OUR's role in power play

Michael Bryce, GUEST COLUMNIST

The Sunday Gleaner of November 4, 2012 carried an article from guest columnist the Rev Garnett Roper, in which he made reference to aspects of the role of the Office of Utilities Regulation (OUR) in the procurement of new electricity generation for the national grid.

It is a great pity that the article contained several inaccuracies, which might have been avoided had Rev Roper elected to engage the OUR in discussions regarding its role in the procurement of electricity generation and the process adopted with respect to the 360MW project, which was the focus of his article. The OUR deems it important to provide a response so that your readers might have a better understanding of this matter of national importance.

First off, Rev Roper's reference to the OUR issuing a licence to the Jamaica Public Service (JPS) for the construction of a new plant is incorrect, as the regulator does not issue licences, but instead makes recommendations to the minister for the issuance of a licence. In fact, to date, no such recommendation has been made. The OUR does, however, have responsibility for electricity-generation procurement, and it is in exercise of that responsibility that the approval for the 360MW plant was given.

The writer further asserts that the OUR did not do its homework in respect of the cost and the technology, as well as the location, of the 360MW plant proposed by the JPS. Nothing could be further from the truth, as the ensuing account will demonstrate.

expansion plan

In July 2007, the OUR was given responsibility for the preparation of the least-cost generation expansion plan, and oversight of the procurement process for the addition of new electricity-generation capacity to the national grid. In carrying out these activities, the OUR has been guided by the National Energy Policy, and by the legal and regulatory framework for the electricity sector.

The policy followed by the OUR is set out in the document 'Guidelines for the Addition of Generating Capacity to the Public Electricity Supply System', which is publicly available online at the OUR's website, www.our.org.jm. Integral to the policy is that all generation capacities above 15MW must be procured by a competitive bidding process. This was strictly adhered to in this procurement.

During the planning process, all practical generation possibilities are subjected to thorough technical and economic evaluations so that an optimal, long-term solution can be identified. The generation expansion plan also includes the configuration of the transmission and distribution system, and the required investment to realise the optimal generation system.

Rev Roper also describes the proposed facility as a 360MW gas turbine plant. This is incorrect. The approved project is, in fact, for a 360MW combined-cycle plant in 120MW segments. This is quite different from a 360MW gas turbine.

It is true that the project called for a dual-fuel-fired plant, meaning a plant capable of using two fuel types. This is, however, simply a requirement of prudence. Jamaica is an island economy susceptible to natural disasters such as hurricanes; and this was to ensure security of supply of power from the plant in the event that natural gas supply is disrupted.

It is also instructive to note that the procurement process used by the OUR was an international competitive bidding process. The request for proposal (RFP) was advertised internationally, and the entire process conformed to GOJ's procurement guidelines. The bids received were evaluated along the guidelines as set out in the RFP and the best proposal chosen.

JPS submitted two bids, one being the combined-cycle plant (CCP) using LNG with automotive diesel oil (ADO) as back-up; and the other, a medium-speed diesel (MSD) using heavy fuel oil (HFO) as back-up to conform to the dual-fuel requirement. A thorough evaluation was done and the CCP proved to be least cost. It is on this basis that JPS was given the nod to finalise the arrangements and develop the project.

heat rates

According to the submissions, the CCGT proposal has guaranteed heat rates of 7,033kJ/kWh (efficiency - 51 per cent) and 7,457kJ/kWh (efficiency - 48 per cent) for operation on natural gas and ADO, respectively. Comparatively, the MSD proposal has heat rates of 7,678kJ/kWh (efficiency - 46 per cent) and 8,513 kJ/kWh (efficiency - 42 per cent) for natural gas and HFO, respectively. This shows that the efficiency of CCGT using natural gas/ADO is better than that of diesel engines using natural gas/HFO/ADO. This information is consistent with industry standards.

The variable operating and maintenance costs of the proposed 360MW CCGT is approximately seven times lower compared with the 360MW diesel solution. In the event that the plant had to operate on secondary fuel, the evaluated overall cost of the CCGT operating on ADO and the diesel plant operating on HFO would be similar at current ADO and HFO prices. This is based on the combined effect of plant efficiency, and the operating and maintenance costs of the two proposals.

The OUR agrees that the price of HFO has been lower than ADO, according to historical and projected fuel oil prices. It is important to underscore, however, that the Government of Jamaica has taken a public policy decision to diversify fuel supply to reduce Jamaica's heavy dependence on the more expensive fuel oil (both HFO and ADO). An explicit part of that strategy is the pursuit of a natural gas solution as the first phase of that policy. It is also the case, as Rev Roper himself observed, that natural gas provides a more efficient means of electricity generation.

We are unable to comment on Rev Roper's assertion as to the availability of cheaper options as for whatever reasons they chose not to offer bids. The OUR's consideration was, therefore, limited to what was on the table.

It is also incorrect to say that there is a 36-month period for the construction of the new plant. The proposal calls for a 24-month construction period, which is in line with industry standards.

The suggestion that the 360MW constitutes one plant is also incorrect.

The RFP clearly states that the plants must be in 120MW segments in keeping with peak demands. This breakout, among other things, satisfies concerns about dispatch flexibility and the vulnerability of the system to losing a huge chunk of its capacity in one go.

As regards location in one geographical place, it is important to observe that this must be balanced against the consideration that the transmission infrastructure to evacuate the power from the current location in Old Harbour is already in place and needs only minor modifications to accommodate the new plants.

technical losses

Finally, we wish to state that contrary to Rev Roper's assertion, all technical losses are not passed on to customers. Losses are capped, and the company is given a schedule to reduce such losses. JPS losses are currently 22-24 per cent, but the tariff dictates that only 17.5 per cent can be passed on to the customers. The company is mandated to reduce losses by an average two per cent per annum until it gets to internationally accepted standards.

As always, the OUR stands ready to provide the public with information on all matters over which it exercises oversight, and we invite all to take advantage of this offer.

Michael Bryce is director of consumer and public affairs of the OUR. Email feedback to columns@gleanerjm.com and mbryce@our.org.jm.