Reducing Jamaica's energy costs

Dan Theoc, Contributor

There has been much debate about the high cost of electricity in Jamaica and much blame has been placed on the Jamaica Public Service Company (JPS) for its ageing fleet of generating units and their high level of inefficiency. There has also been much debate about how to reduce the cost of electricity: from discussions about introducing competition, to the best way to achieve energy diversification, whether through the introduction of coal, liquefied natural gas or renewables in the generation mix.

I would like to explain a few facts that could help us manoeuvre through the various issues.

First, we must understand the 'root cause' of Jamaica's problem, which is our over-dependence on oil. Today, more than 95 per cent of Jamaica's power is produced from oil-fired power generating units. This is the single largest contributing factor to the cost of electricity, which now stands at US$0.36 per kWh. I say this because the generation costs (which includes fuel) represent 80 per cent of the cost of electricity.

diversified source of energy

Most developed countries have a diversified source of energy, with their base-load generating units being fired by natural gas, coal or nuclear energy. In the case of Jamaica, we really need to focus on natural gas or coal/petcoke at this time, since nuclear would take eight to 10 years to develop, at best, and would simply be overly ambitious for us at this time. As a country, we have clearly recognised that the answer lies in coal or natural gas. It is unfortunate, however, that we have been debating which way to go for more than a decade. Had we simply flipped a coin even five years ago and said 'heads' for coal and 'tails' for natural gas, and acted on either one, then the cost of electricity would be at least 40 per cent to 50 per cent cheaper than it is today. Sadly, we have missed that opportunity and each year that we delay making a decision, the cost of implementing such new projects increases.

The way forward, given where we are today, and the marginal difference between the final delivered cost of electricity, whether by coal or natural gas-fired power plants, is simple. A natural gas project could be completed in as little as two years, once the Government finalises the regassification terminal bid. Coal, on the other hand, will take at least five years to materialise.

So, what should the country do? We should move forward with the natural gas project, which would help to achieve a 30 per cent to 40 per cent reduction in the cost of energy by late 2014. At the same time, the Government should give the signal to the market (remember the generation industry in Jamaica is a competitive market) that it wants to have a coal power plant built by the end of 2017, since we (Jamaica) would have to start working on this project now in order for it to materialise by 2017. It is very important to note that Jamaica needs both coal and natural gas in its energy mix. Additionally, we have a unique opportunity to look at coal/petcoke as it relates to the local oil refinery.

I believe we spend too much time 'talking' as a nation and too little time 'walking'; the time to act is now! JPS is equally concerned about the high cost of energy in Jamaica, after all, we are in the business of selling energy and we fully appreciate how the high cost is prohibitive for the nation.

Were the decision solely that of JPS, we would have built a coal or natural gas power plant, and replaced much of our old fleet several years ago. As a country, our oil bill has reached an unacceptably high level and it is imperative that we move away from oil. Additionally, that 40-year-old power plant, of which we all complain, has passed its useful life, and if we don't act now, we could go back to rolling blackouts should any of those units have a fatal failure.

JPS and its shareholders have signalled their commitment to Jamaica by responding to the regulator's requests for proposals for new generation power plants (note: under the current regulations, JPS cannot replace even its own power generating units without regulatory approval). We received that regulatory approval in December 2011 and are moving forward in earnest to materialise this project, which will result in the construction of 360 MWs of new natural gas-fired power plants at a cost in excess of J$50 billion. We are confident that this project can be completed by the end of 2014, and that it will result in a 30 to 40 per cent reduction in the cost of electricity. Additionally, this will make the country 40 per cent more efficient with our use of fuel, which means we can save Jamaica around US$300 million annually on the imported oil bill!

However, we believe the time to act is now to start looking at the next round of generation-expansion projects, especially given the long lead time to develop coal/petcoke. If not, we will be having this same discussion in another three years, when we would have missed another opportunity to further reduce the cost of electricity in Jamaica.

Dan Theoc is chief financial officer at the Jamaica Public Service Company.