Strategies to reduce electricity prices

Clive Mullings, Guest Columnist

HIGH PRICES generate anguish and frustration to most, if not all, of us. They evoke great emotion and many times suggested remedies gain momentum as frustration and fear grow not because of their actual potency, but a perception that they will work. It is precisely why in a search for solutions one has to rely on a correct analysis of the problem, or the wrong complaint will be addressed and the problem will persist if not worsen.

High electricity prices are no different and an analysis of the problem must be accurate and the solutions pursued with determination and focus. The nub of the problem essentially rests on two main pillars —expensive fuel oil and old, inefficient plants at Old Harbour.

The only real solution for significant and meaningful reductions in the price of electricity lies in the use of modern, efficient generating plants to generate the bulk of our electricity (that is baseload) from cheaper energy sources other than heavy fuel oil. The dependence on oil over several decades without the necessary investments to install modern, efficient plants is the source of our energy crisis. The generation of electricity takes up 80 per cent of the total cost to generate, transmit and distribute electricity islandwide. The transmission and distribution of electricity only accounts for 20 per cent of the cost of electricity.

The problem

Indeed, while I cannot vouch for the figures of the University of the West Indies think tank and the Jamaica Productivity Centre, they have corroborated my analysis of the problem. In 2004, the generation of electricity was liberalised and with that we had the advent of independent power producers (IPP) who produce efficiently with newer plants and are not saddled with old plants with 30 per cent efficiency like Old Harbour, which is the backbone of the electricity sector. The generation of electricity, as we all know, must be undertaken by way of a competitive process that is administered by the Office of Utilities Regulation (OUR).

In March 2011, the JPS was the sole bidder for the request for proposal for the provision of 480 megawatts of needed capacity which is to retire the old plants at Old Harbour without a government guarantee.There is need for a degree of certainty that the electricity to be generated will get to a sufficient number of customers in a reliable and consistent manner to make the project affordable for consumers.The bid was for the installation of 360 megawatts by 2014 and a further 120 megawatts by 2016. I met with the JPS and mandated them to bring forward the installation of at least 120 megawatts within the next 13 months and to bring natural gas to the diesel guzzling plant at Bogue St James within 12 months. Of course, the OUR will have to sign off on this proposal but, if approved, will result in a lowering of electricity rates. This is important in our search for solutions.

The breaking up of the monopoly on transmission and distribution, as is being posited by the Opposition, is peripheral to the central problem we face with high electricity prices. Transmission and distribution is 20 per cent of the cost and the model being proposed by the Opposition requires rental fees for access to the grid which, of course, will be borne by the consumer. In addition, it is proposed that a cess be charged for the establishment of an energy fund to ensure that those consumers who live in remote communities are not left without electricity because it is uneconomical to supply them.

Another charge

Of course, this would be another charge to consumers which would in effect increase the unit cost of electricity to the consumer and create discriminatory pricing. It is also being suggested that the JPS change its core business and provide a network for broadband services in order to find an alternative revenue stream. This very suggestion raises the prospect of a loss of viability of a company which has the backbone of the electricity sector and the only one that has put the sum of US$600 million on the the table to support the only bid to replace the old electricity plants that we MUST retire to solve this problem.

Significantly, too, the OUR has advised that the breaking up of the transmission and distribution network would not likely lead to reduction in the price of electricity. Rather, given smaller pools of customers who would be required to absorb the cost of different transmission systems it could actually result in an increase in electricity prices. It should be remembered that the transmission and distribution network is a continuous physical infrastructure and not wireless technology.

Clive Mullings is the minister of mining and energy.

Solutions

In this search for solutions, we have negotiated additional amendments to the JPS licence which include:

• The modernisation of the transmission and distribution system towards the build-out of a smart grid so customers can better control their demand for electricity.
  
• Allowing power wheeling so that customers who are able to generate electricity at one location can also use the power at another location.
  
• Facilitating net billing for self-generators of electricity in addition to which renewable energy can be added to the grid without competitive tender up to a maximum of 25 megawatts.

We can and will solve these problems with proper analysis and fixity of purpose.