Pursuing a more secure energy future for Jamaica
Yasmn Chong, Contributor
Over the years, many and varied plans at diversifying Jamaica's energy mix (to include renewable energy sources) have been promulgated yet, today, oil remains the primary fuel for electricity generation in Jamaica. The local context dictates that 65-70 per cent of the monthly electricity bill is directly attributed to the cost of fuel.
The Government's National Energy Policy 2009-2030 outlined its plans to diversify the country's energy sources and identified liquefied natural gas (LNG) as the fuel of choice for electricity generation. This move was the official response to reduce the heavily weighted burden on consumers and to also secure a more affordable energy future.
The Office of Utilities Regulation's (OUR) Generation Expansion Plan 2010 forecast that the demand for electricity is estimated to grow at an average annual rate of 3.8 per cent over the next 20 years. The plan concluded that new baseload capacity was urgently required, and that until such capacity could be installed, an interim solution of 480MW of natural gas-fired, combined-cycle capacity should be commissioned and installed in two tranches by 2016.
This decision led to the issuance of a request for proposal (RFP) for the supply of up to 480MW of baseload generation capacity on a build, own and operate (BOO) basis. Notwithstanding attempts to encourage a more competitive electricity-generation sector, only one response to the RFP was received by the OUR, and it was from the incumbent, integrated supplier - Jamaica Public Service Company Limited (JPS). This interesting and important turn of events did not go unnoticed.
What could have caused this result? Could it have been the peculiarities associated with the bidding process? Initially, a selective tendering process with 28 companies was initiated and later withdrawn. Thereafter, the same RFP was reissued (on an open basis) to the international investment community, inviting their interest and participation in this opportunity. There may also have been the issue of insufficient information being made available to properly guide prospective and interested bidders to enable them to prepare realistic and competitive bids. Information surrounding the source and approximate price of the LNG, critical to decision-making and bid preparation, was not available to those interested in submitting bids.
One of the basic premises of investment is that reasonable returns with minimal risk be made in an environment which provides a stable policy and regulatory framework. It might be useful, therefore, to review the country's policy, regulatory and investment profiles to ensure that clear and definitive developmental objectives and goals are established and that the respective strategies and 'road maps' are created in order to guide the delivery of the policy. The 2011 World Investment Report is instructive when it notes that foreign direct investment into Jamaica declined by more than 40 per cent in the past year. Therefore, the current hostile approach targeted at much-needed foreign investment could send the wrong message to prospective investors.
Was the resultant response the consequence of the controversy and uncertainty surrounding the LNG project? The RFP clearly gave preference to bids which were LNG compliant as being more responsive and would receive 15 per cent more in its ratings over bids which indicated other alternatives. However, given the uncertainties regarding the LNG supply to the country, the price at which the gas would be procured, the price at which the gas would be sold to off-takers, and other ambiguities surrounding the LNG project, could these and other related issues have deterred potential investors? Would the RFP have motivated a stronger response, if the request was made after certain policy agreements and infrastructural requirements were completed?
As mentioned earlier, JPS was the sole respondent to the RFP, and this raised additional concerns. Given the urgent requirement for additional generating capacity, is there a contingency plan in place in the event that the JPS proposal proves to be non-responsive? And when might we expect to hear the results of the review of the JPS bid? The campaign to end the JPS monopoly and introduce competition in the distribution system, as was done in the telecommunications sector, may not be the answer to the current problems being faced in the sector and may not necessarily lead to lower electricity rates. If we are to use the aforementioned telecommunications sector as the model, competition has not realised lower telephone rates, and based on the current state of affairs in the domestic sector, a return to a monopoly position is not only possible but imminent.
Jamaica's electricity system is small by any standard and, therefore, the focus should be directed at fixing the technical and non-technical inefficiencies in the system as well as the timely delivery and implementation of policy and regulatory decision-making. Over the past couple of weeks, JPS has come under extreme pressure from Jamaican consumers who have become increasingly frustrated with the high cost of electricity. Their disenchantment with the company that delivers the high electricity bills is understandable. We are all painfully aware of the need to resolve this problem as it continues to be one of the major obstacles to improved economic performance and growth as well as the expansion of business and commerce in Jamaica.
It is important for us to remember, though, that in spite of the JPS's deficiencies, the major responsibility for Jamaica's high energy costs does not reside with JPS but with the policymakers - our Government. Electricity costs cannot and will not be lowered until critical decisions are taken and measures implemented to replace old and inefficient generating plants with more modern and efficient units and, more importantly, an alternative to the traditional and expensive oil is identified. The implementation of both sets of measures is squarely within the purview of the Government of Jamaica, and not the JPS.
Jamaica has been facing an energy crisis for some time now, with the cost of oil imports oftentimes exceeding the total value of merchandise exports. However, there does not appear to be a sense of urgency within the government machinery; instead, time has been spent being embroiled in bureaucratic procedures, studies, reviews, more studies and more reviews.
Considerable investment in electricity infrastructure is urgently required if we are to maintain and improve the reliability and the quality of electricity service we have come to expect. Relatively little new generation has been made in Jamaica over the last 10 years and the time has come when new baseload capacity is urgently needed. The current electricity infrastructure is ageing and is in dire need of renewal and, in many cases, replacement. The global energy future presents tremendous opportunities for island economies such as Jamaica to refuel an investment in the power-generation system. Jamaica's electricity system, therefore, must prepare for fundamental transformation in the short term as economic recovery and growth will necessitate changes and a corresponding investment in the local electricity infrastructure.