National Water Commission (NWC) aims to build a US$30 million (J$2.8b) power plant in order to slash its energy costs, its vice-president, Mark Blair, told Wednesday Business.
The water utility hopes to cut its annual J$6 billion electricity bill by half to about J$3 billion, said Blair, but the timetable for the execution of the plan is dependent on the finalisation of a power wheeling rate structure.
"We want to put in a 30 MW plant," the NWC executive said in an interview Tuesday, on the margins of a consultation forum on wheeling organised by the Office of Utilities Regulation (OUR).
The NWC pays about US$0.40 per kilowatt-hour to power provider, Jamaica Public Service Company (JPS), which controls the national electricity grid. The NWC thinks it can develop the plant at capital cost of US$0.17 to US$0.19 per kilowatt-hour, plus the cost for wheeling, which is currently under debate.
"If (wheeling costs) works out to be US$0.05 additional then it would cost us about US$0.23 per kilowatt-hour, so it could save about J$3 billion annually," said Blair.
The NWC electricity plant would be developed in Kingston from where NWC would distribute, or wheel, electricity to its various operations in and outside the capital via JPS's infrastructure.
Blair envisages that the plant would run on fossil fuel with an option to convert to natural gas. He said NWC views the project as important but that concrete plans require wheeling charges to be finalised.
"We are contemplating building the plant, and once we know the costs we will make a decision," he stated, adding that the plant would just cover its power load at 30 MW.
The OUR public consultation is part of the process to determine the best pricing structure for wheeling.
The OUR is leaning towards a 'marginal cost per kilometre' approach, which takes into consideration distance over which the electricity is wheeled.
Final pricing decision
The final pricing decision will be made before June 2013. The decision will be based on an ongoing study that will also take into consideration public opinion, international case studies and local peculiarities.
JPS controls the grid but wheeling will allow large players with branches or networks to transmit self-generated power to operations in various parts of the country.
"We are accustomed to a single-buyer market where one person is ... I am trying to find the appropriate word but the only word that comes to mind is 'don'," said regulatory economist Cedric Wilson, while addressing the OUR consultation forum.
"What I really mean is that we are trying to progress to a situation where there are more players and essentially if the theory works as it should then competition should drive prices down," the OUR official said.
Wilson added that costs must be recovered for grid operator JPS, otherwise it would send the "wrong signal to its lenders".
The OUR will determine the methodology for pricing by March, host another public consultation in April, then implement the recommendations sometime after June, said Wilson.
The OUR allayed fears that a mass exodus of large power users would result from wheeling approval, saying JPS could compete by offering lower rates.
"JPS can offer customers rates that are more attractive. For instance, the cement company is offered a rate that makes them not leave the grid; so it could offer rates that are competitive," said Deputy Director General Hopeton Heron in the forum's question-and-answer segment.