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Effortless Energy Economics: How Domestic Renewables can Energize the Caribbean (Part 1)

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.

Why choose between savings and sustainability when you can have both? Since industrialization, countries in the Caribbean have relied on dirty and expensive fossil fuels—which they saw as their only option—to promote modest economic development. New research suggests that this dilemma may be a thing of the past. Endowed with abundant and diverse renewable energy resources, the Caribbean is capable of meeting nearly half of the projected growth in regional energy demand by 2030 sustainably, all while lowering consumer energy costs and promoting economic development.

An Unsustainable Status Quo

 Despite the tremendous potential of renewable energy in the Caribbean, the region remains highly dependent on imported fossil fuels. This dependence exposes the Caribbean to volatile and rising oil prices, limits economic development, degrades local natural resources, and impedes countries from taking meaningful action on global climate change, which poses an acute threat to small-island states and low-lying coastal nations. With developing countries poised to be leading frontiers for global growth in carbon dioxide emissions, the need is urgent to set a strong precedent for change.

The consequences of inaction are dire and widespread. Economically, fossil fuel dependence in the Caribbean Community (CARICOM)—a group of 15 nations that engage in economic integration and cooperation—contributes to a vicious cycle where high shares of GDP that otherwise could be invested domestically are diverted to foreign energy producers. This financial outflow induces trade deficits— increasing national debt and often resulting in downgraded financial credit ratings for the country. Lacking avenues to affordable financing for maintaining, upgrading, and expanding aging energy grids, utility providers are forced to charge high electricity tariffs, weighing down Caribbean businesses and households desperate for growth.

Thus far, efforts to minimize these impacts have focused mainly on improving the bargaining power of CARICOM member states through collective action. In a 2005 agreement with Venezuela, CARICOM established Petrocaribe, reducing the upfront payment requirements for oil imports from Venezuela and providing preferential long-term financing terms. The agreement has made oil more accessible to countries that otherwise would have struggled to meet their energy needs.

Although Petrocaribe serves to insulate the CARICOM region from rising and volatile oil prices in the short term, the long-term implications are far more complicated. The agreement reduces intra-regional trade of energy resources, while leaving many countries highly dependent on Venezuelan oil imports and vulnerable to changes in the terms of the agreement. Fundamentally, Petrocaribe does not resolve the recurring high debt-to-GDP ratios in many Caribbean countries. Perhaps most significantly, the agreement’s preferential financing terms disincentivize investments in domestic renewable energy, thereby promoting continued energy insecurity.

The fundamental stability of the Petrocaribe agreement is also increasingly in question. Sustained falling global oil prices are driving Venezuela’s already strained economy further into recession. Meanwhile, deferred payments to Venezuela under Petrocaribe have cost the country an estimated $44 billion in foregone income since the agreement’s inception. Given these conditions, it is not surprising that Petrocaribe terms are becoming more stringent.

Moreover, CARICOM member states share a particular vulnerability to the environmental and socioeconomic impacts of climate change, including sea-level rise, water scarcity, coral bleaching, and the increased strength and frequency of tropical storms. Environmental and climate impacts are made even more significant due to their effect on Caribbean tourism, which is largely dependent on pristine and undamaged natural habitats.

Although daunting, these challenges present a unique opportunity for the Caribbean region because they are shared concerns. Small-island states, such as those in CARICOM, can serve as role models for low-carbon development strategies due to the congruence of their national economic and security interests with the global climate agenda. The challenge of the day, then, is to prove that these low-carbon development strategies are a better—and realistic—path forward.

Renewable Energy Reinvigoration

A primary obstacle to the widespread deployment of renewable energy technologies in the Caribbean is the deeply ingrained perception that they are economically uncompetitive with fossil fuels. Up until now, the region has lacked detailed and publicly available studies on the potential of renewable energy and energy efficiency solutions. Groundbreaking technical modeling results used in CARICOM’s Caribbean Sustainable Energy Roadmap and Strategy, prepared by the Worldwatch Institute, are challenging this belief. The findings indicate enormous opportunities for affordable sustainable energy solutions based on the development and deployment of the region’s abundant geothermal, hydropower, biomass, solar, and wind resources.

These surprising results were generated using Levelized Cost of Electricity (LCOE) modeling, which can help policymakers and investors compare the costs of different energy generation technologies given varying installation costs, operational lifetimes, utilization rates, fuel costs, and maintenance needs. LCOE analysis results in a per-kilowatt cost, representing the break-even point for investments made toward a given power plant over its operational lifespan. Because its inputs can be regionally specified and scaled, LCOE can generate useful information for policymakers in countries across nearly all strata of economic development.

Capital investment, fuel, operations and maintenance (O&M), and financing costs for energy generation technologies vary widely depending on the socio-economic characteristics of a country. In less-developed and emerging economies, such as those in CARICOM, upfront capital and financing costs for technologies that conventionally are considered unreliable, such as wind and solar, are much higher than in developed economies. Advanced LCOE modeling software, such as that developed by the World Bank and used in Worldwatch’s sustainable energy roadmaps for the Dominican Republic, Haiti, and Jamaica, takes into account not only such regional variations, but also, crucially, the capacity values of prospective energy generation technologies.

This added level of nuance is vital for policymakers because capacity-related issues can create serious complications in integrating renewable energy technology into existing grids. In nearly all modern grids, the output from power plants must closely match demand throughout the day or risk dangerous instability. Because the demand for energy varies throughout the day, power plants that are “dispatchable,” or capable of ramping production up and down quickly, are higher valued over less-flexible sources. Individual power plants using renewable technologies like solar PV and wind can supply energy only intermittently (in the absence of storage) and therefore incur additional costs on their LCOE-produced metric.

Furthermore, capacity value accounts for the impact of introducing a new generation technology to already existing plants. Due to the intermittency of some renewable energy technologies and to the mandate of grid stability, existing resources may be displaced and forced to periodically curtail production to accommodate the integration of renewable technologies. This can raise the costs of grid O&M and thus downgrade the competitiveness of renewable energy compared to conventional sources. Research suggests, however, that some of these costs can be avoided through the introduction of energy storage and smart grid technologies into a renewables-integrated grid.

Given these challenges, it is particularly remarkable that the LCOE analyses that Worldwatch performed in the Dominican Republic, Haiti, and Jamaica rank renewable energy technologies as cost-competitive with—and in many cases cheaper than—conventional forms of energy generation.

C-SERMS CARICOM roadmap cover_200px

 

Read the Caribbean Sustainable Energy Roadmap and Strategy: Baseline Report and Assessment

 


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.

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