Most Caribbean islands began generating electricity for municipal use around the 1930s through the establishment of public utility companies. But it wasn’t until the U.S. military began occupying several islands prior to WWII for strategic purposes, and constructing self-contained naval bases with state-of-the-art diesel generators, that increased energy production and distribution really started moving forward.
The U.S. government was granted these land lease rights by the European countries that controlled the islands (primarily the UK and France), through trade agreements for war materiel. The leases allowed the US to establish a strategic naval presence throughout the Caribbean region to protect its southern shores from Axis threat.
Image: 1941, St. Thomas USVI, A naval submarine and air base was constructed near Gregerie Channel. This photo depicts the base power plant with four 750kva diesel generators, and a 13-acre concrete water catchment system funneled into underground cisterns which provided water supply for the entire base.
Local governments of the time mostly welcomed the massive amount of rapidly built infrastructure, manpower, and protection offered by these installations. The bases were constructed by divisions of U.S. Navy Seabees, and then occupied by U.S. Naval forces until the bases were eventually evacuated years after the end of the war. The assigned military personnel represented a significant economic benefit to the island economies, as servicemen converted their pay to consumption of local goods and services.
In addition, local companies were subcontracted to supply material and services to help construct and maintain these bases. A significant level of knowledge transfer took place as local companies learned firsthand from an industrial superpower about new technologies and engineering skills in the construction industry. This was one of the earliest examples of downstream economic benefits through large-scale foreign direct investment (FDI) in infrastructure in the Caribbean region.
The islands of Bermuda, Cuba, Puerto Rico, The Bahamas, the USVI, Jamaica, Antigua, St. Lucia, Trinidad and Tobago, and French Guiana all saw significant investment by the U.S. government throughout this period. In Trinidad, one of the largest installations at Waller Army Air Base is now the site of the Tamana InTech Park.
Throughout the post war period, local utility companies continued to expand diesel-based electrical generation and distribution throughout their respective islands. Most of these utilities were initially government owned, either directly or through statutory companies. Later several countries saw the benefit of outsourcing their utility operations to foreign interests. This eliminated the need for public capital cost budgets and transferred that obligation to the contractor. It also assured access to higher technologies, better management, and often lower costs to consumers. This includes countries like Barbados, where the Barbados Light and Power (BLPC) and The Bahamas (GBPC) are majority owned by Emera Inc., a Canadian energy firm based in Halifax, Nova Scotia (www.emera.com). Through BLPC, it also owns significant shares in LUCELEC (St. Lucia) and DOMLEC (Dominica).
In 2005, the Petrocaribe oil supply agreement was signed between Venezuela and 17 Caribbean members, including 12 from CARICOM. Fossil fuel generation continues to be the main source of municipal electricity supply in the Caribbean by far. Excluded from the agreement was Trinidad & Tobago, Barbados, and Montserrat. Trinidad produces its own oil, Barbados probably didn’t join due to U.S. political pressure (although they deny it), and Montserrat is a small British Overseas Territory almost fully funded by the UK government.
This agreement provides for supply of Venezuelan oil at competitive long-term financing rates, offering the member countries low-cost oil supply based on 25 percent down payment and the balance financed at about 2 percent over 25 years. Member governments have taken full advantage of this ‘buy now — pay later’ scheme, although at last count some US$37 billion was owed to Venezuela. With Chavez now passed away, combined with the major reduction in market oil prices and Maduro’s government under major international and domestic pressure, the likelihood that this debt may be called upon increases daily. The agreement allows the Venezuelan government to cancel membership upon 30 days’ notice. With no major fuel storage by member states, this obviously puts those countries at extreme risk of future supply, although it is likely that Trinidad or the U.S. would step in if needed.
In the meantime, the Caribbean consumer pays some of the highest electricity charges and fuel tariffs in the world (Trinidad being the only exception where subsidies produce some of the lowest rates in the world at $0.035/kWh). This has consequently produced a lack of interest in foreign direct investment from high energy users locating operations to the Caribbean region.
And for a region that relies on about 60 percent of its total GDP from tourism, you would think governments would pay more attention to producing green energy alternatives, and reducing its waste profile to protect its natural beauty and attractiveness to sustain its core industry.
At the same time, the characteristic slow uptake on available technology and renewable energy development in the Caribbean has now become a ‘front and center’ issue. Stepping in is Vice President Joe Biden, CESI, and the US-Caribbean Energy Summit. The Caribbean Energy Security Initiative (CESI) was established for three major reasons — the threat to current oil supply to national security in the Caribbean region, the challenge of investment grade bonds of local governments to support private investment, and to promote the fundamental capability to accelerate renewable energy development through the available natural resources.
The Caribbean is rich in energy resources that most countries would envy — high solar loads, constant trade winds, geothermal sources, ocean thermal (OTEC), tidal bore, and neglected waste management (WTE/WTP) — are all abundant throughout the region. And yet to date there has been virtually no meaningful development of renewable energy production on a utility scale in the Caribbean. Why?
It takes substantial project funding and long-term debt investment to capitalize these infrastructure projects. A single, typical waste-to-energy project at a utility scale using gasification technology and biogas refinery systems to process 2,000 tons/day of waste would cost about US$400 million. This requires a long-term, consistent waste delivery contract of at least 25 years to guarantee its commercial viability. Although public investment agencies like OPIC or World Bank may have a higher risk tolerance and be a viable finance partner for some of these types of projects, their approval processes tend to be long and arduous. When landfills are already overflowing, a quicker solution is required.
Private sector investment is certainly more adaptive and can react quicker, but they are focused on two main factors: profit and risk tolerance. When the national GDP/debt ratio is standing at or above 80-90 percent (as is the case in most CARICOM states), utility credit ratings are falling, and the IFC is hovering over these governments to reduce their debt burden through reduced government spending, private money gets nervous. There are solutions, but local knowledge, access to risk tolerant investment funds, and a strong network to local private sector EPC partners and forward thinking government leaders are essential.
Secondly, the Caribbean does not project a glossy record on corruption, and there are still many investment and supplier firms that will not operate in the region for that reason alone. Acceptance and uptake of new technologies moves very slowly — what is often referred to as ‘implementation deficit.’ And culturally, there is still a large part of the population with little interest in growth or expansion, even if it means cheaper electricity and a cleaner environment. This is a factor that has frustrated many suppliers from outside the region who have difficulty relating to the dynamics of the local cultures, the historical influences, and the geopolitical landscape. This in turn has contributed to an unfortunate ‘brain drain,’ where much of the educated youth have left the region to find opportunity elsewhere in the world, and consequently a delay on the development of renewable energy resources.
Finally, there is the factor of economies of scale. Although the Caribbean region may stretch some 1,500 miles from Bermuda to Trinidad, it is a small island archipelago made up of about 30 individual states with a total permanent population of only 40 million people, 11 million of which live in Cuba (which is only now opening up its economy). So essentially the entire market region equates to a population about that of the state of Texas. In 19 of these countries you are dealing with a population of under 200,000, and half of those are under 100,000. These factors directly impact the commercial viability in any one country, as well as the region on the whole.
Although the adoption of public-private partnerships (PPPs) between local governments and private enterprise are slowly on the rise in the region to propel smaller scale renewable energy projects, governments in the region still are extremely reticent about inviting in private investment at all. Notwithstanding the global shift to this finance mechanism, supported by recent statements by the President of the World Bank, Jim Yong Kim, who explicitly directed developing countries (and SIDS in particular) to access financing through the PPP structure, adoption is very slow.
There is no doubt that the Caribbean region and its abundant natural resources offers significant opportunities for the advancement of clean, renewable energy production. Governments and utilities of the region, however, need to think and work more efficiently, and become more proactive and accepting of these new ideas if they want to achieve their national energy goals. The U.S. investment market is interested but tentative, yet with U.S. support through CESI it is conceivable that some of these investment barriers could come down in the short term, particularly if local governments embrace new financing solutions.
Sir Richard Branson’s Carbon War Room and its Ten Island Challenge program is working with governments in selected Caribbean states to offer policy support to help propel clean energy alternatives. A number of smaller scale projects are underway that give rise to this optimism, and some larger projects are in development that may pave the way for a new business model for the region that will see widespread utility level applications.
The Caribbean has the opportunity to show the world it can maintain pace, or even become leaders in 100 percent renewable energy production. It remains to be seen whether the individual states and their political leadership can make it happen.
Lead image credit: Roger W | Flickr