Give us a choice
Published:Sunday | October 31, 2010 | 12:00 AM
Lisa Hanna, Contributor
THE DIVERSIFICATION of our energy base away from oil is imperative. The high electricity costs that we experience in Jamaica significantly reduces the disposable income at the end of every month for individual householders, as well as small business owners and operators of our major industries.
Equally, it limits the job-creation potential that could exist for our country, as companies which wish to invest recognise that they would have to pay more of their sales to energy consumption, rather than devoting it to expansion.
High electricity costs threaten the very foundation of our economic growth, now and into the future. I support the energy policy which speaks to the diversification of our energy base. But I would also like to emphasise four points that are essential if this policy is to have relevance and benefit to our country.
The urgency is now
We need the solutions in the shortest possible time. The urgency of the situation for us to have competitive economic viability with our major trading partners requires that we be realistic. Currently, we pay as much as six times more than our major trading partners for electricity.
Similarly, when a single-family household has to spend a large part of its income on electricity, it robs them of the potential to enjoy a better quality of life. For them, loans are harder to access and repay, travel and leisure are difficult, and paying for educational services for their children becomes stressful.
While pursuits in renewable energy like wind and solar are desirable for long-term development, they are not cost-effective for us in the short term. Last year, this cost factor resulted in a drop in demand for wind power. For example, 40 per cent of the wind parks in America and Europe are built by small operators who finance their projects through debt. A recent study done by the German government found that the availability for 10-year debt financing for wind parks had fallen by as much as 40 per cent. The American Wind Association says that this year, installations in the United States could be half of what they were last year. Similarly, in Europe, the demand for new wind mills has fallen by 15 per cent. The only market that continues to grow slowly in this area is China.
The urgency of our situation, therefore, compels us to explore only three options in the short term: nuclear, gas, and coal.
We need not reinvent the wheel
All non-producing gas and oil countries face the dilemma that we are going through. Let us benefit from the research and solutions already conducted by these countries.
Two of our Caribbean neighbours - Puerto Rico and the Dominican Republic - have diversified their energy base. More recently, Puerto Rico reduced its dependency on oil to generate electricity from 98 per cent to 68 per cent by the addition of a 540 megawatt natural-gas eco electrica plant and two 250 megawatt coal fired plants. Today, gas and coal satisfies 15 per cent and 16 per cent of their energy demand, respectively. Their long-term goal is to ensure that oil accounts for less than 30 per cent of their energy base and to increase the use of coal to 29 per cent and gas to 30 per cent. Their data supports the fact that coal reduces the energy costs per kilowatt hour by 50 per cent while gas reduces it by 30 per cent. The Dominican Republic operates three coal plants that satisfy 20 per cent of their energy demand - which aids in significantly reducing their energy costs.
Both countries have implemented these facilities successfully into their economy and have tourism as a major feature - each with over two million visitors annually
True diversification
The minister of energy said that the "cornerstone of the policy is the diversification of our energy base". This is what we need because it gives choice. But his actions and his decisions have not supported his sentiment.
He has presented liquified natural gas (LNG) as the main alternative that we will use to move away from our dependence on oil in the short term. He has not yet presented to the nation any objective analysis as to why the total commitment to LNG at this time. He simply dangles as a carrot the prospect of lower energy costs without fully disclosing the alternatives or the long-term implications and obligations that will face us.
Neither he nor the prime minister have been able to effectively tell us inside or outside of the Parliament what we will be paying for the LNG, where the supply will come from, and the cost for its transportation.
Furthermore, the market commitments that must be given to the overseas gas-energy producers will make the minister's projections of a diversified base for 2010 and beyond unrealistic. As I understand, our proposed LNG investors will not be prepared to invest unless they receive long-term commitments from both the Jamaica Public Service Company and the bauxite companies. If one has confidence in the cost-effectiveness of a product why does Jamaica and Jamaicans have to guarantee the market? If these markets are excluded to other investors, there will be insufficient incentives for others to participate to truly realise a diversified energy base.
The limited supply of any commodity is subject to price fluctuations, and over the last 30 years, we have seen the cost of oil fluctuate from a low of US$10 to a high of US$140 per barrel. That is an increase of 1,400 per cent Who will guarantee the Jamaican people that gas prices will not suffer a similar fate and we will not be 'out of the frying pan back into the fire'?
The only guarantee of keeping our electricity prices low is to not commit to only one source as we did with oil. The only way to ensure lower prices is to introduce competitiveness in our energy sources and base. Therefore, I recommend that the bauxite industry, representing 30 per cent of our energy demand, be allowed to make its own choice and to sell its excess capacity to the grid. As I understand it, their choice would be coal. Caribbean Cement Company chose coal and plans to expand their coal plant. We would then allow an alternative energy source to provide electricity to our homes.
Coal creates an export industry
As policymakers, we must set the policy to reasonably safeguard the environment, but also, the policy should encourage competitive access to the grid. Limestone is our largest mineral reserve and is the base material for the production of cement. The good news is that the world's largest market for cement and limestone is in North America, less than three sailing days from Jamaica.
North America is also one of the largest suppliers of coal, hence we would have the opportunity of importing coal and exporting limestone or cement, which would create a win-win situation all around for the reduced cost for the energy while at the same time creating an exportable industry for economic growth.
There is a reason why 40 per cent of the world uses coal as an energy source: it is the cheapest source! There are negative environmental consequences, but with the improved technology, like in Puerto Rico, these are controllable and minimised.
We were all horrified at the environmental impact of the recent BP oil Gulf spill, but none of us decided to park our cars or light lamps to substitute our household electricity in support of the environment. The world production of oil is approximately 84 million barrels per day, at a price of US$80 per barrel. If we were to eliminate coal from the energy mix, the additional demand for oil would be over 200 million barrels per day. This would drive the price of oil through the roof and bankrupt most non-oil producing countries.
Today, we must make a choice that Jamaica's industries become competitive with the rest of the world. Let us not reinvent the wheel. Let us be responsible about our environment and above all, use this policy and truly give Jamaicans a choice for their energy consumption. The data supports that coal should be a part of this mix.
Lisa Hanna is member of parliament for South East St Ann.