The transformation of the energy sector in Caribbean countries is the key to improving the economies of all of them. Sustainably cheaper energy supplies for tourism, manufacturing, transportation and agriculture would contribute significantly to reduced costs in each of these sectors, boosting their production and making them more competitive internationally.
On the flip side of this argument, unless Caribbean countries do transform their energy sectors, their costs of production will continue to rise and they will become increasingly uncompetitive. In turn, this will reduce employment, expand poverty, shrink the amount of revenues available to governments for spending on health, education and infrastructure.
Apart from Trinidad and Tobago, which is an oil and gas producer, the cost of electricity per kilowatt hour is as high as 45 US cents in the region; in the United States it is 5 US cents. The comparison speaks for itself. Doing any kind of business in the Caribbean, when compared with the US, is extremely high. And, the comparison is not true only in relation to the US; a similar contrast exists with costs in European Union countries and many states in Latin America.
The energy sector, therefore, presents a great opportunity for every Caribbean country if advantage is taken of it. Doing so, however, is by no means easy. The Caribbean Community (CARICOM) Secretariat estimates that US$20 billion in investments will be required if countries are collectively to fulfill by 2027 the roadmap and strategies that they have set themselves.
One thing is for sure, cash-strapped and highly indebted as many Caribbean governments are, the required investment can’t come from public finance resources alone; much of the capital outlay will have to come from the private sector, particularly foreign companies with an established track record in renewable energy sources rather than oil.
That proposition raises a number of issues, not least among them resistance from local companies with a vested interest in maintaining the present energy system. In some Caribbean countries, companies responsible for delivering electricity or selling it to the national grid, currently earn huge profits from their operations, particularly as they are either poorly regulated or not regulated at all. Hence, they set rates without any independent calculation or verification of their costs; they simply negotiate rates with governments, many of whom have little room for hard bargaining.
The establishment of strong, effective and well-qualified regulatory agencies in many parts of the Caribbean is, therefore, an important first step in energy transformation. Rates have to be set on justifiable and transparent grounds with a reasonable level of profitability for dividends to shareholders and re-investment for expansion and upgrading of plant and equipment.
Another key area is creating conditions for investment. Such conditions should not involve giving away taxes and duties. Investment in the energy sector ought to be focused on renewable energy sources, such as thermal, solar and wind so that they can be added to the energy mix, resulting in lower costs to consumers. And, such investment should allow reasonable rates of return on investment without governments giving away tax revenues.
Attracting such investment will require legislation for fair regulation, rights to repatriate dividends from profits, and provisions against nationalisation without compensation at market prices.
The task, while hard, is not impossible. Studies show that the US Virgin Islands, in 2015, had reduced dependency on fossil fuel by approximately 20% from 7 years ago. And, Costa Rica produced 99% of its electricity from renewable sources in 2015 and is still developing new geothermal and wind resources that will generate more energy in the future.
These are only two examples of many others, but both these countries are competitors of the 14 CARICOM nations. The comparison underlines the point that, without energy transformation, CARICOM countries will become uncompetitive in almost every sector and their economies will decline.
Addressing energy transformation assumes a greater urgency because many of the existing power plants are old and inefficient. The cost of replacing them and their distribution systems, which must be undertaken as much for the social needs of the local population as for the imperatives of economic growth and development, would be considerably cheaper and sustainable in the medium and long term if sustainable energy sources are employed.
A few Caribbean countries have started down the road of developing renewable sources of energy. For instance, the possibilities of geothermal energy are being explored in Dominica, St Lucia, St Vincent and the Grenadines and St Kitts-Nevis. In Antigua and Barbuda, a 3 megawatt solar plant has been installed and is operating. Jamaica is now way ahead of the pack with huge private sector investments in wind and solar energy, contributing to an average price of electricity of US 24 cents per kilowatt hour, down from US 40 cents in 2011.
In Washington DC on May 4, a US-Caribbean meeting was held, under the Chairmanship of US Vice President Joe Biden. The meeting was beneficial because it exposed Caribbean countries to US companies with which they might partner in transitioning the energy sector from total reliance on fossil fuels to a mix with renewable energy sources.
The most significant event was the signing of a Memorandum of Understanding between the Inter-American Development Bank, the Caribbean Development Bank, the United States Department of Energy, and the CARICOM Secretariat. Importantly, one of the goals of the MOU is to establish an “Energy co-financing Facility for Caribbean Sustainability”, particularly focused on efforts to attract international investors.
It is on access to funding that greater emphasis and effort have to be devoted to attract investment on terms that benefit both the investor and the countries in which they invest, and to give the Caribbean region the energy it needs.
(Ronald Sanders is Antigua and Barbuda’s Ambassador to the US and the OAS. He is also Senior Fellow at the Institute of Commonwealth Studies, London University and Massey College, Toronto University. The views expressed are his own)