Energy solutions at our fingertips

The following is an edited speech delivered by Warren Smith, president of the Caribbean Development Bank, at the 44th annual meeting of the board of governors in Guyana last month.

High rates of economic growth have eluded the majority of the Caribbean Development Bank's (CDB) borrowing member countries (BMC), for a long time. Our region's economic expansion of two per cent per annum over the past decade has been consistently below the global rate of 3.8 per cent; lower than the four per cent average for other small island developing states (SIDS); and way below the average of six per cent for emerging and developing countries.

Our anaemic growth performance is further manifested in widening fiscal imbalances; high debt ratios; and declining levels of foreign-exchange reserves.

According to the World Bank's Doing Business survey and the World Economic Forum's Global Competitiveness Index, the Caribbean's ranking does not compare well with other countries in the area of competitiveness. For example, out of 189 countries surveyed for the Doing Business index, the average ranking for the Caribbean is 100.

The rankings confirm that our BMCs will have difficulty maintaining existing markets and penetrating new ones, unless there is radical transformation in the way we do business.

Importantly, the two surveys highlight several areas we need to address, including inadequate transportation, telecommunication and logistics infrastructure; insufficient access to affordable credit; red tape; low productivity; and high energy costs.

We cannot transform the Caribbean's competitiveness landscape without a frontal attack on energy costs and the generally poor state of our electricity infrastructure.

Electricity costs in our region are very high. In general, households pay between US$0.30 and US$0.40 per kilowatt-hour.

Prices also vary significantly from country to country. Household tariffs in 2012 ranged from a high of approximately US 0.48 cents per kWh in Dominica and Montserrat to a low of US 0.25 cents per kWh in Belize, where the energy mix includes some renewables, namely hydro and biomass.

Among the BMCs, the outliers are households in fossil-fuel-endowed Suriname and Trinidad and Tobago, where rates were under US$0.07 per kWh. These rates are approximately four times the average rates in North America. A similar situation obtains for commercial and industrial rates.

An enterprise survey conducted by the World Bank in 2010 found that at least 30% of Caribbean firms identified electricity costs as a major constraint to doing business.

Macroeconomic impact

The macroeconomic impact of the high cost of imported fuel and the consequential high electricity price are reflected in deteriorating performance indicators in most BMCs. High levels of debt to GDP and depletion of foreign reserves are directly related to this dependence on imported oil. High electricity prices erode the competitiveness of the regional economies and, therefore, their ability to earn the required foreign exchange to pay for imports, including oil. Unless, therefore, we can reduce our dependency on imported fossil fuels, and unless we can substantially reduce energy costs, we will not succeed in improving our competitiveness and reducing our vulnerability to external shocks.

There has been a perception that Trinidad and Tobago is the only energy-rich country in the Caribbean.

However, our other BMCs are definitely not energy poor. Guyana alone has enough renewable energy potential, mainly in the form of hydropower, to meet all of its electricity requirements for the foreseeable future; supply all of the needs of immediate neighbours, Grenada and Trinidad and Tobago; and still have enough left over to sell to neighbouring Brazil. The situation is similar for Suriname.

Additionally, Dominica, Grenada, Montserrat, St Kitts and Nevis, St Lucia, and St Vincent and the Grenadines have great potential to generate their entire baseload electricity requirements from geothermal sources.

Although their domestic markets are quite small, technological advances in the development of undersea transmission cables would allow these countries to exploit their relatively large geothermal reserves for export to neighbouring countries.

Evolving renewable energy technology and recent price reductions can potentially bring about a transformation in the energy landscape to the extent that all BMCs can now harness their available resources.

For example, Jamaica can meet up to 30% of its electricity needs from renewable sources such as wind, solar, mini-hydro and waste-to-energy. According to a study by the Worldwatch Institute in the USA, Jamaica's annual average solar insulation ranges from 5-8 kilowatt-hours per square metre per day. In comparison, Germany, the global leader in solar photovoltaic (PV), has only a few locations with a capacity in excess of 3 kilowatt-hours per square metre per day.

Jamaica's situation is not unique. All BMCs boast similarly strong solar potential.

All of these renewable options have the potential to lower electricity costs, and increase foreign exchange reserves from reduced energy imports.

With our considerable potential to enhance regional energy security, save foreign exchange, improve the competitiveness of Caribbean economies; and with falling prices of renewables, including solar energy technologies, what prevents us from taking advantage of the opportunity to create a Shakespearean-type sea change in the Caribbean's energy landscape?

The legislative and regulatory environment is a major hindrance to the pursuit of a new energy paradigm. There are two priority areas for urgent government action.

1 We need to change the legislative framework at the national level in order to facilitate access for renewables by altering the monopoly on generation where this exists in BMCs. Revisions in the framework should ensure equitable pricing for supply from independent power providers or small, distributed renewable generators of electricity.

It is noteworthy that CARICOM energy ministers have already adopted net-billing as a feasible mechanism for ensuring equitable pricing.

As a matter of urgency then, all BMCs should follow the lead set by Barbados and Jamaica, which have already enacted the supporting legislation.

2 An appropriate regulatory framework needs to be established for each BMC to ensure that equitable tariffs and rules for optimal performance are in place and to make certain that the interests of consumers, investors and governments are balanced. Given the constraints of market size and the availability and cost of specialised skills necessary for the effective administration of the regulatory function, it makes sense for a collective approach to be adopted.

It is for this reason that CDB welcomes the Eastern Caribbean Energy Regulatory Authority initiative; applauds those OECS countries that have already committed; and looks forward to the full participation by other member countries.

I would go so far as to say that such a supra-national regulatory body is critical for full and sustainable development of the geothermal potential in the subregion, to encourage private investment in the sector and to make interconnectivity a reality.

The building of a new energy paradigm must give priority to energy efficiency, which is relatively low-cost and yields a high return on investment with a short payback period.

A successful energy-efficiency programme, incorporating appropriate tax incentives, would reduce household expenditure on electricity and other forms of energy, thereby increasing disposable incomes. Businesses, especially the critically important micro, small and medium size-enterprises (MSMEs), would also see improvements in their efficiency and their competitiveness.

Our fight against high energy prices could, potentially, also open the door for the emergence and growth of new non-traditional businesses that promote the use of energy-efficiency technologies and services to reduce energy consumption.

New industries

The growth of industries producing and/or installing solar water heating systems is the most familiar of the new industries that have emerged in our region as a response to high energy prices.

In the new energy paradigm, we should expect an expansion in new industries around a range of energy services, and the manufacture and installation of PV and other renewable energy systems and energy-saving devices.

The new paradigm is integral to the green economy approach currently under consideration by some BMCs, and is consistent with the CDB's Climate Resilience Strategy.

The majority of our BMCs are caught in a vortex of low growth and stagnant or declining living standards. In contrast, many of the SIDS are outperforming us; and the newly emerging countries of Africa, Asia, and South America are either catching us or rapidly leaving us behind.

We are very good at analysis; but we need to become excellent at praxis! We know what needs to be done; and we just need to do it!

The energy challenge is not a new one! We have known about it for at least 40 years, since the first oil shock in 1973. What is clearer today is that we do not need to continue as helpless victims of the vagaries of the international oil markets. Nor do we have to remain uncompetitive because electricity prices are like an albatross around our necks.

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