Joseph Williams, Contributor
Williams
Fuelled by geopolitics and speculations world oil price reached a record level of US$99.25 per barrel over the last three weeks. This is beyond what anyone could have predicted 10 years ago. In fact, in the late 1990s the worst-case prediction of many energy economists and experts was that oil may average US$30 per barrel by 2015. The world has seen prices consistently above twice that level since 2002.
Today, all leading energy experts, including Fatih Birol, chief economist of the Inter-national Energy Agency, agree that oil prices will remain high for the foreseeable future. According to Birol, "Prices will remain high due to rapid increases in demand from the huge developing economies of India and China, in addition to a global peak of oil production (Peak Oil) that occurred in 2006". In short, we can safely say that the days of cheap oil (or even sub $50 per barrel) have long been over, even with the easing of tensions in Middle East and not withstanding predictions in the short term of a slowing down of U.S. economy.
Given the critical role of energy to all aspects of economic life, the effects of high oil prices are being felt by oil-importing nations like Jamaica and most Caribbean countries, as seen in the recent jump in prices of most basic food items. This situation has sent CARICOM leaders scurrying for appropriate responses to alleviate the burden on their citizenry.
Worst is yet to come
There is a clear sense that the worst is yet to come. Customers of the Jamaica Public Service Company (JPS) will soon see the impact of a record Fuel & IPP rate in their electricity bill.
The current energy situation demands nothing less than a revolutionary response similar to the energy revolution which took place in Cuba with the disappearance of support from USSR in early 1990s. Anything less will mean near inevitable disastrous consequences for fragile economies of oil-dependent countries like Jamaica and most other countries of CARICOM, which exhibit a characteristic heavy debt burden, weak balance of payment, and heavy dependence on hard foreign currency.
Revolutionary approach
It could be argued that this revolutionary approach was justified from as earlier as 2002-2003 when world oil price began its steep upward march in the wake of the Iraq crisis, strong demand from Asian countries and the prediction of 'peak oil'. The extremely ambitious targets for reduced dependence on oil, which were announced by the Prime Minister recently, resonate with the need for radical action.
It is my considered view that the current round of hardships which is being unleashed in the wake of high oil prices could have been significantly mitigated if appropriate and adequate responses were made over the past years by government and individual citizens (including businesses). In a real sense, Jamaican consumers and businesses may be considered to be three-fold victims of the effects of high oil prices because of i) less than aggressive implementation of appropriate government policies; ii) non-implementation of recommended least cost expansion plan (LCEP) for electricity generating capacity; iii) general non-responsiveness of consumers themselves in taking the necessary actions in improving energy efficiency in residences and businesses. I will only briefly discuss each of these below.
While some achievements have been made by Government, far more should have been done, needs to be done and at a much faster pace. For example, the draft national energy policy has been in limbo for the past 18 months. Inter alia, this document should form the framework for achieving less dependence on imported oil through diversification of fuel sources and improvement in efficiency of use. It has a target for renewable energy to be increased to 10 per cent of Jamaica's electricity generation mix by 2010. This means that an additional 89MW will need to come from wind, hydro, biomass, solar photovoltaics, etc. When one considers the lead time for the implementation of renewable plants it is clear that it is very unlikely that this target will be met.
After being served notice for more than five years by the oil price trends, there is no reason why the energy efficiency building code should not have long been made compulsory and fully enforced, mandating the installation of efficiency features in new buildings, including solar water, efficient lighting, air conditioning, etc.
The energy-efficiency code (which needs minor updating) has the potential of reducing energy use of buildings by over 30 per cent compared to standard practice. There is simply no excuse for there not to be a strategic and sustained energy efficiency campaign providing high quality and usable information in various media and tailored to various sectors of the economy.
Soft funding
By now, all citizens and business should have access to soft funding to do energy efficiency assessments and for implementing the plethora of proven energy efficiency devices in homes and businesses. There can be no justification for the public sector energy use not to be cut by at least 10 per cent across the board. This can be done with little or no investment and would set the pace for the average citizen and business. There are numerous other energy policy type initiatives which if implemented could eased the burden brought by high world oil price.
It can be demonstrated that the current price of electricity from JPS which now averages 28 U.S. cents per kilowatt-hour could be at least 30 per cent lower if the recommended least cost generation capacity options (developed by JPS) were pursued and in an objective, rational and timely manner over the years.
Sub-optimal choices
Tardiness in making decisions on generation capacity expansion will result in sub-optimal choices, owing to the lead time involved in implementing some of the more cost-effective technologies. The implications of local electricity price being 30 per cent higher than it could have been are enormous. Do the math, to see how much difference that would mean for your home budget and businesses, prices of locally manufactured goods and cost of living and the economy in general. It also means that for the last four years alone, ending in 2006, JPS customers could have saved in the region of US$1 billion, based on the quantity of electricity disposed of by JPS. A simplistic computation shows that in today dollars, this means approximately J$120,000 saving per customer.
It is bad enough to have to be paying now for poor and tardy decision making of the past which resulted in the country being stuck with sub-optimal generating capacity, but it is even worse to think that we could be repeating the same mistakes today (not withstanding all the back and forth in relation to liquefied natural gas).
From the table above it can be seen that if the Jamaica is to keep pace with the growth in electricity demand and avoid large disruption in supply caused by load shedding, at least 240MW needs to be installed by end of the year 2008 based on Office of Utilities Regulation (OUR) projections.
Gas turbines
Given that we are 13 months before the end of 2008, and given the lead time necessary for the installation of cost-effective base-load technologies, it seems that at this time the country may not have many options outside of installing gas turbines to meet the demand. Notwithstanding the relatively short time for installation, this technology exhibits low efficiency and high operating cost for which consumers would be paying many years to come, only this time with fuel price very likely in excess of $100 per barrel.
Victims of non-implementation of energy-efficiency measures
Many persons think of energy conservation and efficiency only as 'turning off the lights or equipment'. While this is a part of improving efficiency at home and in business, there are a range of technological solutions which seek to ensure that normal functions are not impaired while using less energy input. Energy efficiency may be defined as a combined set of actions to take advantage of all benefits of improved utilisation of energy without sacrificing comfort or economic production, but at the same time reducing the amount of energy supplied. As can be seen from the definition, energy efficiency does not necessarily mean deprivation.
No efficiency measures
By and large, despite all the increases in oil prices the country has still not implemented energy efficiency measures in any significant and systematic manner. I invite the reader to think about his/her own circumstances and consider if he/she has made any significant change in being more energy efficient in a sustained manner.
More often than not the answer is no. To the extent that citizenry have not implemented energy efficiency over these years, then they can only admit that they have victimised themselves.
The world is now in a new psychological era of US$100 per barrel oil, which portends challenging times ahead for oil-importing and dependent countries like Jamaica.
There can only be one rational response, and that is a radical and expedited approach in implementing the appropriate measures, which we know all too well. We have done sufficient analyses of the situation, what is now required is for us to follow Nike's slogan: 'Just do it', only urgently.
Joseph Williams is an energy management consultant Email: jwilliams6764@gmail.com.
