Ansord Hewitt | OUR sees brighter future for electricity

The delivery of electricity, in respect of reliability, quality, cost of service, and volatility of rates, is a perennial concern for Jamaicans. At the Office of Utilities Regulation (OUR), we are cognisant of our role in ensuring that Jamaicans are provided with affordable and reliable electricity service.

We are also acutely aware of the challenges and disruptive transformation affecting this sector. This is why we are pleased to underscore transformative sector developments in which the OUR has played a pivotal role and which bode well for a brighter electricity future.

Jamaica has so far had a good experience with renewables, and this is likely to improve, especially if the country continues to take a steady, common-sense approach to making this a major component of the fuel mix.

In 2016, some 80MW of renewable capacity representing US$187.8 million of new investment was added to the grid through a competitive procurement process managed by the OUR. Following hard on this, and at Cabinet’s request in July 2015, we procured a further 37MW of capacity at a record-low price of 8.5 US cents per kilowatt-hour.

This offer is yet to be bettered in the region although we expect such future tenders to yield even lower rates. Significantly, this 37MW capacity, produced by Eight Rivers Energy Company Limited, was commissioned in July 2019, and as reported by the grid operator, has already proven quite useful in assisting with unplanned generation shortfall.

Recognising that additional variable renewable power, particularly from solar and wind installations, could potentially increase grid instability, we approved JPS’s proposal for the installation of a US$19.5 million, 24.5MW hybrid energy storage system at the Hunts Bay power station. This is already partially commissioned, with full commissioning expected before year end. This is the first facility of its type in the Caribbean, underlining Jamaica’s leadership in applying technology to better utilise renewable energy.

FULL FORCE INTO LNG

In a landmark development in July 2019, New Fortress Energy (NFE) commissioned its floating storage and regasification terminal off the coast of Old Harbour Bay, St Catherine. NFE has indicated that it expects this facility – the first of its kind in the Caribbean – to not only serve domestic demands, but to operate as a Caribbean hub. This is of vested interest to the OUR as we insisted that capacity payments for the facility must be reduced in tandem with levels of volume throughput.

This undertaking was preceded by investment in a gas-supply facility at Montego Bay Freeport, St James, which facilitated the conversion of JPS’s Bogue 120MW capacity from utilising automotive diesel oil to liquefied natural gas (LNG). This was initiated by the OUR’s decision in the 2014-19 JPS tariff review to provide funding for the conversion on the basis that the move to a more efficient and less volatile price fuel would benefit rate payers. The December 2016 commissioning of the facility was a seminal moment in Jamaica’s energy-diversification strategy.

The change at Bogue has seen two other substantial and related LNG-based developments in its wake, viz: the 192MW combined gas-fired combined-cycle plant by South Jamaica Power Company Limited at Old Harbour Bay, St Catherine, scheduled to become fully operational in August, and the commissioning of a co-generation project for Jamalco at Halse Hall, Clarendon, early in 2020. All told, the grid is expected to see just under 300MW of new baseload capacity over the coming year, in addition to the aforementioned 37MW of renewable capacity.

SMART STREET LIGHT PROGRAMME

Jamaicans would have noticed the transformation in the installation of new, energy-efficient street lights. The Smart Street Light Programme is the name for the installation of LED street lights enabled with smart technology, replacing 105,000 mostly high-pressure sodium lamps. The OUR,which has oversight of this programme, is giving it a keen eye to ensure that it delivers value. Notably, some of the US$16.1 million of the capital spend was funded from the residual and accrued tax benefits of an earlier OUR-approved Energy Efficiency Improvement Fund.

Through our far-reaching interventions, the sector will realise well over US$1.2 billion in new investments between 2016 and 2020, none of which represents either public-sector spending or guarantee. Investment funding is provided by Jamaican and overseas investors comprising private equity, private commercial banks (local and overseas), and institutional and multilateral loans. This represents the first time that local financial entities are taking a substantial part in financing local power projects.

Unlike the Bogue conversion, which was financed through a prescribed charge to customers’ bills over thirteen months, the recovery from all the above-mentioned investments will come from future direct pass-through of these costs to rate payers and other users. This is to be done first via monthly fuel charges reflecting the cost of fuel to the grid operator, payments to independent power providers embedding their fuel, and capital and operational costs.

Second, it is also recoverable through the OUR-approved non-fuel charge to rate payers, in five-year tariff reviews, reviewed monthly for foreign exchange change, and annually, for inflation changes and other adjustments.

WHAT THIS MEANS FOR RATE PAYERS?

These investments represent commitment and calculated risks by disparate investors that the electricity sector, through sustained demand growth and a stable economic, social and regulatory environment, will enable cost recovery and the generation of reasonable returns.

The investment in new baseload capacity was well overdue and is likely to end the uncertainty in meeting load demand. With the commissioning of the new plants, the Old Harbour units 2, 3, 4 and Hunts Bay unit B6, all with an average age of more than 45 years, will be retired. This should boost grid reliability and the quality of electricity.

The susceptibility of electricity production to external shocks has, for years, been the bane of the local electricity sector, particularly within the context of Jamaica’s history of currency depreciation. Adopting LNG, the price of which is less volatile and has substantially tracked below that for heavy fuel oils (HFO) in terms of equivalent price per MMBTU, the much smaller portion of variable cost in the price of the fuel supplied to the plants, and the adoption of renewables based on indigenous fuels, will help to reduce uncertainty, bolster security of supply, and lessen rate volatility.

The OUR’s computation of the cumulative investments in renewables and the new natural gas-fired plants is that with HFO price at US$70/bbl (barrel) and LNG price at $4/MMBTu (the most likely scenario) and ceteris paribus, rates for electricity supply will be reduced by 0.47 of a US cent per kWh by the end of 2020. This will reflect annual savings of US$20.48 million.

While this is not a sufficiently dramatic decline, there are other positive spin-offs to customers, including reduction in the country’s carbon footprint resulting from the adoption of more renewables and the transition to a cleaner fuel source in LNG, and the potential for further reduction in fuel prices as gas usage expands.

The OUR is gratified to have played a vital role through leadership, promptings, policy recommendations, technical analyses, regulatory directives, and by creating and maintaining a facilitative regulatory environment.

We remain optimistic that the sector is poised for even more far-reaching developments. We are mindful, however, that the timing, scope, and composition of such developments will be strongly influenced by the outcome of the long-awaited Integrated Resource Plan. Once published by the Ministry of Science, Energy and Technology, the road map for the next wave of sector developments should become clearer.

We undertake to remain vigilant as we continue to evaluate and approve new investment projects, examine applications for annual rate adjustments, and conduct periodic tariff reviews so that rate payers benefit fully from the investments through cost-reflective rates and improved quality of service.

- Ansord E. Hewitt is director general of the Office of Utilities Regulation. Email feedback to columns@gleanerjm.com.