Never before has the opportunity to go green in the energy sector been as appealing and accessible as in the Caribbean. This four-part blog series documents the paradigm shift currently under way in the region, where the Dominican Republic, Haiti, and Jamaica present moving case studies on the momentum that is building to realize the Caribbean’s untapped sustainable energy potential.
As one of the largest and most diversified economies in the Caribbean, the Dominican Republic is a regional pacesetter for policymaking as well as an engine for economic growth. Today, the island nation is using this platform to drive regional efforts on climate change, having set an ambitious domestic target for a 25 percent reduction in greenhouse gas emissions by 2030. But this target likely will remain unrealized until the country addresses its unsustainable energy sourcing practices. Caught between a forecast of steadily rising electricity demand and an aging grid dependent on costly fossil fuel imports, the Dominican Republic faces the prospect of future energy crisis.
Currently, the country spends $5.2 billion, or 8.6 percent of its annual GDP, on fossil fuel imports. These expenditures finance operation of the country’s petroleum, coal, and natural gas-based power plants, which collectively account for 86 percent of the total electricity supply. Consumers are largely sheltered from these costs by huge government-led subsidy programs, worth $1 billion annually in foregone income. Added to these costs are the high transmission and distribution losses in the country’s aging grid system, which consistently exceed 30 percent, meaning that much more energy is pumped in than is ever taken out by paying customers.
Combined, the costs incurred by the Dominican Republic’s bloated energy system are dampening the country’s economic potential. Due to expensive fuel imports, domestic debt is rising to levels last seen during the 2003 financial crisis, despite robust and growing export earnings in the tourism, agriculture, and manufacturing sectors.
The silver lining to this grim forecast is that it is entirely preventable. The Dominican Republic is sitting on one of the largest and most diversified renewable energy endowments in the Caribbean. Wind, solar, and biomass energy potential is abundant in the country. New research from the Worldwatch Institute suggests that this, combined with modest hydropower and geothermal potential, can result in renewable energy meeting 85 percent of projected energy demand through 2030.
What will really turn heads is that the country can meet its future energy demand more reliably and affordably with renewables than with fossil fuels. Comparing relative installation costs, operational lifetimes, utilization rates, fuel costs, and maintenance needs, Levelized Cost of Electricity (LCOE) modeling tools show that, by transitioning to renewable energy, the Dominican Republic can save more than $25 billion in energy sector spending through 2030. Doing this also would reduce average electricity costs for consumers by 40%, despite the country’s rapidly expanding consumer market.
How Are These Savings Possible?
For starters, solar and wind energy technologies face rapidly falling global costs due to technology maturation and market saturation. As these trends attract investment interest in and consumer demand for renewable energy, wind and solar together accounted for 59 percent of new global capacity additions in 2014.
The Dominican Republic can choose from a suite of increasingly mature technologies for solar energy generation based on photovoltaics (PV) and concentrated solar thermal power (CSP). With high rates of consolidation in the solar industry, major manufacturers can benefit from economies of scale and produce cheaper generation units. As a result, the global solar industry is experiencing explosive growth near 22 percent, adding 44 GW of capacity in 2014 alone.
The story for wind is similar. Because of recent technological advances in turbine design for both on- and offshore windmills, wind remains the overall cheapest power-generating option, fossil fuel-based or otherwise. As a result of these falling costs, several formerly energy-impoverished countries in Latin America and the Caribbean have been able to transform into regional powerhouses. Nicaragua, for example, now sources 20 percent of its energy needs reliably from wind power alone.
Biological materials such as forestry waste, municipal solid waste, and agricultural crop residue are all readily available and abundant for biomass energy generation in the Dominican Republic. Biomass is well suited to integrating with solar and wind because it can be used for reliable baseload energy supply, offsetting the risk from intermittent solar and wind. Bagasse from domestic sources of sugarcane residue alone is capable of providing over 122 MW of generation capacity in the Dominican Republic.
Aren’t Fossil Fuels Cheaper?
Simply put, not anymore. Global markets for fossil fuels, particularly petroleum, are well known for being volatile and unstable. Like many other Caribbean countries, the Dominican Republic relies on the Petrocaribe preferential payment oil import agreement with Venezuela to shelter it from price fluctuations. This lifeline is quickly dying, however, as strained economic conditions in Venezuela are leading to more stringent export terms.
Meanwhile, necessary operations, maintenance, and investment costs for the Dominican Republic’s aging and fossil fuel-dependent grid are projected to increase greatly compared to available renewable energy technologies. In particular, operation and maintenance costs for coal are projected to increase by 15 percent annually through 2020. Reflecting this decreased profitability, investment costs for coal plants are projected to increase by just under 11 percent annually in the same period. On the other hand, investment costs for the entire spectrum of available renewable energy technologies are projected to decline during the same period.
So What’s Next for the Dominican Republic?
The groundbreaking findings in Worldwatch’s new research offer a clear roadmap for sustainable economic growth in the Dominican Republic. By transitioning its energy load from expensive imported fossil fuels to abundant domestic resources, the country can achieve energy security, reduce electricity costs, increase electricity access, and promote economic growth, all while contributing meaningfully to climate change mitigation.
Thus far, the country has taken only a tentative approach. So far in 2015, the state-held utility has announced plans to integrate 430 MW of solar and wind capacity to its grid. But although these announcements are an important first step, they are coupled with concessions for developing 675 MW of coal and 400 MW of natural gas power plants. Reliance on these technologies—along with petroleum, which accounts for 60 percent of electricity output in the Dominican Republic—will continue to hamstring the country’s true economic potential.
Although a high share of renewable energy will be more cost-effective than fossil fuels over the lifetime of new power installations, relatively high installment costs remain a huge challenge. Improvements in the financial sector are absolutely vital to catalyzing investment for renewable energy technologies and projects in the Dominican Republic. These include capacity building for banks and project developers, the creation of new loan products, and financial guarantees to improve investment security.
Philip Killeen is a Research Assistant for the Climate and Energy Team at Worldwatch Institute. He is a co-author of the Caribbean Sustainable Energy Roadmap and Strategy: Baseline Report and Assessment and contributes independent research on sustainable urbanization and climate finance in developing states.