Can the Caribbean Create a Common Electricity Market?

A step in the right direction or something else for CARICOM to trip on?

By Mark Konold and Cristina Adkins

In March 2010, Nexant and the World Bank produced a report looking at opportunities for greater regional cooperation in the Caribbean, particularly with regard to electricity markets. The report argues that interconnection, especially between islands of the Lesser Antilles, could be highly economic. This is welcome news when you consider that the small size of Caribbean electricity markets is a leading factor behind high energy costs on these islands, as well as a major barrier to regional use of renewable energy.

In recent months, Puerto Rico and the Dominican Republic have been exploring ways to connect their respective electricity grids using an undersea cable. To help further the idea, Spain recently directed funding through the World Bank to initiate a feasibility study for the connection. Joining the electricity markets of two of the Caribbean’s largest economies could kick off wider integration for the region, a move that Puerto Rican Secretary of State Kenneth McClintock says will “create a large-scale transnational electricity market in which Caribbean countries could trade renewable energy rather than oil.” If McClintock is right, it could have interesting consequences in the region.

One would think that this sort of initiative would be the purview of a regional market organization. Although such an approach was envisioned when the regional body CARICOM was established in 1972, the organization has had marginal success in facilitating free trade and a common foreign policy among its 15 member states.[1] According to Sir Ronald Sanders, a former Caribbean diplomat and now a business executive, “What the region needs now is more not less integration, for not one of its member countries – not even Trinidad and Tobago with its oil and gas resources – can hope to maintain its autonomy in a globalized world in which the rich and powerful are intent upon a new kind of dominance that marginalizes small countries.”

The rub in all of this is that the Dominican Republic and Puerto Rico are not members of CARICOM, despite being two of the region’s largest economies. And, as the Nexant report points out, they are separated by only 150 kilometers, with the maximum sea depth between them being only 400 meters. An oceanic connection would be relatively straightforward and could be advantageous to neighboring islands. According to an article in Caribbean Business, the D.R.-P.R. project stipulates that the Puerto Rico Electric Power Authority will sell its surplus power to neighboring islands to help offset their already high electricity prices. But having an “outsider” country take on such a large regional role could further undermine CARICOM’s efficacy.

All this aside, the project also brings unanswered questions, including how it would be financed and whether it would be of real benefit to smaller islands. There exists a substantial energy gap between a country like Barbados and the Dominican Republic. The former consumed only 0.95 billion kilowatt-hours of energy in 2008, whereas the latter consumed almost 13 billion. A regional grid might mean that larger economies like the Dominican Republic and Puerto Rico can take advantage of economies of scale to drive down prices. Although smaller islands might be able to capitalize on wind, solar, and geothermal resources, long distances between them and the large producing islands, not to mention an ineffective CARICOM, might not necessarily lead to lower electricity prices for all.

Secretary McClintock doesn’t seem too concerned about this. He points to the Electric Interconnection System for Central America (SIEPAC), a plan to interconnect Central American transmission systems, as a potential model. Its goal is to create an efficient and sustainable energy market without restrictions and competitiveness while promoting development of the electricity industry for the benefit of all regional inhabitants. But although it has seen some success in Latin America, it is hard to justify such a network of land-connected countries as a model for a region with 15-plus widely scattered islands.

In fairness, McClintock is right to think that sustainable regional grid integration could bring many financial and socio-economic benefits to the Caribbean. Since CARICOM has been unable to manifest few other effective forms of regional interconnection, it seems like as good a place to start as any. But if such interconnection further undermines CARICOM’s standing, it might benefit only Puerto Rico and the Dominican Republic, in which case the two countries might end up alienating themselves from the very neighbors they intend to help.


[1] Current members of this community include Antigua and Barbuda, The Bahamas, Barbados, Belize, Dominica, Grenada, Guyana, Haiti, Jamaica, Montserrat, St. Lucia, St. Kitts and Nevis, St. Vincent and the Grenadines, Suriname, and Trinidad and Tobago.

 

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