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Towards Greening Barbados Economy

Background

It is now widely accepted Sir, that in years of prosperity very little was done to diversify the economy.  There has been an over reliance on tourism receipts and more recently international business as the main foreign exchange generating engines of the economy.  However, in focusing on these two sectors, what was ignored was the fact that as foreign exchange was being generated, hardly any effort was being made by the country to prevent the leakages of foreign exchange fuelled largely by the increases in the importation of fuel, motor vehicles and food.  In practice, there was a fundamental failure to make the necessary structural changes to the economy as a means of retaining most of the gains made in the two main foreign exchange generating sectors.  So the net effect of this situation was that as the country made more foreign exchange it started to spend even more.

Support for this position, can be seen as the importation of fuel into Barbados is now the highest single category of imports on the island’s total import bill.  A 2010 research study conducted by the Central Bank of Barbados indicates that fuel as a percentage of total imports increased from 7% in 1998 to over 20% in 2009.  The significant increase in Barbados’ fossil fuel consumption can be directly linked to the fact that the generation of electricity and transportation represents 50% and 33% respectively of total fuel imports in 2010.

Over the past 18 years, we have seen a twofold increase in the number of fossil fuel-driven motor vehicles imported on the island from approximately 55,668 in 1994 to 116,675 in 2011.  Of importance, there is a noticeable correlation between the increases in the number of motor vehicles on the island and the marked increase in the island’s importation of fuel.  This scenario had long been identified as unsustainable and required a radical shift in the island’s energy policy.

The proposals contained in this presentation will seek to further support the several efforts made since 2008 at implementing the necessary initiatives, in particular through a strong focus on Renewable Energy as being a critical, if not the most important, component of restructuring the Barbadian economy within the next five years.

The large scale use of Renewable Energy in Barbados is not a new buzzword.  In fact, Barbados has been seen as one of the leaders in the green revolution and this can be observed as the island has been ranked as high as fifth in the world for solar water heater penetration.  The recently completed, Green Economy Scoping Study Synthesis Report, produced by the Government of Barbados in conjunction with the University of the West Indies, the United Nations Environment Programme and several private and public sector stakeholders indicated that :

In 2002, Barbados saved 15,000 metric tonnes of carbon emissions and over USD 100 million in energy savings from the 35,000 solar hot water heater systems that had been installed at the time.[ page 22]

Government’s vision, the foundation of which has been laid through the series of Renewable Energy initiatives and incentives previously introduced in budgets since 2008, is to aggressively pursue a policy of matching the level of solar water heater penetration on the island with photo voltaic (“PV”) and wind installations within the next five years.  This policy could radically reduce the shocks that the economy has been facing during the current recession from the impact of high fuel and energy prices on Barbados’ external account, which has negatively resulted in slowing down efforts at accelerating economic expansion.  This situation has had an extremely severe impact on the cost of doing business on the island, as several local manufacturers and businesses in general have publicly cited the costs associated with electricity as being their largest monthly expense outside of the payment of wages and salaries.  In addition to contributing to the high cost of doing business, the high cost associated with electricity generation and fuel for transportation has also substantially contributed to the rising costs of living on the island throughout the last 18 years.

In light of the above scenario, Government has undertaken a careful study of the island’s generation and consumption of electricity.  At present the Barbados Light & Power Company Limited (BL&P), the sole licensed producer of electricity on the island, has a total installed generating capacity of 239 megawatts from three generating stations, with a peak demand for electricity of approximately 165 megawatts daily.  A major part of Government’s vision for restructuring the Barbadian economy is through diversifying the current sources of generating electricity through the large scale introduction of renewable energy generated electricity into the island’s total installed capacity. Towards this end, Government has identified the bold mission of facilitating the large scale penetration and distribution of PV and wind generating technology on the island to match the current levels of solar water heater penetration in domestic households. This mission can be seen through the fact that if a 5 year target of installing at least 35 megawatts of renewable energy in the form of at least 35,000 one kilowatt solar PV or wind turbines was achieved, it would translate into renewable energy comprising approximately 20 percent of the island’s peak demand generating capacity.

The realization of this target would result in substantial benefits to the island’s economy through the long term retention of foreign exchange as PV systems have extended payback periods of 20 to 25 years with virtually no operating and maintenance costs and would significantly offset the importation of fuel currently employed to generate electricity.  With the gradual introduction of energy-efficient vehicles such as hybrid and electric vehicles, the island’s fossil fuel requirements would be further reduced thereby saving foreign exchange.  In addition to contributing to the greening of the island’s economy, the large scale integration of renewable energy has the potential for creating thousands of jobs as additional services would be required by electricians, roof installers and engineers to facilitate the installation of the necessary infrastructure.   Based on current global prices the total cost of such an initiative would range between BDS$350 to 400 million.

In support of this aggressive vision of restructuring of the economy through renewable energy, government has already examined and proposed several amendments to the Electricity Act of Barbados to facilitate the orderly distribution of excess electricity produced outside of the main power company into the national Grid. This Amendment Bill should be before the House In August and it is expected that the new legislation will provide for prices to be set each year for each renewable energy source. The feeder tariff will hold for a number of years at a level to enable investors to cover their debt service and recover their capital. It will also put a mechanism in place to ensure that the price to the public is kept to a minimum.

In addition, Government through the assistance of a US$20 million Grant from the IADB has set up the Smart Energy Fund to assist SME’s and entrepreneurs with financing at subsidized interest rates of 3.75% for renewable energy-generating and energy-conservation projects.

A fundamental component of Government’s vision towards achieving this transformation is through the utilization of local or homegrown private sector capital investment.  The core of this local or homegrown strategy is to create an environment where the excess liquidity in the banking system and credit unions, recently cited as being over BDS$4 billion, can be released to provide the necessary private sector- and private citizen-driven capital investment into entrepreneurial ventures such as increasing the penetration of renewable energy and energy efficiency technologies.

INCENTIVES FOR BUSINESSES GENERATING and DISTRIBUTING ELECTRICITY FROM A RENEWABLE ENERGY SOURCE (RE), BUSINESSES PRODUCING, DISTRIBUTING and/or INSTALLING RENEWABLE ENERGY SYSTEMS FOR ELECTRICITY GENERATION and ENERGY EFFICIENT (EE) PRODUCTS

  • Government will provide financial assistance of $100 million in the form of low-interest loans over a eight (8) year period to tool and capitalize the industry, and to provide improved credit to the consumers of RE and EE products produced locally. This loan facility will be available to the industry via the financial intermediaries (including banks, credit unions, and finance companies) and  administered by way of a special window under the Industrial Credit Fund and the Credit Guarantee Scheme of the Central Bank of Barbados;
  • Building materials and supplies for construction of a facility dedicated to the generation and sale of electricity from a renewable source shall be duty free and VAT free;
  • A zero rate of VAT will be applied to all RE and EE systems and products produced in Barbados;
  • Developers, manufacturers and installers of RE products will be granted an income tax holiday of 10 years;
  • Eligible businesses will now have a 150% deductible on interest paid on loans entered into for:
    • upgrading an existing property so as to generate and sell electricity from a renewable source;
    • Construction of a new facility to generate and sell electricity from a renewable source;
    • Construction of a facility for the installation or supply of renewable energy generation systems or energy efficient products ;
  • Eligible businesses will now have a  150% deductible on  expenditures for staff training related directly to the generation and sale of electricity from a renewable source in the installation, as well as the installation and servicing of renewable energy electricity generation systems or energy efficient products;
  • Individuals will be able to claim the funds spent on RE and/or EE training provided by educational and vocational institutions that are approved by the Barbados Accreditation Council as a separate deduction on their income tax. This deduction can also be made by the parents of minors and adult students (up to the age of 25 years) who are not working and who are studying in the area of RE and/or EE;
  • Eligible businesses will now have a  150% deductible on expenditures directly related to the marketing of products for the generation and sale of electricity from a renewable source in the installation, as well as the installation and servicing of renewable energy electricity generation systems or energy efficient products;
  • Eligible businesses will now have a  150% deductible on expenditures for product development/research related directly to the generation and sale of electricity from a renewable source in the installation, as well as the installation and servicing of renewable energy electricity generation systems or energy efficient products;

INCENTIVES FOR INVESTORS IN BUSINESSES GENERATING AND DISTRIBUTING ELECTRICITY FROM A RENEWABLE ENERGY SOURCE (RE), BUSINESSES PRODUCING, DISTRIBUTING AND/OR INSTALLING RENEWABLE ENERGY SYSTEMS FOR ELECTRICITY GENERATION and ENERGY EFFICIENT (EE) PRODUCTS:

  • Interest earned by financial intermediaries (including banks, credit unions, and Finance companies) for financing the development, manufacturing, and installations of RE and EE products and technologies shall be free of withholding taxes for 10 years;
  • Venture capital funds where investments are made in the RE and EE sectors shall be free from corporation taxes for a period of 10 years;
  • Contributions to venture capital where investments are directed to the RE and EE sectors shall be  deductible from taxable income for a period of 10 years;
  • Dividends for shareholders of companies investing in entrepreneurial businesses engaged in installation or supply of renewable energy electricity generation systems or energy efficient products shall be exempted from withholding taxes for a 10 year period;

The income households earn from the sale of electricity produced from the utilization of RE equipment shall be exempted from all taxes;

Source: http://www.nationnews.com/articles/view/2012-financial-statement-and-budgetary-proposals-part-3/



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