High Energy costs stifling Caribbean competitiveness

May 29, 2014 News

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 “We are very good at analysis; but we need to become excellent at practice. We know what needs to be done; and we just need to do it,”- CDB President Dr. William Warren Smith

By Kiana Wilburg
Unlocking opportunities for competitiveness and growth and examining the role energy plays in this critical mix, was the focus of the presentation made by  President of the Caribbean Development Bank (CDB), Dr. William Warren Smith at the opening of the 44th Annual Meeting of the Board of Governors which was held at the Guyana International Conference Centre (GICC) yesterday.
Dr. Smith candidly expressed to special invitees and the Board of Governors, that the Caribbean has a competitiveness problem, which is responsible for its relatively low rates of economic growth. He said that the high price of electricity and a heavy reliance on imported fuels make the Caribbean region vulnerable and as such, are the primary reasons for the region’s uncompetitiveness.

However, he explained that member states can increase energy independence substantially by reducing the cost of energy and by creating a whole new industry based on this new model.
Dr. Smith said that the Caribbean region however, cannot transform its competitiveness landscape without a frontal attack on energy costs.
The CDB President said, “Most would agree that electricity costs in our region are very high. In general, households pay between US $0.30 cents and US $0.40 cents per kilowatt hour (kWh). Among the borrowing member countries (BMCs) the outliers are households in fossil-fuel-endowed Suriname and Trinidad and Tobago, where rates were under US 0.07 cents per kWh. These rates are approximately four times the average rate in North America.  A similar situation obtains for commercial and industrial rates. An enterprise survey conducted by the World Bank in 2010 found that at least 30 (%) of Caribbean firms identified electricity costs as a major constraint to doing business. So, we are forced to ask, “Why are electricity prices in the Caribbean so high?”
Dr. Smith said firstly that the combination of high diesel and heavy fuel oil cost and the inherent inefficiency of diesel technology, which accounts for the majority of the generation in BMCs, are the principal contributors to high electricity prices. Secondly, he said that small market size and the absence of economies of scale in the generation of electricity compound the problem. Additionally, most generation facilities in the Caribbean are approaching the end of their useful life, many being more than 20 years old. These facilities, therefore, do not benefit from the efficiencies inherent in the new technologies built into generators of more recent vintage.
The CDB President also said that the high cost of imported fuel and the consequential high electricity price are reflected in deteriorating performance indicators in most BMCs.
“High levels of debt to Gross Domestic Product and the depletion of foreign reserves are directly related to this dependence on imported oil. High electricity prices erode the competitiveness of the regional economies and, therefore, their ability to earn the required foreign exchange to pay for imports, including oil.  Unless, therefore, we can reduce our dependency on imported fossil fuels, and unless we can substantially reduce energy costs, we will not succeed in improving our competitiveness and reducing our vulnerability to external shocks.”
Dr. Smith said that there has been a perception that Trinidad and Tobago is the only energy-rich country in the Caribbean. However, other BMCs are definitely not energy poor. Guyana, he noted for example, has enough renewable energy potential, mainly in the form of hydro-power to meet all of its electricity requirements for the foreseeable future; supply all of the needs of immediate neighbours, and still have enough left over to sell to neighbouring Brazil.
Renewable options, he articulated, have the potential to lower electricity costs, and increase foreign exchange reserves from reduced energy imports.
At this point he asked, “What prevents us from taking advantage of the opportunity to create a change in the Caribbean’s energy landscape?” Dr. Smith believes that the legislative and regulatory environment is a major hindrance to the quest for a new energy paradigm for our Region.
He suggested that the legislative framework, at the national level, be amended in order to facilitate access for renewables by altering the monopoly on generation where this exists in BMCs. He said that revisions in the framework should ensure equitable pricing for supply from independent power providers or small, distributed renewable generators of electricity.
As it relates to the role the Bank plays in addressing the competitiveness challenge, Dr. Smith said that the Bank has been intensifying its focus on renewable energy and energy efficiency.
He said, “Our flagship programme, the Basic Needs Trust Fund (BNTF), has been a useful mechanism for encouraging the use of renewable energy at the community level and Guyana is the largest beneficiary of this programme as it is ideal for the continued roll-out of renewable energy solutions. CDB has financed electricity generation, transmission and distribution facilities in its BMCs virtually since the Bank’s inception. We will continue to do so, including collaborating with development partners.”
“The energy challenge is not a new one…we do not need to continue as helpless victims of the vagaries of the international oil markets. Nor do we have to remain uncompetitive, because electricity prices are like an albatross around our necks. We are very good at analysis; but we need to become excellent at praxis! We know what needs to be done; and we just need to do it,” The President concluded.

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