Caribbean Development Bank (CDB) President Dr Warren Smith yesterday sounded a call for the region to adopt a unified approach in reducing its high energy cost, saying it remains the main obstacle to the competitiveness that is needed for sustainable economic growth.
Speaking at the 44th Annual Meeting of the Board of Governors, which opened yesterday at the Guyana International Conference Centre at Liliendaal, Smith said a “full frontal attack” on energy costs and the poor state of electricity infrastructure is needed to transform the Caribbean’s competitiveness landscape and nurture sustainable prosperity.
Smith pointed out that the CDB has financed electricity generation, transmission and distribution facilities in its Borrowing Member Countries (BMCs) virtually since its inception and he assured that it will continue to do so, including collaborating with development partners. But he said many of the generating plants are obsolete and need to be replaced by a mix of technologies comprising “renewables and natural gas.” He disclosed that it is estimated that an investment of as much as US$10B in new generation capacity could be required within the medium term if the region’s electric utilities are to benefit from efficiencies associated with the new technologies and for them to maintain adequate reliability. To radically transform the energy generation landscape, he added, the investment requirements could exceed US$20B.
He also identified the legislative and regulatory environment in the region as a major hindrance to the pursuit of a “new energy paradigm,” calling them two priority areas that warrant urgent government action. The “energy challenge” is not new to member countries, he said, but the majority of them nevertheless remain caught “in a vortex of low growth and stagnant or declining living standards” even as other small and developing countries around the world catch up or leave them 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!” Smith declared, stressing that countries in the region do not need to continue as helpless victims of the vagaries of the international oil markets. “As today’s leaders, we must move to secure all aspects of our nationhood; and one critical area is energy security. We must take full responsibility and ownership by addressing decisively the competitiveness and energy handicaps which threaten us now. If they go unfixed, generations to come will be affected,” he warned.
Smith said the inability to compete stands out as a major challenge for the region, where high rates of economic growth have eluded the majority of the CDB’s BMCs for a long time. He cited the region’s economic expansion of 2% per annum over the past decade, saying it has been consistently below the global rate of 3.8%, which is lower than the 4% average for other Small Islands Developing States (SIDS) and far below the average of 6% for emerging and developing countries.
In the World Bank’s “Doing Business” Survey and the World Economic Forum’s Global Competitiveness Index, he further said, the Caribbean’s ranking does not compare well with other countries in the area of competitiveness. “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,” he noted, adding that they also highlight several areas which need to be addressed, including inadequate transportation, telecommunication and logistics infrastructure; insufficient access to affordable credit; bureaucratic red-tape; low productivity; and high energy costs.
Smith further noted that 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. He said the macro-economic 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, he added, pointing out that 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,” he said.
Region not energy poor
In the face of the constraints resulting from high energy costs, Smith pointed out that member countries are not “energy poor” despite the perception that Trinidad and Tobago is the only energy-rich country in the Caribbean.
Guyana alone, he said, has enough renewable energy potential, mainly in the form of hydro-power, 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, he added. He also identified Dominica, Grenada, Montserrat, St. Kitts and Nevis, St. Lucia, and St. Vincent and the Grenadines as having “great potential” to generate their entire base-load electricity requirements from geo-thermal sources.
Smith conceded that domestic markets are quite small, but argued that technological advances in the development of undersea transmission cables would allow these countries to exploit their relatively large geo-thermal 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,” he added.
As an example, Smith cited Jamaica, which he said could meet up to 30% of its electricity needs from renewable sources such as wind, solar, mini-hydro and waste-to-energy. He noted that a study by the Worldwatch Institute in the US found that Jamaica’s annual average solar insolation ranges from 5 to 8 kilowatt hours per square meter per day. In comparison, he said, Germany, the global leader in solar photovoltaic (PV), has only a few locations with a capacity in excess of 3 kilowatt hours per square meter 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.
At the same time, Smith argued that an enabling legislative and regulatory environment is needed to support the pursuit of the “new energy paradigm.” “One, 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,” he said. He added that revisions in the framework should ensure equitable pricing for supply from independent power providers or small, distributed renewable generators of electricity. He said it was 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,” he argued.
Smith also explained that 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,” he further said, adding that it was for this reason that the CDB welcomed the Eastern Caribbean Energy Regulatory Authority initiative and applauded those Eastern Caribbean States that have already committed to it, while looking 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 sub-region, to encourage private investment in the sector, and to make interconnectivity a reality,” he said.
According to Smith, building 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.
He said too that 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 sized-enterprises, he added, 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,” he explained, while pointing out that the growth of industries producing and/or installing solar water heating systems are the most familiar of the new industries that have emerged in the region as a response to high energy prices.
He anticipated 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,” he further said.
CDB focus on renewable energy
Smith also emphasised that the CDB has been intensifying its focus on renewable energy and energy efficiency. He said the flagship programme, the Basic Needs Trust Fund (BNTF), has been a useful mechanism for encouraging the use of renewable energy at the community level and he pointed to successes in Guyana, which is the largest beneficiary.
Smith explained that Guyana’s extensive hinterland, dispersed population, and the resulting challenge of electricity supply, make the country ideal for the continued roll-out of renewable energy solutions.
It is against this background that over the last three years, the BNTF Project in Guyana has been including PV (photo voltaic) components, where relevant, in social infrastructure sub-projects, he said, while noting that PV systems are often the solution of choice in remote areas where diesel is moved by river transport at relatively high cost.
He said that under BNTF 6, ten sub-projects, which included PV systems, have been completed, for a total installed capacity of 7.3 kilowatts and he noted that it is estimated that these 10 sub-projects have changed the lives of nearly 5,000 citizens.
Smith also highlighted Kwatamang Village in the Upper Essequibo, where he said there was no grid-connected electricity supply and a couple of manual hand pumps provided the only access to water for residents.
“With the inclusion of only 700 watts of PV-installed capacity in the sub-project design for the operation of a submersible pump, 408 persons – 220 males and 188 females, comprising 65 youth – are now the proud beneficiaries of regular water supply!” he said, while adding that the CDB is replicating this work in the remaining nine BNTF beneficiary countries, where there have been similar successes.
Smith said in the private sector, the CDB has also been working with micro, small and medium enterprises, mainly in the OECS countries, to improve their efficiency and their competitiveness.
He said too that the Bank has also implemented a US$1.5 million project through the OECS Secretariat to develop energy efficiency and energy awareness strategies and to support legislative reform in the Eastern Caribbean.
Smith also disclosed that the CDB has created a Renewable Energy/Energy Efficiency Unit to, among other things, to prepare a new Energy Sector Policy and Strategy for it; develop new financing instruments; and champion the Bank’s interventions in the area. This Unit, he said, will benefit from specialist expertise provided by the Government of Germany.
Meanwhile, Chairman of the Board of Governors, Finance Minister Dr Ashni Singh stated that regionally there needed to be more cohesion. Singh said that the CDB would need to pay greater attention to private sector financing in the future, which could help to mobilise private capital investment in the region and close the developmental gap.
He said that the inevitable consequence of a separatist approach as opposed to a cohesive single Caribbean approach would be suboptimal productivity and suboptimal competitiveness.
President Donald Ramotar welcomed the Governors.