BOJ projecting lower electricity bills for December quarter
The Bank of Jamaica, BOJ, is projecting that the increased use of liquefied natural gas in electricity generation in the December 2019 quarter is expected to translate into relatively lower electricity rates.
International oil prices are projected to average US$56.86 per barrel for the September 2019 quarter and US$55.80 for the December quarter, a lower trajectory relative to the forecast in May, before rising to an average of US$56.10 over the next six quarters, the central bank said.
The BOJ’s projection is based on an assessment of the potential impact on inflation of an anticipated increase in the use of LNG by Jamaica Public Service Company in the generation of electricity.
Heavy fuel oil currently accounts for 64 per cent of total electricity generation, LNG for 24 per cent and renewables 12 per cent, said the central bank in an analysis in its quarterly monetary policy report.
“This ratio will change following the full commissioning by the JPS of the new combined energy 190-megawatt plant in Old Harbour Bay, St Catherine. The plant, which is expected to be fully commissioned in the third quarter of 2019, will increase the proportion of electricity generated by natural gas to between 45 per cent and 50 per cent,” the central bank said.
The BOJ said that to assess the impact of the increased use of LNG on the price of electricity, the relative contribution of the two energy sources to the cost of energy generation in Jamaica was determined.
In undertaking the assessment, the BOJ used monthly average price data for West Texas Intermediate crude oil, WTI, and LNG based on information sourced from Bloomberg and the US Energy Information Administration.
It said a comparison of the external prices of the two fuel types reveal that, since 2006, the WTI measure of crude oil price has been, on average, higher and more volatile than LNG.
“This disparity is expected to continue into the future. Consequently, on the start of the new LNG-based generator in September 2019, JPS’ fuel charge and, by extension, the light bill will fall,” the central bank said.
“Bank of Jamaica’s simulations and revised projections indicate that the anticipated changes in JPS’ fuel mix will result in inflation being lower, between 0.1 per cent and 0.3 per cent for the December 2019 quarter, and between 0.1 per cent and 0.6 per cent for calendar year 2020,” it added.
Last week, BOJ Governor Richard Byles said the central bank anticipates that headline inflation will average approximately 4.3 per cent over the next eight quarters and in the absence of a further monetary policy accommodation will in all likelihood fall below the lower limit of the 4.0 to 6.0 per cent target at various points during that period.
At the same time he said a risk that could cause inflation to be higher than expected is the possibility that the impact of the planned diversification of Jamaica’s fuel mix on electricity costs may not be as significant as projected.