Energy solutions - speed as a competitive advantage

Published: Friday | December 7, 2012 Comments 0
Aubyn Hill, Financial Gleaner Columnist
Aubyn Hill, Financial Gleaner Columnist

THIS WEEK, Blue Energy, a British company, announced that it will build Africa's largest solar power plant in Ghana. By the time it is completed in 2015, the 155-megawatt facility will be the fourth-largest power plant in the world and is expected to supply 20 per cent of the Ghanaian government's target of generating 10 per cent of electricity from renewable sources by 2020.

Apart from being the second-largest producer and exporter of cocoa in the world, Ghana is a significant producer of oil and, in March, Tullow Oil of London stated that an oilfield it found off the coast was a major find. Still, Ghana has made it easy for this US$400-million investment in solar energy to go ahead. The Nzema project will be situated on 183-hectares (about 403 acres) of land in western Ghana. The Ghanaian government has given the investor a100-year lease, as well as planning and connection permission to the 161kV West African Power Pool transmission line, which links Ghana to the Ivory Coast, Togo, Benin and Nigeria.

Int'l investors responded swiftly

The CEO of Blue Energy, Chris Dean, speaking to the Guardian newspaper, said: "Ghana's forward-thinking strategy puts it in a strong position to lead the renewable energy revolution in sub-Saharan Africa. Nzema is a case study in how governments can unlock the huge potential for solar energy in Africa". The project is expected to employ 500 persons during construction and 200 permanent employees once it goes into operation. The Stadium Group, which has about 2.5 billion of assets under management, is owned by a family which includes Mark Healey, who owns and funds Blue Energy. Some observers believe that the responsiveness and far-sighted approach of the Ghanaian authorities to renewable solar energy prompted this investor group to make the commitment to the project. In particular, the feed-in tariff was of major importance.

Ghana's 14.3 per cent GDP growth rate means that its electricity generation will need to double between now and 2015 and double again by 2021. The government moved swiftly to complete its Renewable Energy Act legislation in 2011, approve the required permits quickly, and the Nzema project has been awarded a feed-in tariff for 20 years. These are premium prices which are guaranteed for the working life of the site. Ghana moved very fast to get this project approved in order to get the six per cent of the nation's electricity needs supplied by this renewable, green, solar installation.

Positive development in Jamaica's renewable energy programme

One always wishes our Government to be less meandering and more transparent - even as we recognise that sometimes serious horse-trading has to happen at Cabinet meetings and in more informal discussions. That said, Minister Phillip Paulwell must be given credit for pushing the country to go to market with a request for proposal for investors to supply 115MV of renewable energy to the JPS-owned distribution grid. Seen against the recent announcement in Ghana, this is a major development in Jamaica's energy space - especially its renewable energy.

The feed-in tariff, which currently in Jamaica is evidenced by the standard offer contract, is a policy mechanism designed to accelerate investment in renewable-energy technologies. One objective of feed-in tariffs is to offer cost-based compensation to renewable-energy producers, providing price certainty and long-term contracts that help finance energy investments. In Jamaica's case, many persons contend that a major objective of the Government, business and citizens must be to lower the crippling cost of oil imports.

Jamaica's renewable-energy policy should therefore be driven by the cost of oil or petroleum products and not simply by the price of renewable energy investments. Given the abundance of sunshine - Ghana has about 100 cloudy days per year, Jamaica is estimated to have considerably less - the price per kilowatt hour to home-owning solar energy producers should be much higher than the J$0.18 or so that is now being paid under the standard offer contracts.

Investor-attractive renewable energy

In mid-2008, when the sugar divestment team was negotiating with prospective investors to divest the GOJ-owned sugar assets, we were able to get the then Government to agree to a tariff of US$0.14 per kilowatt hour for any biofuels energy that the new owners of the sugar factories and estates would produce from bagasse and sell to the national grid. That was a substantial improvement over the US$0.105 that was posted on the OUR website at the time.

The request for proposal for the 115-megawatt renewable supply has recorded significant improvement in the future pricing regime for renewable energy. The prices on offer have the following caps, all in US cents: hydro-electricity 11.3 cents, wind energy 13.8 cents, waste-to-energy 14.8 cents, biofuels - from bagasse, for instance - 15.8 cents and electricity from solar will fetch a price of 26 cents per kilowatt hour. The price for solar energy is quite attractive, but investors should bear in mind that the 26 cents/kilowatt hour is a cap beyond which all bids will be rejected.

One could make an argument that the prices should be higher, but at these prices compliments must go to the GOJ, Minister Paulwell, persons like Fitzroy Vidal and his team in the ministry, and Zia Mian and his team at the OUR for taking this positive step forward. There is still a lot of work to do. There is concern about the LNG direction which we are following. The price of US$15.6 cents per million BTUs proved to be too high for the GOJ. The Government beat a somewhat messy retreat and left the LNG playing field to monopoly distributor and oligarchic provider, JPS. We understand that Texas is a not-yet-ready supplier of LNG to Jamaica. Prices from Texas are very attractive and that state is reported to have endless amounts of this type of fuel. Jamaica's high cost of fuel is a dead weight on our economic growth rate. Speed to market is a competitive advantage. Can JPS and Jamaica wait on Texas?

Aubyn Hill is the CEO of Corporate Strategies Limited and was an international banker for over 25 years. writerhill@gmail.com; facebook.com/Corporate.Strategies: twitter@ HillAubyn



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