Dr. Cezley Sampson, Contributor
Silhouettes of oil derricks against the rising sun at an oilfield in the capital, Baku, October 16. Azerbaijan is a predominantly Muslim state of about eight million people. Baku is the starting point for a new oil pipeline to the West.
THERE ARE two sides to energy efficiency supply side and demand side. The residential consumers currently pay about US23 cents per kWh and this price has risen from about US14 cents since 2000. A significant part of this increase is due to the rise in the cost of oil.
Comparisons with small Caribbean systems, which in the main carry installed capacities of under 100 MW, with expensive diesel plants, are not an appropriate yardstick. The prices of electricity in Jamaica, when looked at globally, are high. Large industries such as Caribbean Cement, D&G and Windalco, essentially pay for bulk power in excess of US12 cents per kWh. Power cost for cement production in Trinidad is less than US3 cents per kWh. Power is the largest cost component in cement production, so it is difficult for the Jamaican plant to compete with the Trinidad cement plant.
JPS' overall systems loss in 2004 was 18.9 per cent, rising from 16.8 per cent since privatisation. Approximately nine per cent of this loss is attributable to technical losses, transmission and distribution, and 10 per cent is due to non-technical reasons such as theft and corruption. JPS estimates that five per cent is directly attributable to individuals connecting to the distribution line, with another 1.5 per cent bypassing the meter. JPS has long lengths of distribution wires, that are not insulated, making these lines readily accessible to 'throw up' connection. The paying consumers cover the cost of the non-paying, adding about US2 cents per kWh to their bill.
Botswana, Namibia, Bolivia, Mauritius and Trinidad and Tobago are all developing countries with systems losses of less than 11 per cent. Finland, Netherlands, Belgium and Germany have systems losses of less than five per cent. JPS' cost of transmission, distribution and retail supply is twice as much as Ghana's, a much larger country than Jamaica, and more than three times higher than Trinidad's. With today's technology, JPS should seek to reduce systems losses to under a two per cent. The Office of Utilities Regulation (OUR) only penalises JPS in the structure if the losses are in excess of 15.5 per cent. Should JPS' losses exceed this benchmark, the additional cost falls to JPS' account. Bolivia applies penalties to the private transmission operator in respect of transmission reliability. There should be similar benchmark standards for distribution reliability, where if the standards were not met then the penalties would trip in.
JPS has the exclusive right over transmission, distribution and supply. One of the conditions of granting any exclusive right for an infrastructure service with natural monopoly characteristics is that the utility should carry an obligation to provide the necessary investments to improve efficiency. There is therefore a need for an approved investment programme by JPS to reduce systems losses, both technical and non-technical and improve transmission and distribution reliability.
Under the proposed new energy policy there is an intent to consult with JPS, not only to develop a comprehensive loss reduction programme, but also to consider the company accessing low cost funds from the San Jose and PetroCaribe financing facilities for such a programme. Such an investment would be in the national interest. If JPS were to seek financing from the commercial market it would have to do so at much higher commercial rates.
HIGH HEAT RATES
Another area of poor efficiency is high heat rates found in the older plants. A benchmark similar to the procedures used for systems losses is also applied to the heat rate, where when above a certain level, the extra cost is not factored by the OUR in the price the consumer pays. The change over to combined cycle and natural gas will also carry a positive effect on the heat rate.
Jamaica is a relatively high-energy consumer. From 1991 to 2004, per person consumption went up from 8.17 bbl of oil equivalent to 10.31 bbl. In the case of electricity, per capita electricity consumption jumped from 834 kWh in 1980 to 2458 kWh in 2003.The average for middle income countries is 1653 kWh and compares with Brazil at 1860 kWh and Costa Rico at 1580 kWh. This is partly due to the much higher average quality of life Jamaicans enjoy from the increasing use of fridges, electric irons, electric fans, electric stoves, electric water heaters, air conditioned offices, homes and a range of entertainment and educational technology such as computers, television, radios, and component sets, as well as air conditioners and swimming pools for some of the higher income householders.
The use of wood, charcoal and kerosene hardly factor in energy usage anymore. In the fifties, there was one radio in my village, and in the 1970s there was no electricity. Today, 84 per cent of householders are connected and use electricity. In Tanzania where I last worked as well as Mozambique and Uganda, less than 10 per cent of the population have access to electricity. Even in South Africa, with all its wealth, access and use of the modern range of household durables, is nowhere as high as in Jamaica. From that part of the world only Mauritius can match Jamaica.
In 1995, government, through JPS and with financing from the World Bank, IADB and the Global Environment Facility, initiated a US$9.9 electricity demand side management programme. Petroleum Corporation of Jamaica (PCJ) took over aspects of this programme, especially the residential lighting component in 2001. The World Bank reported that the residential lighting programme has been a major success and the recent evaluation the bank carried out showed that the Jamaican residential lighting industry has been revolutionized, with compact fluorescent lighting replacing incandescent systems. More than 28 MWh of electricity was saved in 2003, eliminating the need for 6 to 8 MW of new generating capacity. The hard evidence collected by the PCJ from a recent survey does not support the story that Jamaicans do not conserve electricity. We are weak on conservation in areas that demand major capital investments, as is the case universally.
LOW COST FINANCING
The World Bank Completion Report showed that for capital investments in energy efficiency and demand side measures by householders and industrialists, there are four important ingredients: a dedicated financing facility or an energy fund, providing low cost development financing to commercial, industrial and residential users; special tax incentives, removing GCT and import duty from energy saving equipment and devices; a strong public education programme; and a cadre of professionals to carry out energy audits and to implement energy efficiency projects. We cannot talk about implementing energy efficiency measures without addressing these factors.
In fact, a financing facility made available in the 1980s with the support of USAID failed because USAID insisted on the loan being made at commercial rates. As a result, a good portion of the fund was returned to USAID. Almost every country that has a successful energy efficiency programme provides tax incentive subsidies and low cost financing. Some economists argue that the need for government intervention arises from market failure in the energy efficiency market.
Government has now taken a decision to establish an energy fund, and a fund management company will be formed in collaboration with the private and non-governmental organisation (NGO) sectors. The National Energy Fund Ltd was recently incorporated, and the Government is considering financing it from the PetroCaribe facility, with a capital injection of about US$10 million. The National Housing Trust (NHT) is to be encouraged also to provide home improvement energy loans to its beneficiaries to encourage householders to install solar water heaters (SWH) and other energy saving devices.
Technical assistance was recently obtained from the InterAmerican Development Bank/French Trust Fund for a consultant to advise on the most suitable institutional arrangements to establish and operate the Fund. Essentially, the approach being considered is for the Fund Management Company to wholesale loans through certified financial institutions (CFI) such as commercial banks, credit unions, building societies, etc.
The retailing CFIs will interface with the end users and accept the credit risk for each loan transaction, in much the same way as the Development Bank of Jamaica (DBJ) does today in disbursing its loan portfolio to industry and commerce. Incorporation of the fund management company provides for a dedicated entity, accountability, institutional memory and continuity. The intention is that the Fund Company will be based at DBJ and will draw on the experienced resources of DBJ in carrying out its operations.
SOLAR ENERGY
Since June 2004, the Government has removed GCT and import duty from solar water heaters and photovoltaic devices, and is now considering extending the incentive to additional energy saving devices. Without such incentives, the payback period for energy savings investments seem unattractive, and not just in Jamaica. Recent removal of the tax has brought the installed cost of a residential solar water heater (size 80 to 100 gallon) down from J$120,000 to about J$75,000, with possible savings of about J$2700 per month or a payback of just over two years. Barbados has gone further, granting tax credits for investments in energy savings devices, such as solar water heaters.
The result is that not only is there a solar water heater manufacturer in Barbados, but there are now more than 40,000 residential homes fitted with solar water heaters (SWH), compared to about 10,000 in Jamaica. The estimate is that there are more than 60,000 electric heaters in residential houses in Jamaica. Each residential SWH saves about 2000 kWh of electricity per year. The financial savings for institutions such as hospital and hotels is much greater than for residential buildings. Added to this are the benefits to society in terms of eliminating investments for additional generating capacity as well as savings from eliminating the recurrent foreign exchange energy costs.
The Petroleum Corporation of Jamaica has also been promoting public education programmes on energy efficiency and conservation over the last two years, and a recent study has shown that more than 85 per cent of the population is practicing energy conservation in one form or other.
A new programme is currently being launched and will involve radio, press, television, and billboards, to be supplemented by special workshops, seminars and an energy conservation exhibition.
ENERGY CONSERVATION WORKSHOPS
The PCJ, with the help of the Ministry of Commerce, Science and Technology, has been running a series of energy conservation workshops for high school science teachers, and to date schools from nine parishes have participated. The material from the workshops is now being placed on CD for distribution to all high schools in Jamaica.
In terms of developing technical capacity, PCJ mounted a major workshop for 22 engineers recently, to sharpen their knowledge on energy auditing and energy efficiency practices as well as providing for individuals to be qualified as Certified Energy Managers. More than half of the group that participated in the workshop is now going through an on the job exercise. The major objective here is to develop a number of small and medium enterprise firms as energy service companies (ESCos) and provide for a competitive energy services market.
While we have been planning, advertising and training we have also begun the implementation of an energy efficiency programme for all 29 hospitals in Jamaica. The total public sector electricity bill for 2005 is estimated at J$ 5.4 billion, rising from J$ 2.6 in 2002 and J$3.6 billion in 2004. In kilowatt-hours, the hospitals account for 9 per cent of the 400 million kilowatt hours of annual consumption, with NWC accounting for 41 per cent, while street light accounts for 20 per cent. Government started this programme to demonstrate its commitment to energy conservation and has provided US$1.2 million, with UNDP providing a further US$300,000, to date to meet the financing cost of the first phase of the programme. Implementation is well advanced at Bustamante Hospital for Children, Cornwall Regional, and Princess Margaret hospitals. Bustamante and Princess Margaret hospitals now receive all their hot water requirements from solar energy. Bustamante Hospital now saves about J$570,000 per year following from the implantation of solar waters. Overall, the Government programme has been relatively successful in reducing its consumption of electricity and this has amounted to a reduction of 7 per cent in terms of kilowatt consumed from 2002 to 2004.
