The Tribune

TOUGH CALL

By LARRY SMITH

THE new Progressive Liberal Party government issued its first statement on the future of energy in the Bahamas recently, and all signals were positive.

In a communication to parliament, Environment Minister Kenred Dorsett said the government was committed to lowering the cost of electricity by continuing to upgrade generating plants on New Providence and pursuing renewable energy initiatives.

“Reliability upgrades, replacement and rehabilitation of auxiliary equipment, and considering additional heavy fuel baseload generation, is an integral part of reducing electricity prices, and is a priority for the Bahamas Electricity Corporation,” he said. “Increasing baseload generation could save BEC $100 million annually.”

But achieving such savings would require significant upfront investments in new plant. Former BEC Chairman Michael Moss has said the corporation’s bottom line can’t sustain that level of investment without heavy capital inputs from the government, which is already struggling under a $550 million budget deficit.

BEC’s peak load on New Providence is about 230 megawatts. In the last year or two, the corporation had begun a series of costly overhauls of aging generators after taking difficult steps to rationalise finances. As former Environment Minister Earl Deveaux told me, until recently BEC had $60 million in government receivables alone, and never enough cash to properly maintain its generators.

“All studies reached the same conclusion – that BEC should have an arms-length relationship with government on electricity rates and generation if it is to be sustainable. We addressed some of these issues with a 5 per cent tariff increase, an adjustment to the rate structure, and a requirement that the government pay for street lighting,” he said.

Before those measures were taken, BEC was on track to lose $65 million annually by 2014, based on projections by the government’s German energy consultants that were calculated in 2010.

Dorsett said the government was considering serious proposals from the private sector for the production of energy from solar plants, waste-to-energy plants, ocean thermal conversion facilities and wind farms. None of the projects was identified, but it is well-known that talks have been ongoing with a range of prospective investors for years.

“We had agreed in principle to a waste-to-energy proposal for the New Providence landfill that could generate at least 20 megawatts of power while resolving most of the environmental and management problems that plague the site,” Deveaux told me.

Waste-to-energy is considered the most feasible way to generate renewable energy on New Providence, and a number of private sector proposals have been put on the table over the past five years without any progress being made. Deveaux conceded that “the longer it takes for a project like this to get underway, the greater the environmental and political costs will be.”

In his communication, Dorsett mentioned a public-private partnership for the production of solar power. This refers to a 5 megawatt photovoltaic plant planned by the upscale Albany resort-residential project in southwestern New Providence. In addition to reducing demand for conventional electricity, BEC would benefit from a franchise fee and be able to acquire excess power from Albany’s solar plant.

The huge Baha Mar resort under construction at Cable Beach had planned to cut several megawatts of utility demand by using cold seawater in place of conventional refrigerants for air conditioning. This project appears to be in limbo while environmental issues related to the location of the ocean pipeline are addressed.

Perhaps the most substantive part of the minister’s communication was his confirmation that the government would “work assiduously” to amend the 1956 Electricity Act, introduce a Renewable Energy Act, and create an independent sector regulator. Reform of the regulatory framework for energy was a key recommendation made by German consultants to the previous government.

“We must remove the legal impediments of exclusive rights for the generation and sale of electricity,” Dorsett said. “The prohibition of self-generation and interconnection to the grid.”

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.

To encourage self-generation using renewable technologies, a new law would let customers feed excess electricity from their 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.

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.

Dorsett added that incentives would be put in place to help reduce energy demand and promote the use of alternative energy sources. This would include further reductions of import duties on energy-efficient appliances, as well as tax deductions for businesses that carry out independent energy audits and undertake measures to conserve electricity.

He said the government would also conduct energy audits and install solar panels on public buildings. For example, a new building proposed for the Soldier Road Industrial Park by BAIC will reportedly be powered by solar panels.

Dorsett also said BEC would pursue alternative sources of fuel, such as liquified natural gas or compressed natural gas, in an effort to reduce costs. BEC Chairman Leslie Miller has also talked about negotiating a long-term fuel supply contract with the Venezuelan state oil company - PDVSA - in the belief that this will cut fuel costs.

But former Chairman Michael Moss told The Nassau Guardian recently that he doesn’t see how any deal with Venezuela could make the price of oil cheaper in the long run. Venezuela is bound by OPEC pricing and production quotas, but operates a regional alliance called Petrocaribe that provides for deferred payments on oil sold at market prices.

“At some point the bill must be paid,” Moss said. “It’s low-interest credit – like going to the gas station and buying your fuel with a credit card. I don’t think the Bahamas wants to increase its debt at this point.”

Due to perennial cash shortages, BEC currently pays its fuel bills on a 75-day credit cycle. Moss acknowledged that costs could be lowered by moving to a 21 or 30-day payment cycle, but that would require the liquidation of significant outstanding balances and the cash-flow ability to manage a shorter payment cycle.

“BEC’s fuel bill would also be reduced if it can continue to improve reliability and increase production on its most efficient plant, namely the slow-speed diesels at Clifton Pier and the combined cycle steam and gas plant at Blue Hills that captures and uses waste heat which would ordinarily go up the stacks of two gas turbines,” he said.

Moss is in favour of using natural gas wherever possible, which could cut the cost of powering the Blue Hills gas turbines by as much as a third. These generators are designed to run on gas although they presently operate on more expensive diesel. The US is expected to become a major liquified natural gas exporter over the next few years, experts say, in sharp contrast to previous years when the US was seeking to import LNG.

Dorsett ended his communication with a stirring call to action on the renewable front: “In time we can become known as the ‘islands in the sun’ for our tourism business as well as for power generation,” he said. “The Bahamas can and will become a world leader in alternative energy, creating hundreds of good-paying jobs and economic opportunities for Bahamians.”

But this will not be an easy road to take. The inertia at BEC and in the private sector make it difficult to get things moving, although measures are often perceived by the public as simple to implement. “BEC is a big corporation with a history of major political involvement and that has huge consequences for the way forward,” former minister Deveaux explained.

Meanwhile, the national energy policy seeks to remove ambiguities about self-generation of electricity, which BEC has always opposed. Deveaux said it took years to convince the corporation to move ahead on this front – even through power sharing with major customers to relieve demand in peak periods and give the corporation’s generating plant some breathing room.

“Saying that the government will go ahead with renewable legislation is a big first step, but it needs to be pushed and defended,” he said. “A draft act was left on the table, but it needs to be driven forward, which involves a lot of political effort.”

One of the keys to success will be whether BEC is allowed to operate sustainably, or whether it will revert to the usual practice of state corporations like ZNS and Bahamasair – providing jobs for the boys and paying more attention to political interests than to national goals.

• What do you think? Send comments to larry@tribunemedia.net or visit www.

bahamapundit.com.