Renewable investors in 115MW project fear JPS
Correction & Clarification
Two photos published, misidentified the venue of the OUR 115MW Project Meeting as Jamaica Pegasus Hotel. The correct venue is Knutsford Court Hotel.
Steven Jackson, Business Reporter
This article was originally published online on Friday, January 18, 2013.
Prospective investors complained about parking millions of US dollars as a security deposit via the government regulator Office of Utilities Regulation (OUR) for bidding on 115 megawatts (MW) of clean energy projects.
They also want safeguards against monopoly distributor Jamaica Public Service Company effectively underbidding them in applying for these projects - as it already controls the grid.
JPS is one of 85 entities which submitted expressions of interest for the 115-megawatt renewable projects. Proposals must be submitted by April.
The OUR noted the financial concerns while indicating that investors can use it as a JPS intermediary.
Over 200 prospective investors - one-quarter foreigners - attended an OUR meeting at The Knutsford Court Hotel in Kingston Thursday. The turnout "pleasantly surprised" OUR representatives.
It indicated the financial interest in renewable energy that forms part of the Government's 2030 vision to reduce the island's costly dependence on fossil fuels.
But one participant, general manager Wigton Wind Farm, Earl Barrett, complained of an additional financial burden requiring developers to put up at least 20 per cent of the financing of the project, which obviates full financing by banks.
Responding to the concerns, Peter Johnson, OUR manager of utility monitoring and generating procurement, said: "We want some commitment from the developers themselves. We do not want them to be just a conduit. That is the idea. We want some commitment from the developer."
"It is not unreasonable," added Courtney Francis, senior regulator of engineering at the OUR.
Leo Williams, seeking to represent bidders, said inter-connection with JPS would pose another hurdle in seeking financing for projects.
JPS can charge a higher fee to rivals to connect to the grid and a lower charge to itself, said Williams and other participants.
"The question of JPS and the level playing is one of which I hope you have heard. The concern expressed relates to the inter-connection costs to the (bidders) which are totally uncapped from the JPS side. So JPS could indicate all types of requirements which could drive the inter-connection costs up for the (bidder)," said Williams, who then asked in vain for the regulator to provide some indicative empirical costings.
"That would be rather difficult. We cannot give a per-unit cost because it depends on the technology, configuration, depends on where you are accessing the system from, the size, and a whole raft of things. It's hard to quantify such costs," Francis responded.
Industry players negotiate interconnection based on a minimum rate set by the OUR.
Renowned lawyer Frank Phipps queried the fairness of the inter-connection arrangement and whether in previous bids, rivals won over JPS bids.
"There have been previous applications where the JPS won and others in which others have won," stated Johnson, who later added: "Please be reminded that there are already other independent power providers on the system and interconnection was a part of those arrangements. We have not seen or heard of concerns by those persons. So we are not aware of a foundation for these concerns at this time," said Johnson.
Finally, Johnson sought to allay fears: "If you have difficulty dealing with the operator (JPS), we recommend that you submit queries to us."
Two Petroleum Corporation of Jamaica representatives asked why not allocate a maximum slot for JPS to bid and offer the remainder to other players.
"We do not want suboptimal solutions. So we do not want to set aside anything without knowing it will generate least cost," said Francis. "JPS has equal opportunity to bid and to participate as any other bidder."
Bidders must submit a refundable security deposit equivalent to one per cent of the total proposed cost. They must also submit a non-refundable fee of US$8,000.
The security deposit can be sent to the OUR in the form of a cheque or a letter of credit. It can be held for up to a year, reasoned participants. Additionally, the OUR told the Financial Gleaner that it would bear no interest over the period.
"The security deposit should be a requirement of the winning bidder, not the applicants," said Whitely Burchett of a self-titled US-based waste-to-energy firm.
"It can be for larger projects between US$2 to US$6 million, and there is no certainty of winning the project. Banks and corporate boards will not approve this kind of funding upfront. We are already spending hundreds of thousands on engineering plans and travelling."
His comments were noted, but earlier, Johnson said on financing: "Certainly, we would prefer firm commitments. But also if unable to get firm commitments, then some indicative support would be in your favour. We are in support of persons coming with actual means of delivering their proposals," said Johnson.
The OUR, which received 85 expressions of interest for the 115MW project, will offer investors a maximum tariff range of US$0.11 to US$0.26 per kilowatt-hour (kWh) for various renewable projects up for bidding.
These include bagasse at 15.16 US cents, hydro at 11.13 US cents, waste to energy at 14.88 US cents, wind at 13.36 US cents, and solar at 26.73 US cents.
Consumers pay about US$0.40 per kWh for electricity from power provider JPS.
The Jamaican Government has set a target of achieving 20 per cent for renewables in the energy mix by 2030.
JPS accounts for 68 per cent, or 634MW, of the total generating capacity on the national grid, according to the OUR in its renewable request document on its website.
The remaining 32 per cent of capacity on the national grid is provided by three main independent power producers.