Alternative Sources of Energy and Effective Implementation Policy

1. Alternative Sources of Energy and Effective Implementation Policy Roland Clarke, Ph. D. Project Manager, CREDP, CARICOM Secretariat, Tel: 592 220 0002 ext. 2631, rclarke@caricom.org Presented to Caribbean Connect – A High Level Symposium on the CRICOM Single Market and Economy, Sherbourne Conference Centre, Barbados 28-30 June 2006

2. Disclaimer All view points expressed herein are those of the author, and not the official view point of the CARICOM Secretariat - Signed Roland R. Clarke

3. Contents Section 1 • Business Environment • Electricity Prices • Government Policy • Hemispheric Environmental Commitments • CREDP Project Pipeline • CREDP National Energy Policy Framework Section 2 • Regional Energy Policy motivated by the CSME (for electric utilities) • Conclusions

4. ABSTRACT This paper examines the Revised Treaty of Chaguaramus, Establishing the Caribbean Community, Including the Single Market and Economy (CSME). The Treaty induces sectoral implications that are peculiar to the electric utilities of Caribbean Community (CARICOM). These issues relate to: establishment or continuation of government monopolies, cross border transactions; competition; regional economic enterprises; environmental sustainability; coordination of industrial policy, harmonized legislation; incentive regulation; and regional trade. Generalised implications that are applicable to a wide cross section of economic sectors are not treated in this paper.

5. 1. Business Environment

6. Changing Electric Utility Business Environment • Privatisation (20 of 33 CARILEC members) • Liberalisation e.g competition in generation • Regional Initiatives - e.g. Task Force on Regional Energy Policy, T&T Energy Plan for CARICOM, PetroCaribe, GeoCaribes • Regulatory Reform - Performance Based Regulation, PBR, rather than Rate of Return Regulation • Caribbean Single Market and Economy, CSME – Reviewed in this paper • National Energy Policy Framework – Proposed by CREDP

7. Utility Organisation – Public versus Private Ownership • Public - Government owned and operated e.g SVG, (and Guyana Power and Light, only because privatisation failed) • Liberalisation - Investor owned - Vertically integrated - Jamaica Public Service Company, Lucelec, Domlec, Barbados Light and Power • Liberalisation - Trinidad and Tobago (Government owns transmission and distribution (T&D)) only. Generation is private, and sold via PPA) • Liberalisation - Belize – T&D owned by Belco, procurement of generation via competitive bedding, bulk power purchased from regional power market (CFE with supplies from Mexico)

8. Regional Initiative – Task Force on Regional Energy Policy • CARICOM Heads established Task Force • Objective – To develop regional energy policy • Includes pricing of petroleum and natural gas, transportation of energy, renewable energy, energy efficiency, environment, all within the context of access to resources under the CSME • Members – Barbados, Grenada, Guyana, Jamaica, Suriname, Trinidad and Tobago, (and the Bahamas are also active)

9. Regional Initiative – T&T Energy Plan for CARICOM • Produce bulk electricity in T&T, and sell to Grenada and SVG • Supply natural gas via a pipeline to Barbados, the Fr. West Indies, with a take-off to Lucelec • Supply compressed natural gas to Barbados in a special tanker, yet to be developed • Supply liquefied natural gas to Jamaica, using existing tankers, at a negotiated contract price • Collective purchasing of crude from Venezuela, for refining at PetroTrin, and product sold at discount

10. Regional Initiatives – CREDP and GeoCaribes • Caribbean Renewable Energy Development Programme, CREDP • Remove the barriers to renewable energy I.e. policy, financing, information, and human capacity • Executed by the CARICOM Secretariat • Investment projects only - Wind, Hydro, Biomass (e.g. Bagasse, Landfills), Solar, and Geothermal • GeoCaribes • Geothermal Early stage resource exploration and policy – Executed by the OAS

11. Regional Initiative -PetroCaribe • A political alliance • Greater involvement of Governments in petroleum product supply chain • Investment capital for infrastructure (e.g. terminals, storage, refinery upgrade) • Payment arrangements only, no discounts • Implications for CARICOM common external tariff (CET), as most products already supplied by T&T to some countries, as well as CSME Treaty procedures

12. 2. Prices

13. Average Electricity Prices 2005 Wind

14. Why are Electric Utility Prices among the highest in the World? • Tiny utilities < 350 MW (except Jamaica and Trinidad and Tobago) – i.e. no economies of scale in operations or regulation • Reliability criteria – i.e the n-2 rule. That is if the largest plan in down on scheduled outage, and the next largest plant trips off in an unscheduled outage, then the remaining plants must be able to carry the full load • This results in significant over capacity • No regional transmission backbone, to mitigate the need for the n-2 rule

15. 3. Government Policies for Renewable Energy

16. Policies

17. Policies

18. Policies

19. Policies

20. Policies

21. Policies

22. 4. Hemispheric Environmental Commitments

23. Policy Goals • LAC commitment at Johannesburg • 10% RE penetration by 2010 • Regional Commitment • CREDP goal – 5% RE in the electric sub-sector by 2015

24. Energy Supply Renewability Index Source: Renewable Energy Sources in Latin America and the Caribbean: Situation and Policy Proposals by UNECLAC, GTZ 19 May 2004. (Caribbean 1 = Barbados, Grenada, Guyana, Jamaica, Suriname, Trinidad and Tobago, Caribbean 2 = Dominican Republic, Haiti and Cuba)

25. 5. CREDP Project Pipeline

26. CREDP Project Pipeline - 2004

28. 6. CREDP National Energy Policy Framework

29. Policy - Vision • I Vision and Strategic Objectives • Use a multi-stakeholder process to develop the vision and strategic objectives for your country’s energy policy • Typically the Vision and Strategic Objectives may look like the following – • Vision • Overall vision for the future (may be politically or philosophically motivated) • e.g. St. Lucia committed at Joberg be the world’s first “Sustainable Energy Island.”

30. Policy - Strategic Objectives (measurable and achievable) • Energy Security • Minimise dependence on imported oil • Diversify energy resources • Ensure supply during disasters • Economic Security • Minimise foreign Exchange requirements • Ensure (choose) least cost option • Develop indigenous resources

31. Policy - Strategic Objectives (cont’d) • Securing Efficiency • Maximise energy conversion efficiency • Maximise end user demand efficiency • Maximise energy conservation • Environmental Protection • Minimise local environmental health impacts • Maximise global environmental benefits

32. Policy - Strategic Objectives (cont’d) • Universal access • Ensure provision of energy to the poor and disadvantaged • Ensure provision of energy to rural communities • Legislative and Regulatory Reform • Deploy incentive based regulation • Facilitate independent power producers, IPP, and processes for power purchase agreements, PPA • Maximise renewable energy • Maximise energy conservation and efficiency

33. 7. Regional Energy Policy motivated by the CSME With View Points by the author

34. CSME definition of Electricity • CARICOM Secretariat defines electricity as a service, rather than a good (for now) • Chapter 3 of the Treaty makes no mention of Electricity. Interpretive creativity recommended • NB: The 2nd section of this paper below highlights particular Treaty Articles, and show their relevance to the electric sector

35. Conclusions • Legislative reform to permit the importation of electricity • Competition in generation, including renewable energy (and energy efficiency) • Interconnection of States should be undertaken • Regulatory coordination introduced

36. Conclusions – Other notions • Coordination of investments through a dedicated regional entity • e.g. CREDP has established the Caribbean Renewable Energy Technical Assistance Facility, CRETAF, to prepare projects for bank financing • e.g. CREDP to develop business plan for the Caribbean Renewable Energy Facility, CREF, an equity and/or debt facility • Proposal – Investments in RE and EE should be consolidated into a new regional institute of CARICOM

38. CSME - CHAPTER 3- Establishment, ServicesCapital, and Movement of Community Nationals- ARTICLE 30 – Scope of Application • 1. Save as otherwise provided in this Article and Article 30, the provisions of this Chapter shall apply to the right of establishment, the right to provideservices and the right to move capital in the Community. • 2. Activities in a Member State involving the exercise of governmental authority shall, in so far as that Member State is concerned, be excluded from the operation of this Chapter.

39. Ch 3 - Article 30 cont’d 3. For the purposes of this Chapter, "activities involving the exercise of governmental authority" means activities conducted neither on a commercial basis nor in competition with one or more economic enterprises, and includes: • (d) other activities conducted by a public entity for the account of or with the guarantee or using financial resources of the government.

40. View point – Is electric sector “excluded” from Chapter 3? • Some electric utilities are owned and operated by government. • Some electric utilities are monopolies, whether “natural monopolies” or otherwise. • It’s debatable whether such utilities are conducted “on a commercial basis.” • For sure a monopoly is not “in competition with one or more economic enterprise”

41. View point – Is electric sector “excluded” from Chapter 3? • National Regulatory processes may be exempt as this involves the “exercise of government authority” • Hence national regulatory authorities in Grenada and SVG, may not have jurisdiction over electricity generated in Trinidad and Tobago • This may imply the need for cross border regulation of electricity

42. Ch 3 - ARTICLE 31Treatment of Monopolies • 1. Member States may determine that the public interest requires the exclusion or restriction of the right of establishment in any industry or in a particular sector of an industry. • 2. Where such a determination has been made: • (a)   if the determination results in the continuation or establishment of a government monopoly, the Member State shall adopt appropriate measures to ensure that the monopoly does not discriminate between nationals of Member States, save as otherwise provided in this Treaty, and is subject to the agreed rules of competition established for Community economic enterprises;

43. Ch 3 - ARTICLE 31Treatment of Monopolies • … and similarly … • (b) … continuation or establishment of a private sector monopoly, the Member State shall … adopt appropriate measures to ensure that national treatment is accorded to nationals of other Member States in terms of participating in its operations

44. View Point • This implies that an existing or continuing government owned electric T&D utility (e.g. T&Tec) may not sell to another member state at prices (i.e. tariffs) that “discriminate between nationals … save as otherwise provided in this Treaty…” • … and is “subject to agreed rules of competition” • However, the Treaty seems to be intended for “non-national” customers located in Trinidad and Tobago, and not cross-border customers in the case of Grenada and SVG

45. Ch 3 - ARTICLE 32 - Prohibition of New Restrictions on the Right of Establishment • 1. Member States shall not introduce in their territories any new restrictions relating to the right of establishment of nationals of other Member States save as otherwise provided in this Treaty. • 3. (1) The right of establishment within the meaning of this Chapter shall include the right to: • (b) create and manage economic enterprises referred to in paragraph 5(b) of this Article.

46. View Point • Does this mean that a new electricity generating company may be established in any member state, by an entity from another member state, to sell power to a neighbouring state, even though the local electric utility has monopoly rights on generation, transmission, (distribution) and sale of electricity within that state? • Would the new generating entity require a license? • It seems that a new regional regulatory framework may be prescribed with motivations by the Revised Treaty

47. Chapter 4 - Article 51 - Objectives of the Community Industrial Policy • 1. The goal of the Community Industrial Policy shall be market-led, internationally competitive and sustainable production of goods and services for the promotion of the Region's economic and social development.

48. View Point • This may imply “market led” production of electricity “services.” • “Market led” may be interpreted to mean “competitive markets.” • Competitive markets should be restricted to generation, and not transmission and distribution. T&D are “natural monopolies.”

49. View Point • Current practice to be encouraged include: • competitive bidding for new generation by independent power producers (IPP’s) eg. Belize; • Out-sourcing eg. Guyana; • Inside-The-Fence generation by customers e.g. Barbados

50. View Point • The use of cheap natural gas from Trinidad and Tobago, as a factor input to the generation of electricity, may lead to “internationally competitive production of goods and services” in the Community. • The use of renewable energy (RE) will lead to the “sustainable” production of electricity. RE is both environmentally and economically sustainable.