in the Electricity Sector in
CARICOM
Hugh Sealy, Ph.D., M.Sc., B.Eng. (Chem.)
Key Messages:
1. The Caribbean is on the cusp of an “energy revolution.” In many nations the
economics are favorable and the political will exists. Relatively little financial
support would be required to effect a paradigm shift in the energy sectors of these
small islands and the sustainable development co-benefits are enormous. Very few
countries in the world can go 100% green in their energy sectors by spending less
than US$1 billion. The barriers to wide scale deployment of RE in the Caribbean are
financial, technological and institutional.
2. The cost of electricity for the majority of CARICOM countries is amongst the highest
in the world (~US$0.40/kWh) and has become a severe constraint to further
economic development. Fossil fuel imports for electricity generation and transport
represent ~ 5-15% of total import bills, ~ 20-40% of export earnings; are a drain on
foreign exchange and affect national security.
3. The political will to effect a paradigm shift in the energy sector is evidenced by
several national energy policies & low carbon development strategies, the recently
agreed (2013) CARICOM Energy Policy and CARICOM Sustainable Energy
Roadmap and Strategies (CSERMS) and voluntary commitments made in the
Barbados Declaration as part of the SG’s SE4LL initiative. The region is blessed with
abundant sources of indigenous renewable energy (solar, wind, geothermal – all
volcanic islands, ocean energy, hydro – Guyana & Dominica, biomass – Guyana).
4. Wind energy and distributed solar are now cost-competitive in the region without the
need for on-going subsidy through preferential Feed-in-Tariffs. Distributed solar in
particular represents a significant threat to the current centralized generation
paradigm and the privately owned electric utilities are well aware of this. Geothermal
presents a very special opportunity for some of the islands to achieve very high if not
100% RE use for electricity generation and an opportunity to bring the transport
sector (which in some cases represents up to 50% of primary energy usage) onto a
“greened” grid.
5. The barriers to wide scale deployment of RE in the Caribbean are financial,
technological and institutional/legislative.
6. Two types of financial support are required:
a. Grants and concessionary loans to subsidise the capital costs of purchasing
and installing the RE equipment. Note that many countries in the region have
very high debt to GDP ratios (>100%) and further borrowing is constrained
by IMF programmes.
b. Financial assistance to compensate the electric utilities for loss of stranded
fossil fuel assets and perceived loss of future earnings when the legislation is
amended and existing monopolistic contracts are determined.
7. Technological assistance is required to design innovative storage to maximize grid
penetration rates for variable RE and to create smart grids.
8. Institutional and legislative capacity building is required to assist CARICOM member
countries to design project proposals and implement “bankable projects”; and to
amend their legislative and regulatory frameworks to make them more conducive to
RE deployment. Several Caribbean governments, particularly the smaller islands
within the Organisation of Eastern Caribbean States (OECS), are constrained by
Electricity Supply Acts and long term contractual arrangements, which have created
monopolistic electric utilities with the rights to pass on 100% of the risk of escalating
fossil fuel prices to the consumer.
1.0
Introduction
Caribbean Community (CARICOM) member states are on the cusp of an “energy revolution”
in their electricity sectors. Conditions are now favourable for a paradigm shift from
centralised generation, distribution, and supply of electricity by monopolistic electric utilities
using imported fossil fuels to a more distributed model using primarily solar photovoltaic
(PV) and wind.
The recent global drop in prices of PV technology in particular has made household PV
systems competitive with electricity purchased from the national grid. Some of the member
states also have potential access to geothermal energy and may have the capacity to
completely decarbonise their electricity sectors by 2030 for less than US$1 billion per
territory. Indeed, the costs of mitigation per tonne of CO2 avoided or reduced has been
estimated at – US$48 (i.e. a savings of almost US$50/tonne – see Table 5.1) on average for
CARICOM countries if they displaced 5% of their fossil fuel usage for electricity generation
with solar PV1.
Paradoxically, it is not climate change but simple economics that is driving this shift to
indigenous renewable energy in the Caribbean. In her address to the region (June 2014),
Christine Lagarde, Managing Director of the IMF stated the following2:
“A big issue is high energy costs. Electricity costs three times as much in Jamaica as in the
United States. It costs even more in Barbados. So conserving and renewing energy, alongside
efforts to bring more competition and dynamism to the energy sector, will be important.”
For the majority of Caribbean SIDS, lack of access to abundant, clean and affordable
electrical energy is severely constraining economic development. For some CARICOM
member states, fossil fuel imports can represent 20- 40% of export earnings and almost total
dependence upon importation of primary energy is affecting national security.
2.0
Key Characteristics of the Electricity Sectors in CARICOM
A 2011 survey of the tariffs charged by 15 electric utilities in the region indicated (see Figure
1.1 below) that the mean tariff was ~ US$0.32/kWh, rising to US$0.36/kWh if T&TEC
(Trinidad and Tobago) and NVEBS (Suriname) are excluded. The highest rate was
US$0.60/kWh (BELCO – Bermuda).
1 Sealy, H. 2014. Draft Phase 2 Report to the World Bank – Exploring a Framework for a Solar Regional NAMA
for the Caribbean.
2 The Caribbean and the IMF—Building a Partnership for the Future, Christine Lagarde, Managing Director,
International Monetary Fund, University of the West Indies at Mona, Jamaica, June 27, 2014
2
Figure 2.1: 2011 Caribbean Electric Utility Tariff Survey (CARILEC, 2011) 3
Most Caribbean countries have small, open economies, heavily dependent upon imported
fossil fuels and as evidenced in Figure 1.1 they are crippled by some of the highest electricity
costs in the world despite being blessed with abundant potential sources of indigenous
renewable energy.
Several Caribbean governments, particularly the smaller islands within the Organisation of
Eastern Caribbean States (OECS), are constrained by Electricity Supply Acts and long term
contractual arrangements, which have created monopolistic electric utilities with the rights to
pass on 100% of the risk of escalating fossil fuel prices to the consumer.
The political will to break this dependence upon imported fossil fuels and generation
monopolies and spur further economic development is evidenced by the recent approval
(March 2013) of a CARICOM Energy Policy and a Caribbean Sustainable Energy Roadmap
and Strategy (C-SERMS)4. Table 2.1 below is a partial summary of regional energy sector
data that was compiled by a consultant (Worldwatch Institute) for the C-SERMS project.
3
Source: http://carilec.com/publications/CARILECAR2011.pdf
Presented at the Forty-First Meeting of the Special Council for Trade and Economic Development (COTED)
(Energy), Port-of-Spain, Trinidad and Tobago, 27 February and 1 March 2013
4
3
Share of
Regional
Electricity
Consumption
(%)
Current
Installed
Capacity (MW)
Current
Installed RE
Capacity (MW)
Antigua &
Barbuda
0.6
113
0.05
Bahamas
10.4
575
0
Barbados
5.7
240.4
1.4
Belize
3.6
136
80.24
Dominica
0.5
24.22
4.76
Grenada
1
52.77
0.3
Guyana
3
435
54.2
Haiti
1.3
261
54
Jamaica
17.8
925.2
64.8
Montserrat
0.1
2
0
St. Kitts and Nevis
0.7
63
12.2
St. Lucia
1.9
76
0.065
St. VincentGrenadines
0.7
47
7
Suriname
8.3
410
189
Trinidad &
Tobago
44.1
2335
0
TOTAL
100
5695.59
468.05
Table 2.1: Regional Electrical Energy Data as compiled by the Worldwatch Institute for
the CARICOM Secretariat (Worldwatch Institute, 2013)5
As is evident from Table 2.1, Trinidad and Tobago dominates the electricity sector within
CARICOM with 44.1% of the total regional consumption, with Jamaica, a distant second at
17.8%. Total annual electricity consumption for CARICOM is estimated at approximately
18,000 GWh, with annual emissions of approximately 13 million tonnes of CO2 equivalent
(See Table 2.2 below). The majority of the other smaller islands, especially those within the
regional subgroup – the Organisation of Eastern Caribbean States (OECS) have less than 120
MW of installed generating capacity. Hydro in Dominica, Belize, Guyana and Suriname
dominates the very small market penetration achieved to date by renewable energy (~ 8% in
2012).
5
Caribbean Sustainable Energy Roadmap & Strategy (C-SERMS) Milestone I presented at the Forty-First
Meeting of the Special Council for Trade and Economic Development (COTED) (Energy), Port-of-Spain,
Trinidad and Tobago, 23 February, 2013 by Worldwatch Institute, Mark Konold-Project Manager
4
Country6
Antigua &
Barbuda
Bahamas
Barbados
Belize
Dominica
Grenada
Guyana
Jamaica
Montserrat
St. Kitts &
Nevis
St. Lucia
St. Vincent &
the
Grenadines
Suriname
Trinidad &
Tobago
Total
Annual
Electricity
Consumption
(GWh)
Estimated
Grid
Emission
Factor
(tonnes
CO2/MWh)
Annual
Estimated
Emissions
from
Electricity
Sector
(Kilotonnes
of CO2)
250
1930
918
462
90
199.7
833
3957
10
0.5
0.723
0.883
0.2278
0.5
0.613
0.948
0.7324
0.5
125
1,395
811
105
45
122
790
2,898
5
130
385
0.5
0.5
65
193
130
1310
0.5
0.5
65
655
7722
18326.7
0.725
5,598
12,872
Table 2.2: Estimated CO2 Emissions from CARICOM’s Electricity Sector
3.0
CARICOM Renewable Energy Targets
In 2013, CARICOM leaders agreed to the following targets for the contribution of renewable
energy to electricity generation (by capacity) (Table 3.1):
C-SERMS Targets for % RE in Electricity
Generation
Baseline year
Short-term target
Medium-term target
Long-term target
2012
2017
2022
2027
8%
20%
28%
47%
Table 3.1: C-SERMS Targets for % RE in Electricity Generation (by capacity)
6 Data not available for Haiti.
5
These aggressive renewable energy targets are recognition that many of the economies
(especially the smallest) in the region have the capacity to achieve almost 100% "greening" of
their energy sectors within the next two decades with support from their development partners.
The Caribbean may be one of the few regions where a transition to renewable energy for
electricity generation can be achieved without substantial direct ongoing subsidy.
Transitioning the domestic energy sector to indigenous renewable sources (geothermal, wind,
solar and waste-to-energy) would have substantial transformative impacts on the economies
of many Caribbean economies. However, the lack of domestic institutional capacity, the lack
of an enabling regulatory framework and the lack of the initial financing to do the preliminary
feasibility to prepare "bankable projects" have thwarted the transition and prevented the
achievement of considerable national economic and environmental benefits, whilst also
contributing to the global climate change mitigation effort.
4.0
Barriers to Wide Scale Deployment of RE
In 2013/2014, a team from the Reiner-Lemoine Institut in Germany conducted a study of the
barriers to renewable energy deployment in the Caribbean7 by interviewing 30 energy experts
from around the region.
The five top ranked barriers to wide scale renewable energy deployment, as perceived by the
polled experts, were as follows:
1.
2.
3.
4.
Gap between policy targets and implementation
Lack of regulatory framework and legislation for private investors
Diseconomy of scale
Lack of legal framework for Independent Power Producers (IPPs) and Power
Purchase Agreements (PPAs)
5. High initial investments
The respondents ranked the lack of a regulatory framework to allow for competition in
electricity generation (both centralised and distributed) as a high priority. However, this
barrier should not be considered solvable merely by the provision of legal advice and capacity
building. Indeed, the critical constraint appears to be the threat of expensive litigation by the
existing utility if its monopolistic terms and conditions are altered by amendments to the
current legislation governing the sector. Therefore, the solution must include financial
support to the governments to allow for either a buy out of existing monopolistic contracts or
to allow compensation to be paid to the utility for any “stranded assets” or perceived loss of
future profit.
It may be concluded that any requested support from CARICOM countries is likely to consist,
inter alia, of the following elements:


Legal/technical advice as to how best to create a favourable environment for
renewable energy independent power producers (both centralised and
distributed), whilst maintaining a stable grid and a viable grid operator,
Financial support to determine existing monopolistic generation contracts,
and
7 K. Richter and P. Blechinger, “Barriers and solutions to the development of renewable energy technologies in
the Caribbean”, presented at the Symposium: Innovating Energy Access for Remote Areas: Discovering untapped
resources, UC Berkeley, April 10 – 12, 2014
6

5.0
Financial support to defray high initial investment costs.
Draft Results of Preliminary Financial Feasibility Study of Solar PV in the
Caribbean8
The Caribbean has abundant sources of several forms of renewable energy, including hydro
(Belize, Suriname, Guyana & Dominica), geothermal (Dominica, Grenada, St. Kitts & Nevis,
St. Lucia, St. Vincent & the Grenadines), biofuels (Guyana, Suriname, Belize). Wind energy
is being produced commercially in Jamaica. Barbados has recently signed a contract with a
private investor to produce electricity from solid waste 9 . However, solar photovoltaic
technology is perhaps the renewable energy technology, although intermittent, with the
greatest potential to transform the electricity sectors in the Caribbean.
The region experiences average insolation rates of 5.6 – 6.1 solar hours (5 - 6 kWh/m²/day)10.
Unlike other RE sources, solar is accessible to the individual householder and is an
opportunity to “democratise electricity generation”. Distributed generation using solar PV
represents an existential threat to the existing generation monopolies.
The cost of solar PV technology has decreased significantly in recent years, according to a
report completed in 2012 by the National Renewable Energy Laboratory and the Lawrence
Berkeley National Laboratory.
“Reported installed prices of U.S. residential and commercial PV systems declined
5%–7% per year, on average, from 1998–2011, and by 11%–14% from 2010–2011,
depending on system size. Analysts estimate that the global module average selling
price will decline from $1.37/W in 2011 to approximately $0.74/W by 2013 and that
inverter prices will also decline over this period.”
Source: Feldman, et. al., 2012. Photovoltaic (PV) Pricing Trends: Historical, Recent, and Near-Term
Projections http://www.nrel.gov/docs/fy13osti/56776.pdf
A decline in prices has also been experienced in the Caribbean, although prices still appear
higher than the global average. In Grenada, and in Barbados, the installed price of a 4kW PV
system has declined from ~US$6,000/kW to ~US$4,000/kW during the period from 2010 to
201311.
A preliminary financial analysis 12 , conducted on behalf of the World Bank, assumed the
following scenario:
8 Sealy, H. 2014. Draft Phase 2 Report to the World Bank – Exploring a Framework for a Solar Regional NAMA
for the Caribbean.
9 http://www.waste-management-world.com/articles/2014/03/240m-plasma-gasification-waste-to-energy-deal-
signed-in-barbados.html
10 http://www.hotspotenergy.com/DC-air-conditioner/caribbean-latin-america-solar-map.php
11
Pers. Comm. Mr. Mark Hill, Chief Innovation Officer, Innogen (Bdos) & Dr. Dirk Burkhardt, Manager,
Grenada Solar Power Ltd. (June, 2013)
12 Sealy, H. 2014. Draft Phase 2 Report to the World Bank – Exploring a Framework for a Solar Regional NAMA
for the Caribbean.
7


Installation of solar PV units with a total capacity of 20% of the peak demand
in each CARICOM state. If achieved by 2017, this would meet the shortterm target set by CSERMS.
The installed Solar PV units would displace 5% of fossil fuel usage annually.
Net mitigation costs were determined (without revenue from carbon offsets) assuming either
US$2,000 or US$3,000 per installed kW of solar PV. The results are shown below in Table
5.1.
Net Mitigation Costs
without revenue from
carbon credits @US$2000
per installed kW.
(US$/tonne of CO2)
-116.4
-2.1
-89.3
Net Mitigation Costs
without revenue from
carbon
credits
@US$3,000 per installed
kW.
(US$/tonne of CO2)
40.4
86.8
-11.6
-124.2
-128.9
28.7
-30.2
-16.8
-39.7
59.2
57.9
-4.6
143.1
-129.4
-4.1
Trinidad & Tobago
-15.4
141.2
156.9
225.6
Average
-$ 48
68.4
Country
Antigua & Barbuda
Bahamas
Barbados
Dominica
Grenada
Guyana
Jamaica
St. Kitts & Nevis
St. Lucia
St. Vincent
Grenadines
&
the
Table 5.1: Net Mitigation Costs for Selected CARICOM Countries with 5% Solar PV
(by consumption).
Data for Belize, Haiti, Montserrat, and Suriname were not included in the results due to
uncertainty over their veracity. The majority of the remaining CARICOM countries (except
for Trinidad and Tobago at + US$141/tonne) present negative net mitigation costs at
US$2,000/kW. However, the average net mitigation cost changes from –US$48 to +US$68 if
the capital cost per installed kilowatt increases from US$2,000 to US$3,000.
The sensitivity of internal rates of return (IRR) to capital costs, feed-in-tariffs and carbon
revenues were determined for two representative CARICOM states – Jamaica and St. Lucia.
In all the models run, the IRRs were positive, ranging from 8.64% (an installed cost of
US$3,500/kW and a feed-in-tariff of US$0.20/kWh) to 30.31% (an installed cost of
US$2,000/kW and a feed-in-tariff of US$0.30/kWh).
8
If the installation price is fixed at US$2,000/kW, the IRR increases from 18.93% to 30.31%
when the feed-in-tariff (FIT) is increased from US$0.20 to US$0.30/kWh. If the FIT is held
constant at US$0.20/kWh, the IRR decreases from 18.93% to 8.64% as the installation cost
increases from US$2,000 to US$3,500/kW. The IRR appears to be less sensitive to the range
of carbon prices used (0 – 20 US$/tonne) than to variation in capital costs or feed-in-tariff.
It may be concluded that a distributed solar PV programme would be economically attractive
and sustainable in most CARICOM member countries and would present net mitigation
savings at the national level, if capital costs could be reduced from the current US$4,000/kW
to approximately US$2,000/kW and a reasonable FIT (>US$0.20/kWh) could be guaranteed,
even without revenue from carbon offsets.
6.0 Conclusions
Access to clean affordable energy is a key crosscutting issue affecting the sustainable
development of most of the member states of CARICOM. The economies of the region are
yet to recover from the global recession that started in 2008. In 2014, growth remains
sluggish partly because of high-energy costs. Except for Barbados and Trinidad & Tobago,
Caribbean countries are becoming increasingly indebted to Venezuela under the Petrocaribe
Agreement.
Lack of economies of scale, lack of favourable legislative and regulatory frameworks for
independent power producers or distributed generation, the fear of litigation if the existing
framework is dismantled and the high cost of capital and the requirement for high initial
investment have led to a huge gap between stated energy policy and actual implementation in
the Caribbean.
For CARICOM member states to reach their short (20% by 2017) and midterm (28% by
2022) targets of installed renewable energy capacity, assistance will be required from the
development partners.
Two types of financial support will be required:
c. Grants and concessionary loans to subsidise the capital costs of purchasing
and installing the RE equipment. Note that many countries in the region have
very high debt to GDP ratios (>100%) and further borrowing is constrained
by IMF programmes.
d. Financial assistance to compensate the electric utilities for loss of stranded
fossil fuel assets and perceived loss of future earnings when the legislation is
amended and existing monopolistic contracts are terminated.
Technological assistance will be required to design innovative storage to maximize grid
penetration rates for variable RE and to create smart grids. Capacity building will be required
to assist CARICOM member countries to design project proposals, implement “bankable
projects” and to amend their legislative and regulatory frameworks to make them more
conducive to RE deployment.
Small islands are microcosms of larger societies and may act as models for decarbonisation.
However, their sheer lack of size presents unique challenges and opportunities. There is little
inherent resilience to external economic or environmental shocks and economies of scale are
non-existent. Conversely, the lack of size should also translate into a lack of inertia, implying
9
an ability to rapidly transform and adapt, if capacity and financial constraints are overcome.
Concerted international support will be required.
Many of the members of CARICOM have populations of less than 150,000, GDPs below
US$1 billion, peak electricity demands of less than 100 MW and annual GHG emissions less
than 1 MT of CO2e. This lack of scale has made it difficult for individual small islands to
identify commercially attractive or “bankable” mitigation projects that would stimulate
private sector investment or prioritised support from developed countries and international
financial institutions. The aggregation of small national projects into a regional programme is
likely to be more attractive to both public and private investors. Hence, the World Bank is
currently exploring the feasibility of the submission of a Regionally Appropriate Mitigation
Action (RAMA) by CARICOM to facilitate wide scale deployment of solar PV. A regional
approach to defray the costs and risks of exploration for geothermal energy in the volcanic
islands of the eastern Caribbean may also be more effective than the current sporadic national
efforts. A regional geothermal drilling risk fund has been mooted but not acted upon. It is
anticipated that “bundling” of projects will reduce administrative costs and reduce the
institutional capacity requirements for each participating country. This will be especially
beneficial to the governments of the smallest islands for whom limited institutional capacity
has been a major constraint to accessing international support. The potential for reduced
transaction and project management costs will also attract more local, regional and
international private sector project developers.
Conventional energy burns fossil fuels; renewable energy burns capital! It cannot be
overstressed that the paradigm shift in the electricity sector cannot be achieved without access
to affordable capital. A special window in the Green Climate Fund (GCF) for SIDS to access
funding (public and private) for renewable energy and energy efficiency is recommended. It
is also recommended that the international community further support recently formed
institutions such as SIDS DOCK, which have a specific mandate to support decarbonisation
of SIDS.
Very few (if any) other regions in the world stand to benefit as much as the Caribbean from
decarbonisation of their electricity sectors.
10