Based on a decades-old value chain, the Jamaica Public Service (JPS), until recent years, only sold kilowatt hours to Jamaican residential and commercial customers who were passive users of energy. Generally, customers were not concerned with how energy was generated or the consequence of their consumption. But “the times they are a-changing”.
A mix of environmental concerns, rising fuel costs and technological advancements leading to consumer involvement is ushering in an inevitable end to the local energy ecosystem as we know it.
The national imperative to reduce greenhouse gas emissions as a means of avoiding dangerous climate change has generated a ‘buzz’ among Jamaicans about the need for cleaner energy. Energy production and use represents the largest source of greenhouse gas emissions worldwide and is a major contributor to same in Jamaica.
In response, the JPS-led Energy Revolution has begun work to champion the clean-energy cause by adding renewable generation to our supply mix through partners such as Wigton, BMR, and Content/WRB. This supports the Government of Jamaica’s initiative, under the National Energy Policy, which seeks to reduce the country’s carbon footprint and create a more stable grid by achieving 30 per cent renewables by 2030.
The long-term benefit: not only will this contribute to climate-change mitigation, but it will create price stability and eventually reduce energy costs by limiting our dependence on imported fuel. Customers have long bemoaned the need for low-cost energy as rising costs consume business profit margins at a high of 20 per cent or more, and burden the purse of residential customers. These factors have created an unprecedented interest in energy management and consumption practices among customers. Today’s price-sensitive and environmentally conscious customer is plugged into the energy business in a new way.
UPTICK IN ENERGY REDUCTION
Over the last five years, there has been an uptick in the adoption of energy-reduction measures such as the installation of inverter ACs, purchase of energy-saving and LED bulbs and energy-efficient appliances; as well as equipment retrofits, energy audits, and guided load shifting. JPS, through our Energy Solutions Unit, has partnered with our customers to assess their needs and provide tailored solutions and in their quest for cost control, improved efficiency and reliability, there is a further move to generate power themselves.
This trend, known as “self-generation”, is primarily found among the business class of customers, though some households are also producing their own power. This is attributable to the rapidly declining costs of distributed energy resources (DERs). DERs is a category of solutions that is inclusive of distributed generation sources such as combined heat and power (CHP), solar, and wind, as well as energy storage (batteries).
By installing rooftop solar panels, building co-generation plants or purchasing storage units, customers are moving towards a reduction of their regular power consumption from the centralised grid. The most publicised cases have been companies such as Red Stripe, Jamaica Broilers, Grand Palladium, and the University of the West Indies (UWI).
Whether for better reliability, more favourable economics, or environmental benefits, self-generation presents significant challenges for the JPS core business, and by extension, bill-paying customers. The most obvious risk and perhaps that which is considered to be the primary reason for JPS’ call of caution in leaving the grid is the resulting adverse impact to electricity rates.
This would arise as JPS faces the additional challenge of managing and maintaining costly infrastructure to supply those customers remaining on the grid to include customers, who despite self-generating, still depend on the grid for their emergency or peak use (grid-tied).
FACING THE ‘BURDEN OF POWER’
For those customers who remain on the grid, a “burden of power” will fall on their laps. Grid costs are fixed and will be spread across the now smaller customer base.
A 2017 JPS Energy Consumption, Behaviours and Perceptions in Large Establishments Study revealed that 76.1 per cent of commercial customers surveyed reported to have perceived such impacts should customers – especially larger industrial customers – leave the grid; however, this was not found to dissuade them from supplementing their energy or leaving the grid altogether.
In fact, an earlier JPS Demand and Feasibility Study found a strong interest in increased distributed generation in Jamaica by both business and residential customer segments (97.2 per cent and 95.3 per cent, respectively). Though the current market penetration for renewable energy systems is much lower than perceived among businesses and households, if these responses are anything to go by, this will continue to trend upwards.
As the capital costs of DERs continue to decrease, parity with the grid will be achieved and it will appear to be more feasible for customers to take the ‘power’ into their own hands. The fact is, distributed generation is here to stay. Already, new entrants and non-traditional players are flocking the market to fulfil the needs of consumers.
On the international scene, Tesla’s Powerwall enables customers to seamlessly self-power their homes and Comcast is selling residential solar. Local market statistics have indicated a roughly 300 per cent increase in the number of players in the renewable energy solutions sector in the last 10 years; this isn’t counting utility-scale providers such as Wigton. These players are taking advantage of technology evolution and market conditions to sell directly to our customers.
THE BUSINESS MODEL MUST CHANGE
But what of the opportunities? The customer desires options and moreover they have choices. The market will get to a point where it no longer needs to come to JPS, but it is JPS who must go after the market, and in a way that seemingly conflicts with our core business – off-grid energy will become a new normal.
JPS has a self-imposed mandate to “keep our customers happy”, while keeping the doors open. So how do we address this when our customers’ happiness involves using less of our core product?
This paradox is not unique to JPS or Jamaica. Utilities around the globe are also faced with the same quandary and have responded by making radical moves into distributed generation. E.ON & RWE, two of Germany’s largest utilities, both took the approach of splitting their companies into two to allow one arm to focus on renewables, while the other maintained focus on traditional grid business.
Arizona Public Service launched a residential solar programme for about 1,500 homes and New Jersey-based utility NRG Energy is offering small-scale, gas-fuelled power generation allowing businesses and homes with gas supplies to go off-grid. In short, the business model must change.
Some would regard this as counterintuitive. Why would utilities who are in the business of selling kilowatt-hours help customers produce their own kilowatt-hours? What these companies have realised is that on this track, there is no stopping the erosion of revenues and customer satisfaction – which takes us back to good ol’ customer value.
Today’s customers expect solutions that address their need for reliable and more affordable energy. JPS’ failure to appropriately respond to these needs will result in a loss of customer value, challenges in maintaining the balance between supply and demand, and the potential for grid disruptions by emerging micro grids set up by competitors – both foreign and domestic.
As the utility’s primary revenue source declines, JPS will need to evolve. Despite the challenges brought on by the grid paradox, the company faces opportunities for new value propositions to emerge. If properly and proactively harnessed and regulated, DERs could potentially make the grid more efficient, while offering JPS a new revenue stream.
Long-standing relationships with customers, over 94 years in the energy business and the continued modernization of the grid favourably positions the company as the preferred renewable energy partner with over 90 per cent of residential and business customers stating that they would take their renewable business to JPS.
Whatever the future holds for Jamaica’s energy sector, one thing is for sure – the customer is in the driver’s seat and it suits us to be their navigator, not their naysayer. It is futile to fight to change the customers’ will. Rather, we must continue towards a reliable, resilient, affordable, and low-carbon emitting grid that is the utility of the future – empowering our customers and remaining their energy partner of choice.