Theme: “ Regulation, Convergence and the Competitive Environment ”

1. Organisation of Caribbean Utility Regulators 8th Annual Conference Theme: “Regulation, Convergence and the Competitive Environment” The Electricity Regulator and Greater Use of Renewable Energy Presented by: Sandra Sealy Director of Utility Regulation Fair Trading Commission, Barbados November 03 - 05, 2010

2. Outline • Renewable Energy Rider pilot programme in Barbados- Role of the Commission. • Incorporating Independent Power Producers – Issues to be addressed to open up the market for competition in renewable energy generation.

3. Electricity from Renewable Energy Private Commercial Residents Barbados Light & Power Businesses Independent Power Producers, IPPs

4. Renewable Energy Rider (RER) • BL&P RER Pilot Programme Customers who use photovoltaic or small wind turbines for their own private use receive a credit when they sell their excess energy to the BL&P • Regulatory Consideration • Views of stakeholders • Reasonableness of credit and terms of service to ensure that customers were not being disadvantaged

5. Legislative Framework The Utilities Regulation Act Cap. 282 (URA) gives the Commission the responsibility to: • Establish principles for setting rates; • Set maximum rates; • Protect the interest of consumers by ensuring that service providers supply service that is safe, adequate, efficient and reasonable; and • Ensure that an efficient service provider will be able to finance its functions by earning a reasonable return on capital.

6. Public Consultation • Level of Credit • RER credit - 1.8 times the Fuel Clause Adjustment or 31.5 cents/kWh, whichever is greater. • RER for October = 57.564 cents/kWh (FCA = 31.98 cents/kWh) • Based on the BL&P’s avoided cost of fuel (the cost of the fuel expected to be displaced by a combination of renewable energy sources considering the cost of fuel between 2008 and 2009)

7. Respondent’s View: • the excess power should be purchased by the BL&P at four times the retail price of electricity; • based on avoided generation or energy cost; • compensate for the investment in photovoltaic systems; • different credit dependent on whether a wind or photovoltaic system is used. Commission’s View: • RER credit is not a mechanism for investment compensation;

8. Public Consultation • Size • The maximum size for Domestic Service and General Service customers - 5kW; • The maximum of Secondary Voltage Power or Large Power customers - 50 kW Respondent’s View: • Why restriction on the size of individual systems?

9. Commission’s View: • Impact on operation of BL&P protective devices. • Renewable energy generators may be less predictable • Fluctuations of an intermittent resource such as solar can change the voltage and frequency characteristics of electricity very abruptly • Effect is influenced by the size and number of individual systems • Supported the limitation to facilitate BL&P monitoring and stability of network

10. Public Consultation • Duration • The BL&P proposed three (3) years. Respondent’s View: • The pilot period should be shorter • Programme should start immediately on a permanent basis Commission’s View: • Two-year pilot period

11. CONTRACTS • Renewable Energy Power Purchase Agreement • Renewable Energy Interconnection Agreement • Requirements for Grid Connection Reviewed with respect to: • language - for easier understanding; • certain matters highlighted – Government Electrical Engineering Department and BL&P approval; • inclusion of exit clause; and • dispute resolution provisions.

12. After the Two-Year Pilot Period, What’s Next? The BL&P may submit to the Commission their intention to either: • Continue the programmes under similar terms of the pilot; • Continue under revised terms; or • Discontinue the programme. (The Company does not propose to withdraw the connection but to continue the programme in a requisite form subject to Commission approval)

14. Opening Market to IPPs Two main issues identified by the Commission: • Whether IPPs can set up in Barbados and sell electricity to the BL&P within the present legislative framework; • If not, what legislative regulatory framework would need to be established to allow electricity to be sold to the BL&P by an IPP.

15. Possible Legislative Adjustments • Revision of key provisions of legislation with respect to selling electricity to the national grid • Consideration to the Commission’s regulation of IPPs • Determination of relevant agency to manage IPP licensing • Obligation of reliability of service on the IPPs • Defining the roles of relevant entities – Ministry, FTC

16. IPPs – Promotion Initiatives • Incentives - taxes on conventional energy or subsidies for renewable projects; • Portfolio requirements; and • Feed-in tariffs – purchase the electricity at market cost.

17. Targets • Barbados – 29% by 2030 (proposed) • Jamaica – 20% of total generation capacity by 2030 • Dominica – 30% current renewable capacity • European Council - 20% share of renewable by 2020 How are these targets set? • Environmental • Political • Benchmarking from other jurisdictions • Cost/Benefit analysis related to society, consumers, and producers

18. COSTS Renewable energy production involves two types of costs: • Shallow costs associated only with connecting the generator to the transmission grid; and • Deeper costs associated with the reinforcement and expansion of the grid and associated network upgrade that would be required to be undertaken by the incumbent or transmission /distribution provider.

19. COST RECOVERY Options From the IPPs: • Shallow connection costs to be paid by IPPs • Some network upgrade costs recovered from IPPs • Network Upgrades may initially be paid by IPPs who then subsequently receive refunds through transmission credits from customers

20. COST RECOVERY options From Consumers • All network upgrade costs are spread across all system customers • Costs associated with renewable energy policies are part of customers’ transmission charges – Transmission access charge ( California) , Green Energy Rider (Tampa) • Investment costs in certain projects are recovered based on milestones in advance of the operation of the plant

21. Advanced Recovery of Investment Costs • Is this at variance with rate of return regulation principle of “used and usefulness” where the electricity service provider is only allowed to recover cost for “only plant currently providing or capable of providing utility service to the consuming public”. • This renewable energy surcharge for advanced recovery of cost would be in addition to existing surcharge for fuel (Fuel Clause Adjustment in Barbados)

22. Conclusion Renewable Energy in the Electricity Network Legislative Changes Targets Promotion of IPPs

23. Conclusion In development of RER policy the Regulator has particular interest in: • the Efficiency and Reliability of the national Electricity Network; • the Effects on the customer tariffs; and • the allocation of costs to the IPPs and the incumbent.

24. THANK YOU!