More lessons from the past - Missed energy opportunities
William Saunders, Guest Columnist
Shortly after creation of its Energy Division in 1978, the Ministry of Mining issued its first Energy Plan which, among other matters, emphasised the need to diversify Jamaica's energy mix and promote the development of indigenous energy resources. High priority was given to the development of hydropower and, consequently, a number of feasibility studies were commissioned on various rivers that offered this potential.
At that time, the acute dual problems of energy cost and inadequate water supply to the Kingston Metropolitan Area was of major concern. The Mona Reservoir frequently ran at dangerously low levels because of inadequate supply from the Hope River. The energy 'crisis' of 1974, coupled with mini-devaluations that were occurring every month, was increasing the cost of petroleum products and hence electrical energy. In fact, the gas riots of 1979 were clear demonstrations of the impact price increases had on the public.
By 1978, the NWC had completed a water-supply study that contemplated bringing into Kingston water from the upper reaches of the Yallahs River and was anxious to implement the scheme. On the other hand, the Energy Division in the Ministry of Mining and Natural Resources had conducted a study that would achieve the same water supply objectives, and also supply 50 megawatts of hydropower to the National Grid. At that time this represented about 20% of the maximum system demand.
This project was divided into three phases. Phase 1 would initially bring water from the confluence of the Yallahs and Negro River, about 900 feet above mean sea level, and convey it by pipeline then through a tunnel into a hydro station, finally discharging to the Mona Reservoir.
Phase Two envisaged the construction of a large dam at Mahogany Vale, followed by Phase Three that would bring water from the Swift and Spanish rivers on the north through a set of tunnels into the reservoir created by the dam at Mahogany Vale.
Had this project been implemented, it would have been the first major project to be financed under the San José Accord, which provided 20-year loans at 2% interest financed through oil purchases from Mexico and Venezuela. The San José Accord, which preceded the PetroCaribe Fund, was established on August 3, 1980.
Amended loan terms
Between 1980 and 1983, the Accord stipulated that 30% of the cost of each shipment could be converted into a 20-year loan at 2% interest provided that the money was used for energy development projects. The terms of this loan were amended over time to 15, then 12 years at 6%.
In 1981, Cabinet appointed an advisory committee to recommend appropriate phases for development of the Blue Mountain Water Resources, while extracting such benefits from the hydroelectric potential as proved feasible. Resulting from the committee's recommendations, Cabinet decided to proceed with the first phase of a long-term plan to provide for the total requirements of the Kingston Metropolitan Area by the turn of the century, while extracting such benefits from hydroelectric potential has proved feasible.
By 1983, a new committee to advise on implementation of the plan was appointed. This committee concluded that the costs anticipated for Phase One (US$80 million) were "quite outside either the country's ability to provide or wisdom to borrow".
Government, based on this committee's recommendation, opted for a cheaper alternative - a simple pipeline conveying some 20 million gallons per day. No consideration was given to recovery of the massive energy potential therein. In addition, rather than use the finances available through the San José Accord, Government opted to finance the project through a supplier's loan, as well as from commercial bank loans (15% interest). Worse yet, this pipeline, which cost about US$30 million to install, cannot recover energy for electricity generation to the extent originally planned, nor is it capable of conveying the significantly larger volumes of water available from implementation of the other phases of the project.
By 1986, the Petroleum Corporation of Jamaica (PCJ) had completed the installation of new hydropower stations at Rams Horn, Constant Spring, and Morant River, as well as extension of the Rio Bueno Station, altogether saving some 31,108 barrels per year of imported fuel oil. In addition, PCJ completed a prefeasibility study on the Back Rio Grande, which concluded that some 28MW of power could be derived, resulting in savings of some 225,000 barrels of oil annually.
Project cost was estimated at US$52 million. With US$20 per barrel of oil at that time, the internal rate of return was calculated to be 11%. Utilisation of additional waters from the Swift and Corn Husk rivers was estimated to increase the output of the plant to about 40MW.
PCJ, in 1989, after completing environmental impact assessments and other related studies, requested Government's approval to conduct a detailed feasibility study which the Inter-American Development Bank had approved for financing. This study was not approved by Government.
Had the Yallahs hydro project been implemented, the electricity generated would have significantly reduced the more than $2 billion now being paid annually by NWC for electricity. Also, as a major water-supply scheme, it would have replaced a number of the wells now augmenting supplies to the KMA.
The Back Rio Grande project is still a possibility, but requires a detailed feasibility study as was proposed in 1989.
ENERGY FROM BAGASSE
Jamaican sugar mills produce an average of 12-15kWh per ton of cane crushed, whereas more than 100kWh are routinely achieved in Hawaii and Mauritius. Significant amounts of public electricity supply in those countries are derived from their sugar mills.
PCJ, in the mid-1980s, successfully demonstrated the feasibility of a sugar diversification project at Bernard Lodge. This involved the use of sweet sorghum to augment cane supplies during the off-crop season, extending factory operations to 11 months per year, as well as the production of 15 million gallons per year of fuel-grade ethanol.
The next stage scheduled for 1989 was to install high-pressure boilers and new turbines that would have allowed export of 18.8MW surplus electricity. This plan was not approved by the PCJ board. The factory was ultimately closed and the ethanol production unit scrapped. Today, rather than producing fuel-grade ethanol from locally grown feedstock, Jamaica's entire fuel ethanol requirements are imported.
In 1986, a study was completed on the feasibility of installing and operating a steam-electric power cogenerating facility adjacent to the Monymusk Sugar Factory. This cogeneration unit was to be owned and operated by private-sector interests who would supply the rehabilitated factory with electricity and process steam. One hundred and forty-five million kWh per year of surplus electricity was planned to be sold to Jamaica Public Service Company (JPS) at a projected price of US$0.075/kWh; based on augmenting 25% of the bagasse and cane trash fuel with fuel oil, to ensure maximum plant utilisation. The overall economic rate of return was determined to be 21%.
In 1991, a similar project was proposed for the Frome Sugar factory, then also owned by Government. This project envisaged generation of 24MW of electricity that would be sold to JPS under a 20-year power purchase agreement. Jamaica Energy Team, which prepared the study assured Government that the project, if approved, would be financed privately with minimal recourse to GOJ sovereign guarantees.
Neither proposal was accepted.
WASTE TO ENERGY
In 1999, a proposal for a 40MW garbage-to-energy project proposal was submitted to JPS by Energen UK, based on garbage collected at Riverton. The project included assuming responsibility for collecting garbage from the Kingston Metropolitan Area and proposed an energy price of US$0.10 per kWh to the JPS. However, if Government supported the application to the Global Environment Fund, this rate would have dropped to US$0.07 as the project's financing interest rate would have been considerably reduced.
Government's response was that they were not interested in projects of this nature at that time.
The Gleaner's Monday, March 18, 2013 edition reported: "Jamaica has received US$2.4 billion in funding support from Venezuela under the PetroCaribe agreement since the facility's establishment in 2005. Chief executive officer of the PetroCaribe Development Fund (PDF), which administers the facility in Jamaica, Dr Wesley Hughes, says the funds, allocated between July 2005 and January 2013, have financed projects, spearheaded at the community and national levels ... ."
Between 1980 and 2005 when the Accord was replaced with PetroCaribe, and between 2005 and present, a significant amount, probably greater than US$3 billion, should have accumulated in the fund. To the best of this writer's knowledge, with the exception of Wigton, these funds were never used for energy projects.
Recognising that these are loan funds earmarked for specific purposes, the question must be asked: Where were these funds utilised? What percentage of these funds was used to finance energy projects? Since these funds are US$-denominated, who pays for the devaluation of the J$ that has occurred since the fund's inception?
One must be reminded that the bauxite levy was earmarked for capital development projects that included financing Air Jamaica and the acquisition of the Tate & Lyle and other privately owned sugar factories. The country is still paying for the massive debts incurred by these institutions, as well as others such as the Port Authority.
However, energy projects, to achieve one of the fund's objectives - energy independence - are being constrained by the lack of capital. None was financed from the Capital Development Fund. How much has been collected to date, and how has it been used?
We all want lower energy prices, but Government appears unwilling to finance the development of indigenous alternatives, giving preference instead to "social projects" that provide some fish but restricts the means to fish for more.
Can you imagine where we would be today had a small fraction of these funds been used to finance the hydropower development, waste-to-energy, as well as more wind energy? Furthermore, since the fuel they would have replaced is US$-denominated, loans for renewable energy projects are essentially devaluation risk free.
But hindsight is always 20:20!