The Tribune

By NEIL HARTNELL

Tribune Business Editor

nhartnell@tribunemedia.net

The Bahamas has yet to implement efficiency and conservation measures that could slash hotel and residential energy demand by 27 per cent, the Inter-American Development Bank (IDB) has revealed.

The Bank, in its newly-released 2013-2017 country strategy for the Bahamas, highlighted just why reforming the energy sector is vital for this nation’s economy and society, with BEC’s monthly outages four times’ the number experienced in other Caribbean countries.

And the IDB report revealed that the proportion of Bahamas-based companies with their own electricity generators was three times’ higher than for other Caribbean nations, standing at 60 per cent, something that further highlighted the relative inefficiency of BEC and Grand Bahama Power Company.

And, while the Bahamas’ possesses some 240-plus financial institutions, an IDB study found that just four - less than 2 per cent - offered products that could help to finance renewable energy or energy efficiency projects.

This was creating a further barrier to reducing the Bahamas’ dependence on fossil fuel energy, and the IDB said one of its goals over the next four years was to help structure special purpose vehicles (SPVs) that could be used to finance private sector and residential renewable energy projects.

While energy conservation and efficiency are widely viewed as a starting point for energy reform, the IDB indicated that the Bahamas had yet to implement any of the recommendations from a study it had conducted two-three years ago.

“Bank-financed studies reveal that low-cost energy efficiency and conservation measures that could save the equivalent of 27 per cent of present demand from the tourism and residential sectors are yet to be implemented,” the IDB report said.

“Renewable energy technologies such as solar water heaters and photovoltaic (PV) systems also remain untapped, but present attractive opportunities for diversification of the energy matrix given their favourable generation costs.

“However, implementation of energy efficiency and renewable energy will not only depend on the removal of legal barriers, but also on the promotion of programmes to enhance awareness, to create incentives for private sector participation and to overcome the financial and technical constraints faced by the energy efficiency and renewable energy markets.”

Emphasising just how important it is for the ongoing BEC reform break-up process to produce the desired results, the small print to the IDB study highlighted just how inefficient the Bahamian energy sector is when compared to regional counterparts.

“Two indicators on the reliability of services are the number of power outages (2.2 per month for the Bahamas, which compares to 0.5 in Trinidad and Tobago and 0.6 in Panama), and the ownership of power generators (60 per cent of the firms surveyed by the Enterprise Survey own a power generator, in comparison with 20 per cent in Trinidad and Tobago and 13 per cent in Panama),” the IDB report said.

It noted that BEC’s $0.40 per kilowatt hour energy costs were “one of the highest in Latin America and the Caribbean”, with oil imports accounting for a sum equivalent to 11 per cent of GDP in 2011.

As for the somewhat limited prospects Bahamian businesses and households have for financing renewable energy projects, the country strategy added: “According to the IDB’s study, despite the large number of financial institutions (banks & trust companies) licensed to operate in the Bahamas, only four financial institutions offer products that could potentially be used to finance energy efficiency or renewable energy projects.

“Among the main reasons for the low supply of credit [are] the small size of individual investments; the low prospects on returns in the energy efficiency and renewable energy market; and high perception of risks by local financial institutions.”

To reverse this situation over the next four years, the IDB report said it would “deepen its involvement” in the sector by providing financing to reform the regulatory and legal environment.

The Bank added that it would help to “diversify the Bahamas’ energy matrix” via renewable energy by providing direct financing to private sector and residential projects, along with so-called technical assistance.

And the IDB added that it would “provide support to the structuring of adequate financing mechanisms ( SPVs - Special Purpose Vehicle Funds) that take into account local conditions, reducing perception of risks by local financial institutions, and engaging them in financing energy efficiency and renewable energy to the business and residential sectors”.

Conceding that there were risks, albeit mitigated, to its energy sector strategy, the IDB described these as the Government’s potential “inability to effect management, corporate governance and operations reforms of BEC, [which] could diminish the impact of IDB-financed interventions in the energy sector, particularly given that BEC will continue to be the main provider of electricity during the period”.

Another risk was defined as the Government failing to support regulatory/legal adjustments to facilitate energy efficiency and renewable energy, along with the provision of insufficient incentives. A drop in global oil prices might also slash interest in renewable energy.

Summing up what Bahamians already know, the IDB said: “Inefficiencies in the energy sector represent a major challenge to economic development in the Bahamas, particularly with regard to public expenditure, mounting contingent liabilities and impaired competitiveness.

“There is low energy security, as the country mostly relies on imported petroleum for electricity generation. Electricity is expensive yet unreliable, which means that the country is vulnerable to spikes in international oil prices.

“BEC – the main provider of electricity and a state owned company – is constrained financially due to the high cost of inputs, technical and non-technical losses, and the challenge to provide services to several islands without the possibility of charging a tariff according to the corresponding production costs.”