S. Brian Samuel | Why are the electricity tariffs so high?
For the life of me, I cannot understand why Jamaica still has such high electricity tariffs. For decades, successive administrations have adopted the ‘right’ sector policies: privatisation, independent power producers (IPPs), strong regulation, and the promotion of renewable energy – which currently stands at around 17 per cent of generating capacity. So, why are tariffs still through the roof?
First of all, let us answer the question: Are Jamaican tariffs really through the roof? I could do all kinds of online research into comparative electricity tariffs, but I decided on a simpler approach: I asked my far-flung family and friends to send me their electricity bills. This is the third year of my ‘highly unscientific survey’, which analyses residential electricity bills from 12 countries/cities in the Caribbean, North America and Europe. This year, I wanted to see what impact the COVID-19 pandemic has had on electricity tariffs. Oil prices are 30 to 40 percent lower than last year, so electricity costs should be likewise, right? Wrong.
I love graphs: every one tells a story. And the story in this graph is that Jamaica, at 34 US cents per Kilowatt-hour (kWh), has the dubious distinction of having the highest electricity tariff in my sample grouping (See Graph 1).
That a small country like Jamaica should have high tariffs isn’t particularly surprising; what is surprising is who comes second in my survey: Ireland. Even little Grenada has a lower tariff than the Emerald Isle. London is also high, at US$.21/kWh. Wait a second, something doesn’t compute here. The UK has 68 million people, a fully privatised, liberalised, competitive electricity sector, brimming with private- sector efficiency. All of which should equal low tariffs, right? Wrong. My relatives in London pay almost the same as I do in Barbados. North America tariffs are much lower, roughly half of what the rest of us pay. At the lowest end of the scale, paying a measly six cents, is Trinidad and Tobago, home to the most mollycoddled, subsidised citizens in the world.
I asked my friend in Kingston: Why are Jamaican tariffs so high? “Because them too thief!” comes the instant reply. “Stealing electricity is endemic; people from all walks of life do it.” And he’s right: what engineers euphemistically call ‘system losses’ are through the roof in Jamaica. Fully 26 per cent of all the electricity produced by JPSCo is not paid for; the majority of which is due to theft. Which manufacturing business can subsist when it loses one-quarter of its production? Not many.
But it is unfair to place the blame entirely on the Jamaica Public Service Company Ltd (JPSCo): electricity theft in Jamaica is as much a social and political issue as it is an economic one. Successive administrations have lacked the will to tackle the issue in the so-called garrison constituencies; and given this impunity, electricity theft has moved uptown – and gone high-tech. Gone are the days when stealing electricity meant throwing wires over a power line, nowadays they’ve developed sophisticated bypass systems that can outwit the cleverest inspector!
My second question is: Have electricity tariffs come down since last year? We know that oil prices have fallen; at one point during the height of the lockdown, oil producers were paying buyers just to get rid of the stuff. In my sample group, tariffs went down by an average of 16 per cent, roughly half the decrease in oil prices. What does this tell us? That tariffs slide up the price pole very easily, but they get sticky on the way back down!
Within that average 16 per cent tariff reduction, who are the winners and losers? Here’s where things get interesting. If one electricity company reduces its tariffs in response to lower oil prices, then all should do likewise, right? Wrong. The Medal of Honour goes to the Government of Grenada, which gives every Grenlec customer a 22 per cent ‘COVID discount’. Added to the oil price decrease, this means Grenadians are paying 32 per cent less for electricity this year (See Graph 2).
WHY THE INCREASE?
Despite the pandemic, despite the lockdown, despite the fall in oil prices, JPSCo still managed to increase their residential tariff, by 2.4 per cent. How does that work?
Whereas JPSCo may claim the excuse that its system losses are high, one presumes that losses were largely unchanged from last year, therefore that excuse doesn’t hold water. There is only one valid explanation: chronic inefficiency. JPSCo operates several old, inefficient power plants, like Hunt’s Bay, which results in high fuel costs. The company is currently investing in replacing their old generating plant, and guess who’s paying for this investment? You do.
The economist in me can’t end without asking: What impact do tariffs have on electricity consumption? I could talk at length about price elasticities and coefficients of correlation, but let me put it this way:
• The six most expensive countries have an average tariff of 26 cents, and an average consumption of 424kWh per person.
• The six cheapest countries have an average tariff of 11 cents, and an average consumption of 762kWh per person – 80 per cent more than the expensive group.
So, certainly among the people I know, price determines the amount of electricity we consume, in almost direct proportion. It’s a no-brainer, I know, but it’s nice to see it in the numbers.
S. Brian Samuel worked for the International Finance Corporation, the private-sector arm of the World Bank, from 1998 to 2007. He currently consults on project financing and public-private partnerships. Email feedback to email@example.com.