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Reforming the Bahamian Energy Sector

So here we are, two years after the last oil shock, and prices are over $100 per barrel again, with some forecasters saying they could pass the 2008 high of $147 a barrel that sent everyone scrambling to cut energy costs.

Already we are hearing the usual cries for government relief. And those cries will only get louder as higher prices filter through to gas pumps, electricity meters and store shelves. But in our case, there is very little the government can do beyond providing short-term consumption credits – and that comes at a cost to BEC’s solvency.

Worldwide, fossil fuel consumption subsidies amounted to $312 billion in 2009, compared to government support for renewables and biofuels of $57 billion. A subsidy is any government action that lowers the cost of energy production, raises the price received by energy producers, or lowers the price paid by consumers.

A recent report by the International Energy Agency, the Organisation for Economic Co-operation and Development and the World Bank points out that subsides impose an unsupportable fiscal burden on government budgets, encourage wasteful consumption, exacerbate price volatility by blurring market signals, and undermine the competitiveness of renewables and more efficient energy technologies.

And this overlooks a number of other measures that support fossil fuel production or consumption – such as tax expenditures, under-priced access to public resources, and the transfer of risks to governments via concessional loans or guarantees. Nor does it take account of the social costs of pollution and environmental degradation. In the absence of reform, experts say, spending on fossil fuel subsidies is likely to reach $600 billion in 2015, or 0.6 percent of global gross domestic product. By contrast, a complete phase-out of consumption-related fossil fuel subsidies would cut global energy demand by 5 per cent.

The alternative to fossil fuels like oil and coal is a range of new technologies that produce power from non-polluting renewable sources like the wind and the sun. And globally, the outlook for these technologies is promising – with growth rates that now rival that of earlier technology revolutions like telephony, computers and the Internet.

Recently, the research and consulting group, Clean Edge, projected that the market for wind, biofuels and solar photovoltaics, which totaled $140 billion in 2009 and grew 35.2 percent to over $188 billion last year, will grow to about $350 billion over the next decade. Current investments in these technologies far surpass what many thought were possible just a few years ago.

For the first time in history, distributed solar and wind power technologies are reaching cost parity with US wholesale electricity prices in some markets. By 2020 solar PV systems will be cost-competitive in 47 states for residential customers and more than 35 states for commercial customers. And wind power has ranked near and often ahead of natural gas as the leading source of new generating capacity in the US.

What will the energy sector look like a decade from now? Clean Edge offers the following projections in its 2011 research report:

1. Solar and wind resources will contribute more than a quarter of electricity generation capacity in dozens of US and global markets.
2. Explosive growth in the electrification of transportation, with millions of EVs on the road in the US, China, Japan and Europe.
3. Compact fluorescent light bulbs (CFLs) will be replaced by even more efficient solid state light-emitting diode (LED) technology.
4. A major drive to create low-cost, competitive green buildings that produce more energy than they consume.
5. Waste streams will become a common feedstock for energy production.
6. The integration of natural gas and renewable energy will enable a relatively smooth transition away from dirty energy sources.

“Our assessment, 10 years into tracking this sector, is that clean energy remains one of the strongest and most vital sectors reshaping the global landscape,” Clean Edge concluded.

So where does the Bahamas stand today in all this, as oil prices move up again?

Last year, Fichtner, the government’s German energy consultants, produced a roadmap for reform of the Bahamian energy sector. Topping the list of recommendations was amending the Electricity Act and passing a new Renewable Energy Act.

Besides reserving power generation to BEC (for anything over 250 kilowatts), the Electricity Act blocks access to the grid and does not allow for commercial relations with independent power producers. Fichtner’s report recommends abolishing the ban on third party generation, providing for grid access through power purchase agreements, and transferring responsibility for waste-to-energy initiatives to the Ministry of the Environment.

To encourage customer generation of electricity using renewable technologies Fichtner recommends a new law to regulate net metering or net billing. Either approach would let customers feed excess electricity from RE generators into the grid, and draw electricity from BEC when the RE generation is not sufficient to cover demand. Excess power would be credited to the customer’s account, and the whole system would be monitored by the Utilities Regulation & Competition Authority.

Under net metering, consumer generation is paid for at the retail tariff level. But from BEC’s perspective the power fed into the grid using this method displaces only the cost of fuel, without taking into account other overheads. So BEC prefers the net billing approach, which requires two meters per customer – one tracking power into the grid and the other tracking power drawn from BEC, with the power fed into the grid paid for at a lower rate.

The new law would also enable feed-in tariffs for medium-scale generation plants (between 50 kilowatts and 5 megawatts) using relatively mature renewable technologies such as wind turbines, biomass generators and solar panels. These plants would be designed to feed their power entirely into the grid. Larger plants would be subject to competitive tendering.

The legislation would require the Ministry of the Environment to develop and publish a national renewable energy plan with a list of potential renewable energy projects. BEC will be obligated to enter into power purchase agreements with licensed third party providers, who would receive a guaranteed feed-in tariff for up to 20 years.

The tariff for plants larger than 5 megawatts would be based on the costs of each project. Initially, tenders would be issued for biomass facilities on Abaco and Grand Bahama (i.e. burning pine trees), open field solar plants on the family islands, and wind plants on New Providence and Grand Bahama. A new Sustainable Energy Unit to be formed within the Ministry of the Environment would handle the tendering process.

Also recommended was reform of the Building Code to promote energy efficiency. The report calls for setting a maximum energy consumption per square foot for new buildings, and requiring energy audits of existing buildings. It would be mandatory to install solar water heaters in new homes, and energy-efficient appliances would receive import duty exemptions.

The final component of the Fichtner report is a wide-ranging public education programme to increase awareness of how consumers can reduce energy use and increase efficiency. This would be combined with training programmes to expand technical and business skills in the marketing, installation and repair of appropriate equipment.

The goal of these recommendations is to achieve a 30 per cent share of total power generation for renewable energy by 2030, with hotels and households cutting their energy demand by a third, using efficiency measures alone. But clearly this is a challenging framework for any Bahamian government to implement. And so far, Utilities Minister Phenton Neymour has spoken only of a public education campaign and changes to the Building Code, such as a mandate for solar water heaters.

This means that a high level of uncertainty will continue to hamper progress in the application of renewable energy technologies in the Bahamas. BEC is said to be talking to investors who want to set up wind power farms, but it is unclear how such projects will proceed without the necessary legal and policy incentives in place.

The good news is that as electricity prices go up, ordinary consumers may find it increasingly cost-effective to install solar panels and wind turbines in homes and office buildings. You won’t get paid for any excess power, but you can certainly cut your BEC bill substantially – and reduce greenhouse gases at the same time.

Yes, we should all be looking at ways to get off the grid.