Renewable Energy Sector Development in the Caribbean: Current ...

Renewable Energy Sector Development in the Caribbean: Current Trends and Lessonsfrom HistoryDaniel Kammen 1, 2* and Rebekah Shirley 11 Energy and Resources Group2 Goldman School of Public PolicyUniversity of California, Berkeley USASubmitted November 27, 2011 to Energy PolicyAbstractIsland regions and isolated communities represent an understudied area of not only clean energydevelopment but also of innovation. Caribbean states have for some time shown interest indeveloping a regional sustainable energy policy and in implementing measures which could helpto protect its member states from volatile oil markets while promoting reliance on localresources. Here we examine four case studies of renewable energy advancements being made bypublic utilities companies and independent energy companies in the Caribbean. We attempt tolocate renewable energy advances in a broader historical framework of energy sectordevelopment, indicating a few policy lessons. We find that different degrees of regulatory andlegislative sophistication have evolved in different islands. In order to further advance alternativeenergy technologies islands should have specialized policy focuses, contrasting with currentregional energy policy strategy. We also conduct a cost benefit analysis of these projects whichshows that these early, innovative alternative energy projects show themselves to be profitableand to be significant sources of emissions reduction and job creation. This lends support to thepotential benefits of regional energy policy.Keywords: Renewable Energy Technology, Enabling Policy, SIDS, AOSIS1. INTRODUCTIONIsland regions represent an understudied area of potential energy development. Due to theabsence of local fossil fuel resources, the lack of economies of scale and transportation issues,these regions generally rely on imported petroleum for electricity generation. Petroleum productsare the islands’ main source of energy with 90% of commercial energy supplies being importedinto the region (Loy, 2007). Energy expenditure is such a large part of national budgets that theregion spends over $4B USD a year on oil imports though having a total electricity capacity ofless than 6 GW (OLADE, 2009). Estimated to be growing at 3.7% per year, regional demand forenergy will have doubled by 2028 (Nextant , 2010). As a consequence some islands spend asmuch as half of their export revenues on imported fossil fuels. Retail electricity rates in theCaribbean average 0.35 US$/kWh (CARILEC, 2010), finding themselves amongst the mostexpensive in the world. This economic situation stifles the region’s manufacturing sector and iscompounded by the geographic parameters of smallness and remoteness which often characterizeSmall Island Developing States (SIDS) by limiting local resources and market size (Weisser,2004) (Weisser, 2004b).*Email: kammen@berkeley.edu, Telephone: (510) 642-1640, Fax: (510) 642-1085, Mailing Address: 310 BarrowsHall, University of California, Berkeley, CA 94720, USA

Figure 1 Domestic Retail Electricity Rates in Caribbean Islands (CARILEC, 2010)In response the Caribbean’s power supply sector is currently witnessing important changes in itsenergy regulatory framework. Governments and utility companies are also making firm stridestowards renewable energy deployment – another approach to addressing independence andsecurity. There are a number of energy policy reports such as the CREDP Caribbean EnergyPolicy 2007 (Loy, 2007) and the Organization of American States’ (OAS) Sustainable EnergyPolicy Initiative Report for Latin America and the Caribbean 2007 (CARICOM, 2007) thatregional development agencies have developed to support this end. Nevertheless there are anumber of barriers that hinder the advancement of renewable integration (Mitchell, et al., 2011).In this study we highlight four prominent advancements being made by both public utilitycompanies and independent energy companies in both utility and distribution scale technologywithin the Caribbean. We explore the history of utility ownership and current operations as wellas the history of regulatory bodies and their interactions with utilities to create a picture of trendsin the energy landscape. We learn that there are in fact a number of differences between thestructures and operations of various national power sectors in the region with regard toprivatization, regulatory oversight and government involvement. Sensitivity to these nuances isimportant and may be an important part of regional policy framework creation.2. CASE STUDIESGrenada, Barbados, Jamaica and the Netherland Antilles are the Caribbean islands that havebeen selected for study based on the fact that they represent progressive islands in the regionwith regard to renewable energy developments. These islands define a spectrum of populationsize, industrialization, economic complexity, energy demand, government involvement andutility cooperation (see Table 1).2

GRENADA BARBADOS JAMAICA ARUBA CURACAOArea (km 2 ) 344 430 11,000 180 444Population 110,000 285, 000 2,800,000 103,065 142,180GDPcapitaRegulatoryAgencyUtilityperInstalledCapacity (MW)Peak Demand(MW)AnnualElectricity(GWh)SoldAverage Rate(US$/kWh)OfficialRenewableEnergy Share$5,969 $14,307 $4,390 $23,831 $20,567NoneGrenadaElectric ServicesLtd (GRENLEC)Fair TradingCommissionBarbadosLight and PowerCompany(BL&P)Office of UtilityRegulationJamaica PublicServices Company(JPS Co)NoneW.E.B.N.V.Aruba49 239 820 149 22630 165 600 77 130195 1,068 6,000 782 5300.34 0.29 0.26 0.26 0.35Less than 1% Less than 1%(15% with SolarWater Heating)5% (Hydro 4%,Wind 1%)NoneAqualectra13% (wind) 5% (wind)RPS Goal None 20% by 2020 20% by 2030 None NoneTable 1 Summary Characteristics of the Case Study Islands as of 20102.1. Photovoltaics in GrenadaGrenada Electricity Services Ltd (GRENLEC) has been the sole provider of electricity toGrenada since its establishment in 1960. It was first incorporated as a private liability companysubsidiary to the UK’s Commonwealth Development Corporation (CDC) but its shares werepurchased by the local government in the 1980s. The company was divested in the mid-1990sand is now owned half by WRB Enterprises - a US based utility company - and half by thegovernment of Grenada, the national insurance board, employees, local and regional investors(GRENLEC, 2011). GRENLEC owns and operates one main 39MW diesel engine generatingstation in Grenada with two smaller stations in the sister islands of Carriacou and PetiteMartinique. Together these stations meet a peak daily load of 30MW and produce 195 GWh/yr(GRENLEC, 2009). GRENLEC has a monopoly as the Electricity Supply Ordinance of 1960gave it the sole and exclusive license to generate, transmit, distribute and sell electricity inGrenada for a period of 80 years from incorporation (REEP, 2009).The average domestic electricity rate of $0.34 USD/kWh is one of the highest in the Caribbeanregion (CARILEC, 2010) and is based on an effective 100% diesel fuel mix. Electricity rates inGrenada are comprised of a fixed non-fuel charge and a variable fuel surcharge. The ElectricitySupply Act of 1994 makes provision for an adjustment of the non-fuel charge only when the rateof inflation is over 2% and mandates that GRENLEC use a three month average for computingthe fuel charge. Aside from these simple rate change mechanisms, the other legal basis forGRENLEC adjusting electricity price is to aid recovery after a natural disaster. While these laws3

enefit the customer by guarding against sharp increases in the cost of fuel paid in any givenperiod they also encourage GRENLEC to be concerned about efficiency (GRENLEC, 2008).In 2005, as the cost of electricity soared to an all time high after the devastation of HurricaneIvan, a local Grenadian family founded Grenada Solar Power Ltd (GRENSOL) through privatefinancing. After the early success of three pilot projects, the company succeeded in encouragingGRENLEC to expand its interconnection policy. Since 2007 there has been 1:1 net metering atretail rates for systems less than 10 kW (Hosten, 2009). GRENSOL was also successful insecuring a 5% duty and 5% handling waivers after negotiations with the government to reducethe cost of importing materials (Burkhardt, 2008).GRENSOL systems in fact tend to perform very well given the solar regime in the EasternCaribbean. The total 25 grid tied systems now installed across the island equate over 120 KW(GRENLEC, 2009). This modest market penetration has come despite the struggle for supportthat GRENSOL has faced since the beginning of its operation in Grenada. Not only has therebeen a lack of financial support from the government in the promotion of resource diversity, butthe net metering policy that has been developed by the utility company GRENLEC is limited,capping potential access to larger customers on island. As can be seen from the cost analysisperformed below, technologies such as photovoltaics are not yet cost competitive whencompared to the avoided cost of current electricity production in Grenada. Furthermore therenewed Electricity Supply Act of 1994 extended GRENLEC’s exclusive rights to generate,transmit, distribute and sell electricity the years 2073. There is thus little impetus for GRENLEC,a foreign and privately owned company, to divest sales by introducing third party generators(GRENLEC, 2007).This situation is exacerbated by the fact that there is no overarching body that governsGRENLEC (Weisser, 2004(b)). Only since late 2003 have the Ministry of Agriculture, Land,Forestry, Fisheries, Public Utilities and Energy as well as the Marketing and National ImportingBoard taken official responsibility for the energy sector. This makes Grenada one of the fewcountries in the Eastern Caribbean with a specialized energy desk within the government (Loy &Farrell, 2005). The Government has since approved a National Energy Policy (Government ofGrenada, 2011) and in collaboration with other government ministries and the United Nationsalso published ‘A Road Map on Building A Green Economy for Sustainable Development inCarriacou and Petite Martinique’ in May 2012 (UNDESA, 2012). Since 2009 the Grenadiangovernment along with the other Eastern Caribbean States - Dominica, St. Lucia and St. Vincentand the Grenadines – has been planning a regional regulatory authority that oversees the servicesof energy providers within the sub region. These states, together known as the OECS, aremoving closer to the formulation of a regulatory authority, known as the Eastern CaribbeanEnergy Regulatory Authority, to oversee the services of energy providers within the sub-region.4

2.2. Solar Water Heating in BarbadosThe Barbados Light & Power Company Limited (BL&P) is the sole electricity provider inBarbados. The company started operations in the early 1920’s under complete ownership of aLondon based holding company. In 1955 the company was divested and its shares are nowowned primarily by Barbadian investors. The minority shares are owned by CanadianInternational Power Co. Ltd. The 1907 Electricity Supply Act gives BL&P rights to generate andtransmit electricity. The company is a monopoly given that current legislation does not makeprovision for power generation by Independent Power Producers (IPPs), prohibiting sale orinjection into the grid any such electricity. The Barbados Public Utilities Board was establishedthrough the Public Utilities Act of 1951 to regulate BL&P (Leacock, 1976) but was supersededby the Fair Trading Commission, established in 2001.Barbados’ $0.29 USD/kWh domestic electricity rate is one of the lowest in the Caribbean regionin part due to a more diverse fuel mix (CARILEC, 2010) (see Figure 4). The Government ofBarbados has long been an advocate of developing renewable sources of energy. During the1980’s and early 1990’s, BL&P purchased electricity produced from bagasse during the sugarcrop season by a number of local factories (BL&P, 2011). Since then the government has alsoexperimented with wind turbines and photovoltaics. A potential 10MW landfill gas generationplant and a 10MW wind farm is also being discussed. Yet this historical government interest inrenewables has yielded only 40kW of PV deployment (BL&P, 2011). Far more successful hasbeen the commercial development of the solar water heating industry.Commercial solar water heating finds its origins in the 1970s as a simple local church initiativeto provide vocational training for young men. A demonstration at the official residence of thethen Prime Minister led to government implementation of initial fiscal incentives to promote theuse of solar water heater (SWH) technology (Solar Dynamics, 2010). Through the FiscalIncentives Act of 1974, import tariffs for SWH raw materials had been waived and a 30%consumption tax was placed on electric water heaters (BIDC, 2010). Further, under a 1980Income Tax Amendment, the full cost of SWH purchase and installation up to $BD 3500 wasallowed as a home-owner tax deduction. This tax deduction was reinstated in 1996 following itssuspension during a period of economic recession that extended from the 1980s. The governmentalso actively engaged in purchasing over 1200 units for five different housing developmentprojects since the mid 1970’s further stimulating the industry (Perlack, 2003).As interest in the new technology grew, other competitors quickly joined the market and by thebeginning of the 1980’s SunPower Corporation and AquaSol Components Limited, hadestablished themselves as industry players. By 2003 there were over 35,000 solar water heatersinstalled in Barbados. Of this consumer base, 70% of the systems are in residential homes and30% in commercial properties, predominantly hotels. This represents 30% penetration acrossbuilding properties in Barbados (Perlack, 2003). More recent quotes put the total at 45,0005

installations island-wide (Epp, 2009). Since the late 1990s Solar Dynamics has expanded to ownmanufacturing operations in Saint Lucia, a distribution center in Jamaica and agents in theBahamas, Belize, Dominica, Grenada, Guyana, St. Maarteen, St. Vincent & the Grenadines, St.Kitts & Nevis and the British Virgin Islands (CARICOM Energy Programme, 2010).Government support of the SWH industry is an indication of its interest in local energyresources. Furthermore, unlike most Eastern Caribbean States, the government has a majoritystake in BLP with the National Insurance Board being the largest shareholder. However the 1907Electricity Supply Act and the 1951 Public Utilities Act of 1951 are to date the only major piecesof legislation that govern the power sector, making it difficult for IPPs to potentially marketthemselves to the utility company. The National Energy Policy was published by theGovernment in 2007 and in 2010 the Fair Trading Commission approved a Renewable EnergyRider pilot project which allows eligible customers with renewable power sources to sell excesspower to the grid. The program currently limits size to 5kW for domestic and 50kW for othertariff brackets. All kWh supplied to the grid are credited for 1.8 times the Fuel ClauseAdjustment or 31.5 cents/kWh, whichever is greater (BL&P, 2011).It is difficult to judge the program’s success after only a few months, however it seems that thecapital costs of PV systems and the lack of financing options is a major barrier. Oil priceincreases may make the program more attractive in the near future but to date there has been lessinterest shown than expected. While acknowledging the recent launch of the Renewable EnergyRider pilot project, other initiatives from the Fair Trading Commission will be needed toencourage the utility to explore new generation and markets.2.3. Wind Development in JamaicaThe Jamaica Public Service Company Limited (JPS) is the sole distributor of electricity inJamaica, inheriting an electricity sector that dates back to 1892, when electricity was firstgenerated on the island. Jamaica was one of the first countries in the world to develop electricityinfrastructure. Initially the service was provided through the Jamaica Electric Light Company.Within the coming decades several private electric companies cropped up in different towns andthrough a process of consolidation during the early twentieth century JPS emerged as the parentcompany in 1923. JPS was granted an all-island franchise in 1966, making it the sole publicsupplier of electricity on the island (JPS, 2010).JPS has changed ownership a number of times during its history. Starting as a private companyowned by foreign shareholders, it was acquired by the Government in 1970 but in 2001 majorityshareholder ownership was sold to Mirant Corporation, a US based energy service provider thatstill owns these shares after their changing hands over the years (Ministry of Energy and Mining,2006). JPS is a regulated utility with rates subject to the Office of Utility Regulation (OUR). In6

keeping with the provisions of the license, power generation was liberalized in 2004 and severalindependent power producers now supply electricity to the national grid (JPS, 2010).Jamaica has a peak daily demand of 600 MW. JPS has approximately 820MW total installedgenerating capacity provided through a number of steam and combustion gas turbines plants aswell as eight hydro plants (Ministry of Energy and Mining, 2009). About 25% of this generatingcapacity (197 MW) is supplied by IPPs (JPS, 2010) and JPS no longer has monopoly on bulkelectricity generation. Its exclusive franchise is limited to transmission, distribution and retailsupply. Jamaica has a lower price of electricity compared to other regional economies with$0.26USD/kWh in part due to this diversification. With almost half the generation capacity over30 years old and transmission losses being estimated at 23%, the cost is nevertheless concerningand places a significant pressure on the countries manufacturing industry.The constant need for increased generation capacity has recently prompted the PetroleumCorporation of Jamaica (PCJ) to explore alternative energy solutions for the island. The PCJ wasestablished in 1979 as a statutory corporation in response to the 1973 oil crisis, tasked withnegotiating contracts with international oil suppliers, exploring the potential for oil developmenton island and operating the oil refinery and retailing company. In 1995 the PCJ was mandated todevelop indigenous renewable energy resources in accordance with the Jamaican Energy SectorPolicy drafted that same year. Following rigorous feasibility study the PCJ established a whollyowned subsidiary, Wigton Wind farm Limited (Wigton) incorporated in 2000 (Fisher, 2004)through Dutch subsidy i . Wigton is the first commercial wind farm, and the second project of anysort in the Caribbean, to qualify for carbon credits under the Clean Development Mechanism(CDM, 2006). Electricity purchase agreements allow Wigton to sell electricity to JPS at theavoided cost of fuel - as determined by the OUR - in addition to a 15% premium.Jamaica has thus in a short space of time become one of the fastest growing renewable energyhubs in the region due in large part to the historical structure of the Jamaican Energy Sectorwhere IPPs are able to both generate and sell electricity on the national grid system. The heavilyindustrialized Jamaican economy may have played a role in this development as many industrialplants are able to cost effectively produce their own power under this regime. Also while JPS hasa monopoly on transmission and distribution, it does not actually represent a monopoly ingeneration, acting rather as a single buyer. Given this structure, it was the PCJ and not JPS thatbegan wind resource assessments which led to the development of the continually expandingWigton. The government also approved both a National Energy Policy and a NationalRenewable Energy Policy in late 2009. Furthermore, over the past decades a number of windresource assessments have been conducted across the island and sites in addition to Wigton havebeen identified as having a good resource for power production.7

2.4. Wind Development in the Netherland Antilles2.4.1. CuracaoDespite being sister islands Aruba and Curacao have separate governments and utilitycompanies. Electricity production and desalination on the island of Curacao began in the earlytwentieth century through a single private company. Over subsequent decades similar companiesemerged and eventually all water production, electricity generation, transmission and distributioncompanies were integrated into a single company now known as Aqualectra. Eventually, itsshares were divested, being bought in part by the state. Aqualectra is now jointly owned by thegovernment and the international Marubeni Corporation. Since its establishment however,Aqualectra has not been regulated by the government.Despite a privatized and largely unregulated monopoly within its electricity sector, Curacao wasin fact one of the first islands of the Caribbean region to experiment with the integration ofrenewable energy. During the 1980s Aqualectra conducted wind resource assessments andestablished a 3 MW wind farm in Tera Cora. Based on the wind farm’s initial production successanother 9 MW wind farm was commissioned in Playa Kanoa in 2000. This wind farm wasinitially developed by a Dutch Company but rights to its ownership have recently been bought byrenewable energy development company NuCapital. Government support for the Aqualectra andnow NuCapital projects has come in the form of rights to land for development and waivers onimport taxes for all materials imported from Europe for the construction of these wind farms.There is no official energy policy in Curacao but a policy is currently being developed throughthe Ministry of Economics and the Environment.2.4.2. ArubaCommercial electricity production in Aruba began in the 1920s with a small company whosegenerating capacity was expropriated by the government to be handed over to the Dutch ownedcorporation OGEM. Later known as N.V. Elmar, this corporation had sole control over thegeneration and distribution of electricity on island. Years later the government bought a dieselpower station with three times N.V. Elmar’s operating capacity through which the governmentestablished the state owned Water and Power Company (WEB N.V.) (N.V. Elmar, 2004).The government then established a new agreement with N.V. Elmar, unbundling electricityoperations such that N.V. Elmar would be responsible for distribution, transmission andmaintenance while WEB N.V. would be the sole generator. The OGEM consortium eventuallydissolved due to financial difficulty and since the 1990s N.V. Elmar has been a stable companywhose shares are owned by Utilities Aruba N.V., a government owned holding company. Bothgeneration and transmission capacity is thus now under state ownership.8

Wind energy took longer to develop in Aruba than in Curacao, with the first wind farm on Arubabeginning production in late 2010. The push for this project came not from the utility but fromindependent project developers. Overtime the utility was persuaded to enter into a PPAagreement and provide grid access to the project with NuCapital again being the projectdeveloper. Given the consistent trade winds received by this part of the island the 30MW windfarm has one of the highest capacity factors in the world (NuCapital, 2012). NuCapital iscurrently expanding the project through another 30MW installation.Curacao has had a utilities history with relatively little government involvement, outside of thepurchasing of shares in an established company, while in Aruba the government has been moreforceful in designating authority over assets and functions. Interestingly however, neither ofthese local governments has taken to regulation and today there is no legislation overseeing theoperation of these utility companies. Rather, rate setting formulas from the 1980s are used toensure the economic protection of the customer base (N.V. Elmar, 2004). Neither the localgovernment of Curacao nor Aruba has begun drafting an Energy Policy. Rather the predominantimpetus behind wind farm projects thus far has been private project developers.This all creates a context with no incentive to standardize the bidding and PPA process or tostandardize grid access and integration procedures. An impartial policy or regulatory body wouldhelp create a more enabling environment. Nevertheless the government of Aruba recentlyannounced a partnership with the Carbon War Room to transition the island to 100% renewableenergy. The partnership is in early stages but could hold much promise for government supportof wind development in the Netherland Antilles (Carbon War Room , 2012).3. COST BENEFIT ANALYSIS3.1 Direct Costs and BenefitsIn this section we explore the costs and benefits related to the renewable energy technologiesintroduced into the Caribbean context, as described in the previous section. To compare thevarious investments we calculate the Levelized Cost of Electricity (LCOE) for each technologyalong with emissions reduction and green job estimates. We also calculate estimates of wholesalegeneration costs and report on current utility rates ii (see Tables 2, 3 and 4). We find renewabletechnologies to be cost effective in the Caribbean showing the potential for development, giventhe current expensive and fuel oil biased fuel mixes of the islands (see Figure 2).9

Figure 2 Generation CapacityRenewable Energy Technology CostsGeneration RatesCountryTechnologyInstallationCost($/W)O&MCost($/KW/yr)LCOE@ r =7%($/kWh)Cost ofFuel($/kWh)AvoidedCost ofElectricity($/kWh)FuelSurcharge($/kWh)DomesticRetailRate($/kWh)NetMeteringPayment($/kWh)IPPContractRate($/kWh)Jamaica Wind 2.50 210 0.078 0.219 0.225 0.233 0.265 0.225 0.101Aruba Wind 2.40 36 0.013 0.329 0.336 0.160 0.260 0.092Curacao Wind 2.40 53 0.028 0.352 0.358 0.211 0.355 0.092Grenada Photovoltaics 6.17 0.010 0.283 0.146 0.154 0.213 0.341 0.341Barbados SWH 0.051 0.228 0.235 0.227 0.294 0.227Table 2 LCOE of Renewable Energy Technologies Compared to other Electricity Cost Estimates (US Dollars)The LCOE of wind generation in Jamaica is based on data provided by Wigton Wind farms oninvestment and operations costs iii . The LCOE of $0.078/kWh is lower than the domestic and netbilling rates in Jamaica (even at higher discount rates, according to sensitivity analysis) . Aclearer picture comes from comparison to avoided costs of current electricity generation iv . TheLong Run Incremental Cost is currently $0.10 USD/kWh and is used as the base for contractingguaranteed capacity. Where capacity cannot be guaranteed, pricing is based on the short termavoided cost which is the cost of fuel to the system, which varies from month to month. This rateis roughly $0.088 USD/kWh. Wigton Wind Farm for instance receives a 15% premium over thisavoided cost, at $0.10 USD/kWh.10

The LCOE of wind energy in Jamaica is lower than each of these different estimates of cost andis well within the range of costs experienced in other wind developments across the world (Cory& Schwabe, 2009) (Bolinger, 2010). However when compared to countries such as Germany,Switzerland and Australia where purchase agreements allow for the sale of wind power aboveeven $ 0.20 USD/KWh (Myers, 2008), Wigton’s selling price translates into a very low rate ofreturn and may be partially responsible for the dearth of international investor interest thatWigton has been able to attract, hence still being wholly owned by the PCJ.High capacity factors and subsidies allow both the LCOE of wind energy in Aruba and Curacaoto be less than $0.03/kWh v . This is lower than the avoided cost of electricity and the IPP ‘take orpay’ contract price allowing NuCapital to make a significant return on investment. This rate maybe an underestimate given future OM cost increases, as suggested by the difference in OM costsbetween the older wind farms in Curacao and the new wind farm in Aruba. NeverthelessAntillean wind developers are able to provide a significant amount of electricity production atlow cost, attracting investment to the resource.The LCOE for GRENSOL solar systems is lower than the domestic rates charged and netmetering rates offered in Grenada. vi However to provide profit for system owners, the cost ofphotovoltaics is still much higher than the fuel and short run avoided cost of current electricityproduction. Again, this may be in part due to the shipping costs that are incurred from importingsmall orders for panels. According to sensitivity analysis, the LCOE of photovoltaics with aninstall cost reduced to $3.00 USD/W installed would much better align with the avoided costestimates, showing the potential for commercial markets (see Figure 3).For SWH we derive a Levelized Cost of Electricity Displacement vii of $0.05 USD/kWh and findthat payback on SWHs can be 2 years. The cost effective nature of SWH with or withoutsubsidies is clear when compared to the avoided costs of electricity in Barbados, and even whencompared to the $0.088 USD/kWh non-firm capacity energy rates offered in Jamaica. Thishighlights the potential benefits that could come to the Barbados government or utility fromhelping families and businesses to finance the upfront payment for such systems, a currentbarrier given that electric water heaters are less than half the price of SWHs.3.2 Indirect Costs and BenefitsHere we estimate the indirect benefits that renewables have had on job and carbon emissionsabatement. Data for job estimates came directly from the number of people employed by thesecompanies in different stages of the operation process and reflect only direct jobs created, notindirect or induced jobs. Tables 3 and 4 below show that the wind energy project in Jamaica isable to provide 0.17 person-years/GWh providing roughly 20 full time jobs per year and it alsocontributes 120,000 tonnes of CO 2 savings during the same period.11

Figure 3 Sensitivity of PV LCOE to Installation CostCountryTechnologyProjectSize (MW)AnnualGeneration(GWh/yr)Current GenerationCO2 Intensity (kgCO2/kWh)Total AnnualCO2 Savings('000 MT/yr)Jamaica Wind 38.70 115 0.944 120N. Antilles Wind 39.00 132 0.944 125Grenada Photovoltaics 0.12 0.237 0.66 0.16Barbados SWH 185.5 1.106 200Table 3 Green House Gas Emissions SavingsEnergyTechnologyWindWindProjectWigton WindFarmNu Capital,CuracaoSource of NumbersProject sizeEquipmentLifetime (years)Employment ComponentsCIM(jobs/MWinstalled)O&M(jobs/MWactual)CapFactor20.7 MW 25 3.88 0.59 0.3412MW 25 1.50 1.43 0.35Wind NuCapital, Aruba 30MW 25 1.50 0.85 0.47AVG(personyears/GWh)Solar PV Grensol Ltd 65KW 25 0.00 30.77 0.22 16.190.17SWHSolar DynamicsLtd140,000 MWhsaved20 0.59 0.22 0.31Table 4 Estimates of Direct Employment BenefitsThe spread of photovoltaics in Grenada has lead to 16.19 person-years/GWh (although this islikely to decrease in the near future as the number of installations increases) and a total annualsavings of 160 tonnes CO 2 . Most impressive are the indirect impacts of energy efficiencytechnology in Barbados where the high penetration of SWH has led to a savings of 185GWh/year and a total savings of 200,000 tonnes CO 2 /year. Wigton is the first Caribbeanrenewable energy project to capitalize on these impacts through registering with the CDM butthere is clearly potential for other technologies to pursue a similar route.12

As can be seen from these case studies there are a number of successful wind, solar and solarthermal projects that have been deployed in the region within recent times. There are othernotable wind projects that have been developed in islands such as Guadeloupe. Photovoltaicshave been introduced in St. Lucia and St. Vincent. Geothermal energy is also proving successfulin Dominica, St. Lucia and Guadeloupe as a base load substitute for fossil fuels.4. DISCUSSION AND CASE STUDY HIGHLIGHTS4.1. Lessons from Island Case StudiesIn this analysis we have explored the history of energy policy and the cost effective nature ofrenewable energy technology in the Caribbean (see Table 10). We did not perform acomprehensive survey of all islands where renewable energy has been deployed but insteadprovide a sense of the variation that exists. Even though such a small region, there are significantdifferences among islands in the scale of industry, the type of utility ownership, the level ofregulation and legislation as well as the degree of government involvement in the sector. Each ofthese issues presents a separate set of considerations that should be addressed in creating anenabling environment for renewables. Different levels of power sector development might makecentralized policy planning difficult otherwise. History has shown that socio-technical transitionstake time and involve systemic changes. Because infrastructure favours the currently dominantfuels, renewable energy deployment will be most effective in a more flexible environment. Anenabling environment for renewable energy involves policy that addresses a number of domainswith different configurations of interaction depending on country context (Mitchell, et al., 2011).In the case of Grenada we observe that GRENLEC is a predominantly foreign owned andprivatized company. WRB enterprises, owns majority shares in a number of other US andCaribbean utility companies (bNET, 2004). This historical lack of experience with renewabletechnologies couples with GRENLEC’s sole supplier status an absence of utility regulation. Thisenvironment constrains the introduction of new technologies and the potential growth of newindustry. Moves to create a regional regulatory authority are promising.In Barbados we note the number of experiments with renewable energy that the state controlledutility has made thus far. While few of these projects have come to fruition in a major way, thetendency highlights utility, and by extension, government interest in energy security and powersector functionality. However this intention is not supported by significant legislative andcomprehensive policy backing. This may be part of the reason that, aside from Solar WaterHeating technology, it has actually been difficult to integrate other technologies into the market.It would seem that while the necessary components are present, there needs to be a morestructured plan in the near and long term future and greater consistency in the delivering ofincentives such as the tax credit. Strides are indeed being made, but a more concrete structureand outlined plan of action and implementation would ensure that the more useful avenues forenergy mix expansion are explored.13

MonopolyUtilityUtilityOwnershipUtilityExclusiveRightsRegulatoryAgencyEnergyLegislationGovernmentEnergy PolicyGRENADA BARBADOS JAMAICA ARUBA CURACAOGrenada ElectricServices Ltd(GRENLEC)50% foreign, 25%state, 25% localinvestorGeneration,Transmission,DistributionNone1994 ElectricitySupply ActNoneBarbados Light andPower Company(BL&P)37% foreign, 23% state,35% local investorGeneration,Transmission,DistributionFair TradingCommission1907 Electricity SupplyAct1951 Public UtilitiesAct1974 Fiscal IncentivesAct2007 Barbados NationalEnergy PolicyJamaica PublicServices Company(JPS Co)80% foreign, 20%stateTransmission,DistributionOffice of UtilityRegulation1958 ElectricityDevelopment Act1995 Office ofUtilities RegulationAct2001 All IslandElectricity License2009 JamaicaNational EnergyPolicyW.E.B.ARUBA N.V.100% stateholdingcompanyGenerationRPS Goal None 20% by 2020 20% by 2030 None NoneNet MeteringPolicyFinancialIncentivesRE PilotProjects to Datemax 10kW, retail rate,cap 1% installedcapacity5% Duty Concessionfor PV (since 2005)Small Scale Solarmax 50kW, fueladjustment ratecap 1600 kWConsumption Tax onEWH (1974),Inc Tax Deduction forSWH (1980)Bagasse, WTF, Wind,Small Scale Solar,SWH, LFGmax 100 kW, avoidedcostcap 3% installedcapacityNoneNoneNoneNoneAqualectra25% foreign, 75%stateGeneration,Transmission,DistributionNoneNoneNoneNoneNone None NoneBagasse, Hydro,WindTable 5 Summary of Energy Sector PolicyLarge ScaleWindLarge Scale WindIn Jamaica we find a similar governmental support of new technologies through PCJ and theWigton windfarm. However securing continued and expanded investment for similar projects isproving difficult. Thus while government interest in indigenous resources is expanding, it isimportant for the government to continue to seek expressions of interest from local and foreigninvestors (Loy & Manilo, Renewable Energy Potential in Jamaica, 2005). To lower the thresholdfor investment financial incentive or security must be availed. This can be achieved through anumber of avenues such as developing standardized protocol for contractual arrangements,timelines and rates with JPSCo, working with financial institutions.In order to create an enabling environment for investment in utility scale to commercial andresidential projects, there should be greater access to transmission and distribution grid throughinterconnection standards. This effort has already begun through the pilot net billing programinitiated this year and more efforts such as this need to be developed in order to providesufficient support for the industry. In order to take advantage of the power sector structure andto attend to the ambitions of the National Energy Policy, there needs to be initiatives to attract14

interest and to market the Jamaican energy space as an attractive investment landscape whetherfor local or foreign investors.In addition to the efforts being made by the islands studied, other islands are experimenting withinvestment incentives as well. The British Overseas Territory of the Cayman Islands hasapproved a limited pilot program consisting for a gross-feed-in tariff (FIT) for utility-customersited renewable generation of less than 50kW. The one-year pilot program pays $0.37 KYD/kWh($0.45 USD/kWh) and is capped at one (1) MW (Alliance for Renewable Energy, 2011). A FITis simple, transparent and generally provides sufficient revenues to cover power generation costsinclusive of return expectations. A FIT is considered more effective than other price driven directincentives because of the long term investment security that it provides. This is an example ofthe type of policy that could stimulate investment in renewable energy resources.Finally an analysis of Aruba and Curacao shows that a successful wind energy industry hasdeveloped in the Netherland Antilles in a largely organic way. In this case, because of the powerof the wind regime in these islands, there has been a significant amount of investor interest. Thishas meant that the utility company itself has been able to benefit but energy policy or aframework would be helpful to harness, direct and stream line the interactions between state,utility and project developers, conserving on time and energy.4.2. Considerations for Regional Energy PolicyThese nuances among island needs and contexts may be part of the reason that inter-island policyis so difficult to develop. They should be well understood for a regional direction andimplementation mechanisms to emerge. There are already institutions that are concerned withregional energy policy. For instance the Caribbean Community (CARICOM) has formedassistance programs that support the Caribbean energy sector through collaboration withinternational agencies such as the Organization of American States (OAS), the Alliance of SmallIsland Developing States (AOSIS) and the Inter-American Development Bank (IDB). TheCaribbean Renewable Energy Development Program (CREDP), for instance prepared the draft2007 CARICOM Energy Policy Paper. These many agencies have been successful thus far inthat they have created a forum for discussion on new regional energy issues amongst the region’spolitical leaders and utility providers. However there has been little implementation of long termpolicy or incentive through such regional planners.Our study highlights that in order for these regional policy agencies to be effective, enablingpolicy that acknowledges and addresses the varying needs of different islands will be necessary.In general, enabling policy will involve non-governmental stakeholders in formulation andimplementation, will support the burden of financial and investment risk, will place focus oninfrastructure and network development, will encourage technology transfer and will be designedto be complementary to other non-energy related policy (transportation, agriculture, water15

management). We have shown here how focus on different policy domains in various islandtypes might lead to the design of such an enabling policy environment.Furthermore arguments are often put forward for liberalization and free competition on the basisthat state owned enterprises are intrinsically inefficient and mismanaged. However practiceshows that ownership regime is far less important than the context within which the enterpriseoperates. Competition in energy markets, signals to management and incentives, opportunitiesfrom capital markets can all improve utility behaviour (Gabriele, 2004). While the economics ofrenewables drive investment, the dynamic of contract negotiations in the face of uncertainty isalso a primary driving force (Barradale, 2010) (Wolf Heinrich Reuter, 2012). For this reason wehighlight that policy security should be explicitly considered when designing incentives topromote renewables in the Caribbean.There are a few island regions where energy policy has helped to promote the growth of arenewable energy industry, such as Cape Verde, Crete and the Hawaii Islands (Weisser &Garcia, 2005). In 2011 renewables supplied 24.5% of retail electricity in Hawaii (HawaiiElectricity Company , 2011). This penetration has been supported by a number of initiativesimplemented by the major utility holding company and the public utility commission. Since the1990s Hawaii has seen the introduction of a Renewable Portfolio Standard, net meteringprograms, a feed-in tariff, a competitive generation bidding process, grid interconnectionstandards and state and federal rebate schemes all tailored to each island (DSIRE, 2010). Thesecases highlight the potential success that can come from a complementary policy portfolio.In our discussion it is important to note that all of the Caribbean islands studied are in the veryearly stages of power sector reform and renewable energy integration, so it is difficult to judgethe successes of the renewable energy industry. As our cost analysis has shown, there are manyscenarios in which certain renewable energy technologies already provide significant socialbenefit and are cost competitive with short run avoided costs. This would indicate the potentialfor small scale resource development and profitability that can be precipitated by localinnovation, local investment and local market interest, all of which can be encouraged throughmore directed and enabling policy. These considerations warrant more thorough analysis thanpresented herein. We are currently developing an optimization model to explore the impacts ofpolicy portfolios on island grid systems but hopefully have provided useful insight to this point.5. CONCLUSIONCARICOM, CARILEC, international investors and local regulatory agencies will be key playersin the development of future Caribbean energy policy. A sensitization to the differences in powersector dynamics outlined herein and a working knowledge of the success that can come fromsmall scale energy technologies will support these groups. From our analysis, Grenada needsfocus to be placed on a greater degree of government involvement in power sector regulation.16

Barbados, with a regulatory structure in place, needs to harness that capacity to create morebinding policies that take advantage of local market potential. Utilities often need to be providedwith the security of government support to explore the riskier realm of renewables and creating asupportive legislative and policy backbone is a crucial step for energizing the local market.Jamaica has developed more sophisticated legislation and needs focus on creating an enablingmarket environment and putting incentives in place to attract investment beyond state financing.It would thus seem most useful to explore a number of different regional physical andinstitutional regimes through feasibility, cost benefit and barrier assessments to determine whatbest serve as potential solutions for the Caribbean. In this way enabling regional policymechanisms can be guided by national energy plans allowing the islands to pursue theirindividual and collective energy security and sustainability goals within their collective context.ACKNOWLEGEMENTSWe thank the University of California, Berkeley for funding this research. We thank the manyindustry personnel that provided us with data. We also thank our reviewers for insightful andconstructive feedback.REFERENCESAlliance for Renewable Energy. (2011, March 25). Cayman Islands Approve Gros Feed-in Tariff. Retrieved August15, 2012, from Alliance for Renewable Energy : http://www.allianceforrenewableenergy.org/2011/03/caymanislands-approves-gross-feed-in-tariff.htmlBarbose, G., Darghouth, N., & Wiser, R. (2010). Tracking the Sun III: The Installed Cost of Photovoltaics in theU.S. from 1998 - 2009. Berkeley, CA: Lawrence Berkeley National Laboratory.Barradale, M. J. (2010). Impact of Public Policy Uncertainty on Renewable Energy Investment: Wind Power and theProduction Tax Credit. Energy Policy, Volume 38, Issue 12, Pages 7698-7709.BL&P. (2011). Barbados Light and Power Company History. Retrieved 2010, from Barbados Light and Power:http://www.blpc.com.bb/co_his.cfmCarbon War Room . (2012, June 20). News Bulletin: Government of Aruba and Carbon War Room bid to FlipCaribbean Island Off Fossil Fuels. Retrieved August 2, 2012, from Carbon War Room:http://www.carbonwarroom.com/news/2012/06/20/news-bulletin-government-aruba-carbon-war-room-bid-flipcaribbean-island-fossilCARICOM. (2007). Draft Caribbean Energy Policy. CARICOM.CARILEC. (2010). Tariff Survey Among Member Electric Utilities (Mid Year, June 2010). Castries, St. Lucia:CARILEC.DSIRE. (2010). Hawaii. Retrieved 2010, from Database of State Incentives for Renewables and Efficiency:http://www.dsireusa.org/incentives/incentive.cfm?Incentive_Code=HI06R&re=1&ee=1EIA. (2003). Caribbean Fact Sheet . Retrieved from EIA Country Analysis Briefs:http://www.geni.org/globalenergy/library/national_energy_grid/cuba/carib.shtmlFisher. (2004). The National Capacity Self Assessment Report: Jamaica Stock Taking Report. Kingston: NationalEnvironment and Planning Agency.Gabriele, A. ( 2004). Policy alternatives in reforming energy utilities in developing countries. Energy Policy ,Volume 32, Issue 11, Pages 1319-1337.17

Government of Grenada. (2011). National Energy Policy of Grenada: A Low Carbon Development Strategy forGrenada, Carriacou and Petite Martinique. Ministry of Finance, Planning, Economy, Energy and Cooperatives.Hawaii Electricity Company . (2011). 2011 Renewable Portfolio Standard Report . Honolulu: Hawaii ElectricityCompany (HECO).Hosten, C. (2009). GRENLEC Perspectives on Renewable Energy Opportunities in Grenada. Grenada ElectricityServices Limited.JPS. (2010). History. Retrieved 2010, from Jamaica Public Service Company:http://www.myjpsco.com/about_us/our_history.phpLeacock, S. (1976). Public Utility Regulation in a Developing Country. Lawyer of the Americas, 338 - 370.Loy, D. (2007). Energy-Policy Framework Conditions for Electricity Markets and Renewable Energies (CaribbeanChapters). Eschborn, Germany: Division Environment and Infrastructure, TERNA Wind Energy Programme.Ministry of Energy and Mining. (2006). Green Paper: The Jamaica Energy Policy (2006 - 2020). Kingston,Jamaica: Ministry of Energy and Mining.Ministry of Energy and Mining. (2009). Jamaica's National Energy Policy 2009 - 2030: Securing Jamaica's EnergyFuture. Kingston, Jamaica: Ministry of Energy and Mining.Mitchell, C., Sawin, J., Pokharel, G., Kammen, D., Wang, Z., Fifita, S., et al. (2011). Policy, Financing andImplementation, In IPCC Special Report on Renewable Energy Sources and Climate Change Mitigation.Cambridge, United Kingdom and New York, USA: Cambridge University Press.N.V. Elmar. (2004). About Us. Retrieved 2011, from N.V. Elmar: http://www.elmar.aw/info/content/wp_aboutus.jspNextant . (2010). Caribbean Regional Electricity, Generation, Interconnection and Fuel Supply Strategy .NuCapital. (2012). NuVader Piet Beheer NV (Aruba). Retrieved February 2, 2011, from NuCapital:http://www.nucapitalsvcs.com/index.php/vader-piet-arubaOLADE. (2009). Energy Statistics Report. OLADE.UNDESA. (2012). Road Map on Building a Green Economy for Sustainable Development in Carriacou and PetiteMartinique. United Nations Department of Economic and Social Affairs.Weisser, D. (2004). Power sector reform in small island developing: what role for Renewable Energy Technologies?Renewable and Sustainable Energy Reviews, 101 - 127 .Weisser, D. (2004b). On the economics of electricity consumption in small island developing states: a role forrenewable energy technologies? Energy Policy, 127 - 140.Weisser, D., & Garcia, R. (2005). Instantaneous wind energy penetration in isolated electricity grids: concepts andreview. Renewable Energy, 30(8, Pages 1299-1308).Wolf Heinrich Reuter, J. S. (2012). Renewable Energy Investment: Policy and Market Impacts. Applied Energy ,Volume 97, Pages 249 - 254.i The Dutch Development and Environment Related Export Transactions Program (ORET/MILIEV) awarded a subsidy to the Wigton Wind Farmproject at a rate of 35% of the value of the supply of wind turbines and ancillaries from Holland (Fisher, 2004).ii The utility domestic rates are taken from CARILEC Technical Reports (CARILEC, 2010).iiiThe current wind farm was built at an average capital cost of $2-3 million USD/MW installed and the 18MW project, which was recentlycommissioned in March 2011, cost US$49 million. Wigton operation costs include financing and sales, labour, electricity, repair and maintenanceoperations and depreciation and insurance expenses. These operating costs were estimated at US$4.258 million for 2008 (E. Barrett - GeneralManager, Wigton, 2010).iv According to the OUR in Jamaica the Long Run Incremental Cost (LRIC) of generation represents the incremental cost of provided electricalpower over a 20 year period discounted to present value by the opportunity cost of capital (12%) attributable to new plants to be added over theplanning horizon divided by the expected capacity to be supplied by these plants.v Based on installation costs of $2.4million USD/MW for both Vader Piet and Playa Canoa. Annual production output and associated OM costsfor both projects were provided by NuCapital. Fuel costs based on Curoil (local gas and oil distribution company) diesel prices for both Arubaand Curacao and assuming a Heavy Fuel Oil engine heat rate of 13.6E3 kJ/kWh.vi The cost of a system includes a lifetime guarantee, including maintenance and inverter replacement costs. There are thus very few additionalcosts that an owner would have to pay for the system. We assume a marginal degradation rate of 0.005%. The LCOE of photovoltaics isestimated at roughly $0.28 USD/kWh (Barbose, Darghouth, & Wiser, 2010). This is much higher than the average US LCOE of around $0.16USD/kWh, however there are a few things to note. Firstly, according to GRENSOL the installation price decreases the larger the system18

purchased so that $6.17/W installed is a conservative estimate of the installation costs for their systems. Furthermore, the US LCOE includes anInvestment Tax Credit (ITC) of 30%. Without this tax credit, the cost of PV would be much higher in the states.vii Approximately 0.11kWh are needed to heat a gallon of water given the ambient temperature in the tropics and the theoretical heat capacity ofwater. Assuming electric water heaters are about 90% efficient, assuming that an average household uses approximately 10,000 gallons of hotwater a year and given that the electrical fuel efficiency of the BL&P Co. generator fleet is roughly 30%, the amount of electricity that a standard65gallon SWH can displace per year is 3700 kWh.19