With oil prices again on the rise and Venezuelan fuel subsidies ending, Caribbean countries are focusing on the need for local, renewable power sources.

Cheaper oil and subsidized supply through Venezuela’s PetroCaribe program cut nearly 50% from the region’s energy bill in recent years. The savings were significant in a region where nearly a quarter of spending is on fuel for power generation and transport, and the average debt-to-GDP ratio is higher than 70%.

The cost of electricity in the Caribbean averaged around $0.23 per megawatt hour since oil prices collapsed, says Christiaan Gischler, lead energy specialist at the Inter-American Development Bank (IDB). That’s nearly half the $0.44 per megawatt hour cost when oil was above $70 a barrel.

With the price of oil inching up and PetroCaribe’s future doubtful — Venezuela’s opposition has said it would to scrap the program if it takes power — governments in the Caribbean are stepping up efforts to develop renewable energies.

The Caribbean Community, or Caricom, aims to produce 47% of its electricity from renewable sources by 2027 as a way of slashing the bill for fossil fuels and meeting clean-energy targets. Although electricity rates have fallen, the regional average is still double that of the United States, according to the World Bank.

Yet the switch from fossil fuels could cost as much as $20 billion — a staggering amount for the region’s debt-laden countries. The exact cost is unknown. But in June, the IDB began studying the costs and hopes to have preliminary numbers early next year.

Pinpointing the cost could help unlock financing, which is difficult for the heavily-indebted smaller Caribbean island nations to access. The private sector has been reluctant to put money into projects, says Gischler.

Officials say Caricom’s goal is ambitious, involving local and international factors outside its control – oil prices and advances in electric vehicles among them – but achievable.

“We are on a learning curve, and it is a pretty steep learning curve, to transition to a different way of operating that will challenge governments, utility operators and investors,” says Peter Williams, managing director of Emera Caribbean, a subsidiary of Canada’s Emera Inc., which operates on four Caribbean island nations.

Already several projects are underway, and if successful they could also help attract further financing, says Gischler.

Volcanic power

A project that could be a model for the region is the development of the first major geothermal plant in the Eastern Caribbean on Saint Vincent and the Grenadines. Accessible geothermal resources and rule changes that facilitate public-private partnerships ( PPPs) opened the way to the project.

The 10MW to 15MW plant would supply more than half the country’s power and has been described as “game-changing” by the IMF. The government, multilateral funders and the private sector, including Emera Caribbean and Iceland’s Reykjavik Geothermal (RG), are involved.

The first step, rare in a region where states tend to manage public services, was drafting rules for PPPs . That led to the formation of the Saint Vincent Geothermal Company by the government, Emera Caribbean and RG. The PPP is not only a model for Saint Vincent, but for the region as whole, says Ellsworth Dacon, head of the government’s energy unit.

“If you have a public-private partnership from the beginning, there is a higher level of commitment to the ultimate success of the project,” he says.

The new company is planning to drill the first test well to gauge the scope of Saint Vincent’s geothermal resource. The rig should be moved into place in the coming months and drilling should begin in late 2016 or early 2017. If the drilling works as planned – mapping studies have already established potential — the project could be delivering power in 2018.

The initial investment is around $30 million, which is coming from a varied mix, including a grant-loan blended instrument approved in May by IDB. The total cost, including the power plant, is $80 million.

It is the first project of its kind under the Sustainable Energy Fund created last year by the IDB and the Caribbean Development Bank (CDB). The project includes a $5 million grant and a $10 million contingent recovery grant, which would only be repayable if the geothermal project becomes a power plant. The government has also secured funding from the United Arab Emirates and the United Kingdom.

Trent Philips, director of the Americas for RG, says geothermal development is the smartest move for Caribbean countries.

Geothermal power not only lowers the price of energy, he says, but provides price predictability and establishes a base to which other renewable sources, such as solar and wind power, can be added.

“It is one of the best ways of stabilizing the power price,” he adds.“Even though the price of oil is low today, we are still at a scale that will provide significant energy and economic security, as well as eliminating emissions. Every megawatt we generate replaces a megawatt that is diesel-generated.”

Saint Vincent not only has tremendous geothermal potential, but also could add hydroelectric and solar projects to transition fully away from diesel, Williams says.

The IDB-CDB facility focuses primarily on geothermal development with other components looking at energy efficiency. “Geothermal is the power source that has the lowest levelized cost, therefore if you have geothermal there is really no need for solar or wind,” Gischler says.

Growing importance

Saint Vincent spends around $30 million a year, equivalent to 4% of its GDP, on imported fuel for power generation. Outlays have dropped thanks to lower international prices, but that has started to change. 

Oil prices are creeping up and some projections have them stabilizing around $70 a barrel. That would effectively double what Saint Vincent shelled out last year for fuel. 

Worst still would be an end to PetroCaribe, the program under which Venezuela sends subsidized crude to its allies. According to the IMF, Saint Vincent’s debt to Venezuela through PetroCaribe was 8.7% of its GDP. 

Other countries considering geothermal are Dominica, Grenada, Monserrat, Saint Kitts and Nevis and Saint Lucia, all of which appear to have the conditions that would facilitate construction of geothermal plants. 

The initial investments could rise to as much as $300 million if five countries in the eastern Caribbean with geothermal potential wanted to develop 10MW generating plants, says Tessa Williams-Robertson, head of the renewable energy division at the CDB. 

However, just because an island is volcanic in formation does not mean geothermal is the answer, says Emera’s Williams. 

“Where geothermal is available, I would say that it has a lot of merit, because, unlike wind and solar, it is dependable, long-term power,” he says. “But we do have examples in the Caribbean where there is good geothermal resource but electricity demand is not there to justify an investment. Caribbean islands are by and large islands with small electricity demand.”

Solar and wind

The unpredictability of other major options, solar and wind power, hinder their development as a complete replacement for fossil fuels.

While costs have come down and technology has made these two options more viable, solar and wind power are still intermittent sources. Neither can form the foundation of a grid, because they are not available 24 hours a day at a constant level. 

Further, solar and wind technologies are “still expensive and prohibitive for many countries today,” says Gischler. “The breakthrough will come with storage batteries. The idea would be to have a high performance batteries to accumulate all the power generated by sun or wind and dispatch as needed. That would change everything.” 

The best options right now are on the large islands that have peak demand over 100MW. 

Emera Caribbean is considering building a wind farm on Barbados, where it operates Barbados Power and Light. It recently commissioned a 10MW solar plant that could be ready in 2017. Peak electricity demand in Barbados is 155MW, making it one of the larger consumers in the eastern Caribbean. In Dominica, where Emera has a 52% stake in Dominica Electricity Services Limited, peak demand is 17MW. 

As part of its push to renewables, Emera started a program four years ago that allows commercial and residential customers to install solar panels that can also feed power back to the grid. It now has around 12MW of distributed customer-owned solar in the grid. 

Other islands are installing small solar plant for specific use, such as the 3MW plant at Antigua and Barbuda’s airport opened earlier this year. The 12,000 photovoltaic panels will provide enough energy to power the airport. It will help cut the energy bill in the country where 100% of the power comes from imported diesel. Peak electricity demand on Antigua & Barbuda is below 50MW. 

St. Kitts & Nevis also has a solar farm at its international airport and in March inaugurated the first small solar plant, 500kW, built with technical cooperation from the Taiwanese government. 

Retrofitting for the future 

The private and public sector is also focused on modifying the energy matrix by retrofitting buildings, applying energy saving technology and looking at options to increase electric vehicles. 

One of the most exciting projects today, Gischler says, is the use of performance-based contracts for retrofitting buildings. “It will become a new frontier in energy efficiency.” 

Because many of the Caribbean islands are heavily indebted, the project is using “reflows” from energy saved in buildings that have been refitted to fund others in an ongoing cycle. “When you have 80 buildings but only have money to do 10, you can multiply what you are doing by reinvesting savings in other buildings,” he says. 

A large number of island nations have also tapped into climate fund initiatives administered through the CDB for energy savings. The bank recently approved a $9 million project for Saint Lucia to change traditional street lighting for new energy saving lights. The change could halve the state’s electricity bill for public lighting, says Williams-Robertson. 

“It is such an obvious investment to undertake,” she says. “Not only does it reduce consumption and greenhouse gas emission, but it also lowers fiscal deficits because governments pay less for street light.”

A trend gaining more attention is the move toward electric vehicles. A pending decision in Norway to require all new vehicles sold as of 2025 to be electric could be the spark needed to get Caribbean islands to follow suit.

“When you look at the Caribbean, which is dependent on fossil fuel not just for electricity but significantly transport, we have short driving distances and easy terrain,” says Emera Caribbean’s Williams. “I think focusing on electric vehicles is a natural add-on to the whole issue of transitioning to renewables and reducing the dependence on imported fuels,” he says. LF