The Tribune

By FAY SIMMONS

TRIBUNE Business Reporter

jsimmons@tribunemedia.net

A TOP adviser to ex-prime minister Perry Christie yesterday challenged whether the Government’s energy reforms could result in Bahamian businesses and households paying more for electricity as opposed to cutting their bills.

Deepak Bhatnagar, founder of DKB Associates, said the full cost of the Government's energy reforms remains unclear because the publicly-disclosed power purchase agreement (PPA) prices with the likes of BISX-listed FOCOL Holdings and multiple renewable energy providers do not capture all the expenses that will ultimately be recovered through consumer tariffs.

Speaking during the Bahamas Institute of Chartered Accountants (BICA) Accountants Week, he estimated that a household consuming around 1,400 kilowatt hours (KWh) of electricity per month could see its bill rise from $470 to about $507 once the new generation projects and Bahamas Grid Company's transmission and distribution charges are fully operational.

Mr Bhatnagar, who was said to be viewed as a guru by Mr Christie when it came to analysing numbers and investment proposals, said the increase projected by his study reflects the combined impact of new generation costs, grid charges and the existing expenses that Bahamas Power & Light (BPL) must continue to recover.

He stressed that his calculation is an independent estimate rather than an official tariff forecast, but said BPL had not responded to the opportunity he gave to review or discuss his presentation before delivering it. Mr Bhatnagar added that liquefied natural gas (LNG) generation, long-term purchase obligations and grid charges could outweigh anticipated fuel savings from the Davis administration’s reforms.

“The central question is whether The Bahamas is positioning the electricity system to deliver reliable power at the lowest sustainable cost,” said Mr Bhatnagar. “Electricity cost must be examined as a full stack; a low headline generation price can still produce a high system cost if minimum purchases, fuel pass through, debt, or stranded capacity are managed.”

Mr Bhatnagar said a September 2026 bill for a household consuming 1,400 KWh from BPL showed a base charge of $161, a fuel charge of $268.53 and around $42 in VAT, bringing the total to $470.

He argued that the price attached to an individual generation agreement does not represent the final cost to consumers, as transmission and distribution, financing, administrative expenses and taxes must also be accounted for. “The price quoted in a PPA is only one layer of what the consumer actually pays,” he emphasised.

Mr Bhatnagar's review focused on the new generation arrangements for New Providence, including the 177 Mega Watt (MW) plant being developed by FOCOL Holdings; three utility-scale solar power purchase agreements, and Bahamas Grid Company's overhaul of the transmission and distribution network.

Mr Bhatnagar said the publicly identified New Providence generation portfolio includes three 20 MW solar PPAs, totalling 60 MW, alongside FOCOL's 177-MW plant. He calculated that this represents 237 MW of specifically identified new PPA generation.

He noted, however, that Government statements have referred to 70 MW of solar capacity, leaving a 10 MW discrepancy that he said he had been unable to reconcile through his review of publicly available information.

And Mr Bhatnagar also raised questions about projected revenue in the offering memorandum for Island Power Producers' cruise ship shore-power project at Arawak Cay.

The project is intended to provide LNG-fuelled electricity to cruise ships docked at Nassau Cruise Port, reducing their reliance on onboard generation. Mr Bhatnagar said the offering memorandum included a separate projected revenue line for a possible supply of excess electricity to BPL, although he had not found evidence of an executed agreement.

“I am not treating it as an executed BPL PPA. I simply think it is reasonable to ask whether it anticipates BPL residual sales, and if so, at what price and what volume assumption,” he said.

Mr Bhatnagar said FOCOL's publicly identified 4.625 cents per KWh figure represents a generation equipment component rather than the full cost of the LNG project.

He estimated that the project's all-in generation cost could reach approximately 14 cents per KWh after accounting for LNG commodity costs, storage, transportation and infrastructure amortisation.

“The real question is what LNG price, capacity payment, indexation and minimum purchase assumptions are embedded in the FOCOL PPA,” said Mr Bhatnagar.

He compared his estimate with LNG generation prices in the Dominican Republic, where he cited an average of approximately 7.33 cents per KWh for two 400 MW procurement blocks under the Manzanillo project.

Mr Bhatnagar said applying that benchmark to his household bill scenario could reduce the projected cost by approximately $96 to $100 monthly, bringing the bill to around $407.

He cautioned that the comparison depends on the assumptions used in his model, and said the full contractual pricing and fuel arrangements for FOCOL would need to be disclosed to determine whether the project represents value for money. And he also questioned the cumulative effect of Bahamas Grid Company's transmission and distribution revenue allocation.

Under the Bahamas Grid’s financing structure, a 5.5-cent per KWh allocation charge is associated with revenue collected through BPL customer billings. Mr Bhatnagar said the charge represents a transmission and distribution component rather than a generation price.

He estimated that applying the 5.5 cent allocation to a household consuming 1,395 KWh monthly would amount to approximately $76.73 before VAT, or about $84.40 after VAT.

Mr Bhatnagar said the original Bahamas Grid programme was valued at around $130m, with $100m in bond financing and $30m in equity, while BPL subsequently secured a separate $90m Inter-American Development Bank (IDB) programme for grid modernisation, including smart meters, supervisory control and data acquisition systems and geographic information systems.

Mr Bhatnagar questioned whether the 5.5 cent allocation to Bahamas Grid Company had been reviewed or recalibrated following the additional IDB financing. “The question is whether 5.5 cents was reviewed or recalibrated after this additional investment by IDB,” he said.

“The central issue is also whether 5.5 cents exists, but how it ultimately flows through the BPL revenue requirement and the consumer tariff.” Mr Bhatnagar said the final impact on consumers would depend on how Bahamas Grid's charge interacts with BPL's remaining operating costs, generation expenses and tariff structure.

Mr Bhatnagar also raised questions about the Family Island PPAs, particularly the minimum annual purchase guarantees associated with EA Energy's Abaco and Eleuthera projects.

He said the public commercial information he reviewed indicated that Abaco had a minimum annual purchase guarantee of 94 gigawatt hours, and Eleuthera 79 gigawatt hours, with indicative pricing of approximately 26 cents per KWh.

Mr Bhatnagar calculated that the combined minimum annual obligations could amount to approximately $44m. “These minimum guarantees are floors and not ceilings,” he said. “They create a payment obligation of BPL even if economic dispatch is below the contracted minimum.”

Mr Bhatnagar added that the Abaco minimum guarantee represents around 79.3 percent of the island's reported 2023-2024 electricity production, while Eleuthera's minimum guarantee was virtually equal to its reported production for that period.

He argued that the arrangements could leave BPL responsible for payments even if actual electricity demand or dispatch falls below the contracted minimum.

“For Eleuthera, the contractual floor is virtually equal to recent annual production, making floor future demand, dispatch and contract wording particularly important,” he said.

Mr Bhatnagar added that the Family Island agreements could affect consumers beyond the islands where the plants are located because BPL operates a wider universal tariff structure.

“The economic question is not simply what power costs on Abaco or New Providence. The question is: What is the weighted average cost of the full BPL portfolio that must be recovered across BPL customers?” said Mr Bhatnagar. “A minimum purchase or capacity obligation on one Family Island can affect the wider BPL consumer cost pool.”

Mr Bhatnagar said the full contractual terms, including minimum purchase obligations, fuel risk, indexation, performance protections and termination payments, should be understood before the public can assess the economic impact of the new arrangements.

He also questioned whether the Utilities Regulation and Competition Authority (URCA), the energy sector regulator, had assessed the cumulative effect of the projects on consumer bills.

Mr Bhatnagar said the issue is not simply whether individual projects have been licensed, but what information had informed the regulatory decisions and whether the cumulative consumer impact had been assessed.

“Did URCA receive the complete commercial terms? Did it model the cumulative consumer impact? And when will consumers be able to comment on this impact?” he asked. “If URCA had full information, publication of the decision basis would strengthen confidence. If it did not, the basis of earlier approval requires clarification.”

Mr Bhatnagar also drew on an earlier energy reform process in which he said a plan had been developed to restructure BPL’s financial position and raise around $600m in financing without a government guarantee, while retaining generation, transmission and distribution assets under public ownership.

He said the plan contemplated financing from three major international banks, and that he retained the term sheets from that process.

“I mention it because it demonstrates that another financeable model had been developed: Restructure the balance sheet, invest in efficient generation and the grid, retain ownership of the assets, and target a materially lower cost of electricity,” Mr Bhatnagar said.

Mr Bhatnagar said the current arrangements were different from the earlier proposal, but argued that the previous reform effort demonstrated that alternative financing structures had been considered.

He said the country's energy reforms should ultimately be assessed on whether they deliver reliable electricity at the lowest sustainable cost.

“The Bahamas should not evaluate energy projects only by MW hours added, or capital under those PPAs,” he said. “Reliable electricity is essential, but cure must also be affordable.”

BPL is mandated by the Electricity Act to submit a tariff review application to URCA by 2027, and several energy sources - speaking on condition of anonymity - have suggested the state-owned utility will have to increase its base rate to ensure the Government’s energy reforms, as well as its financial health, remain commercially viable while potentially ending the free first 200 KWh that consumers presently enjoy.

Bahamas Grid Company is contractually due to earn a minimum rate of 5.5 cents per KWh for the first six years of its initial 25-year deal through to around April 2031, while documents released by the Government revealed FOCOL Holdings will need to charge 4.625 cents per KWH during the first stage of its baseload generation project.

Adding these two figures, the 5.5 cents and 4.625 cents charges together, totals 10.125 cents per KWh. This combined compensation to Bahamas Grid Company and FOCOL’s Bahamas Utility Company will have to come out of BPL’s base tariff to pay for both electricity purchased and grid management and upgrades.

This 10.125 cents accounts for between 81 percent to 88.8 percent of BPL’s existing base tariff depending on which measure is used. Tribune Business sources recently suggested BPL’s average base tariff was around 12.5 cents per KWh prior to the Government’s introduction of the Equity Rate Adjustment tariff structure, which dropped this to 11.4 cents after the first 200 KWh hours were made free for all consumers.

As a result, with such a large chunk of BPL’s base tariff going towards paying Bahamas Grid Company and Bahamas Utility Company, multiple observers have questioned how BPL will be able to both cover its existing operating expenses, including a 1,100-strong workforce, plus maintain its legacy generation assets and hundreds of miles of Family Island transmission and distribution networks.

They view a BPL base tariff rise as inevitable, with the Government likely banking on the projected reduction in fuel costs to offset this and keep the utility’s all-in prices lower than present costs.