Jamaica Biofuels Report - Ministry of Energy

support prices when they are too low to amortize investments in production. In that way, thefund would provide a hedge against investors’ risk of fluctuations in world oil prices.A funding mechanism along these lines would not have to be built in Jamaica from scratch. Thecountry already counts on the Development Bank of Jamaica and the Agricultural SupportServices Project, institutions that could play key roles in establishing and administering it.Feedstock and Electricity PricingTwo issues that arose in the formulation of the biofuels policy were pricing arrangements forsugar cane produced by independent farmers and for independent power exported to theelectrical grid by processing installations. Although the feasibility study could estimate thecosts and benefits of biofuel production, such an analysis cannot readily determine how theachievable benefits should be divided among interested parties. For example, the studyestimated that, at least in the case of cogeneration at one Jamaican sugar mill, a price of $0.15per kWh for cogenerated electricity would result in an annual return of approximately 15percent. The study also estimated that the value of electricity to the national grid, expressedas avoided cost, was between $0.20 and $0.25 per kWh. Whether a return of 15% is sufficientto result in equity being invested in a new biofuel cogeneration plant, and how the potentialnet benefit of $0.05 to $0.10 per kWh should be distributed among the investor, the utilityrate payer, and the public service company remains to be determined, presumably throughnegotiations among prospective producers, Jamaica Public Service, and the Office of UtilityRegulation.Similarly, cane prices paid to farmers by sugar mills have been based historically on theproduction of granular sugar and do not reflect any additional benefits associated withbioethanol or energy sales. As the sector become more multi-product oriented, a moresophisticated payment model will be needed to incentivize farmers to provide sugar mills withfeedstock that maximizes overall value. These pricing arrangements will require negotiationbetween the cane growers and the sugar mill estates and possibly others.Finally, the study estimates based on Brazilian experience that biodiesel from plants likecastor, and by extension jatropha, are unlikely to be produced economically without someform of subsidy. Such a subsidy may be justified as a means to slow urban migration or as anoffset against other costs associated with rural poverty. How such a subsidy, if justified, mightoperate, and at what level is another feedstock price-related subject for agreement among thegovernment and other parties involved in any prospective biodiesel industry.An expanded biofuels task force could play a key role in identifying the parties, bringing themtogether, and providing a neutral forum for resolving differences and reaching agreement onhow to distribute the benefits of biofuel ventures. The result would be to enlist thecooperation of all parties, so projects can move forward.110