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GRENLEC’s Key Points Regarding Draft Grenada Electricity Supply Bill

Author: GRENLEC Blogger/Thursday, May 28, 2015/Categories: General

DRAFT GRENADA ELECTRICITY SUPPLY BILL, 2015

GRENLEC KEY POINTS

 

 

GRENLEC’s Key Points Regarding the Bill:

 

·         GRENLEC wholeheartedly shares the government’s goals of (1) lowering Grenada’s energy costs and (2) reducing the nation’s dependence on foreign fuel by increasing renewable energy generation. GRENLEC believes that this draft bill will not achieve these goals.

 

·         GRENLEC wants to continue building on the substantial investment and significant progress achieved over the last 20 years since Privatization in order to assure the nation’s on-going reliable, high quality and efficient electricity service at the lowest feasible cost. 

 

·         GRENLEC wants an opportunity to meet with Government to address the technical issues and identify the optimal pathways for accomplishing these shared goals collaboratively.

 

·         GRENLEC has serious concerns that several key proposals of the bill could have very adverse effects on the reliability and cost of electric service for the citizens of Grenada.

 

·         GRENLEC agrees that appropriate legislative and regulatory reforms can help the country reduce its reliance on fossil fuels, stabilize generation costs and develop a more diverse and sustainable energy supply for all citizens. 

 

·         GRENLEC is a strong and willing proponent of working in partnership with our Government to benefit all residents and businesses of Grenada, and working towards national and regional regulatory change that will foster mutual goals of cost control, continued reliability and sound environmental stewardship. 

 

Background

 

·         Privatization of GRENLEC was recommended to the Government of Grenada in the early 1990s by leading international industry authorities to help improve the reliability and quality of electricity service, reduce national debt, introduce new and more efficient technologies, control costs, and help support the nation’s economic growth.

 

·         In a competitive bidding process, 50% of GRENLEC was sold to WRB Enterprises, a privately owned company that brought decades of energy experience and a proven track record in successfully rebuilding and upgrading other Caribbean utility companies.  Government entities retained 21% and the remaining shares were sold to employees, as well as local and regional shareholders.

 

·         In the 20 years since Privatization, Grenada’s severely outdated, inefficient and unreliable electric utility has been transformed into a world-class system providing reliable, efficient and universally-available service.  GRENLEC is widely acknowledged by international experts in energy and finance to be a highly-effective and well-managed utility.

 

 

·         GRENLEC has been at the heart of change and growth in Grenada, investing more than $150 million dollars for capital improvements to modernize the nation’s electricity system. Under WRB management, the system’s installed capacity, peak load and customer connections have more than doubled. Emergency operational systems and funding are in place to expediently restore power when devastating hurricanes hit.  And every year, GRENLEC donates 5% of its pre-tax profits to benefit Grenada’s public institutions and other worthy charitable causes. GRENLEC offered the Community Partnership Initiative in 1994 and has donated more than $14.85 million to date.

 

Challenges

·         GRENLEC recognizes the challenges facing Grenada and other small Caribbean and island nations to control energy costs. Contrary to misinformation distributed recently, Grenada does not have higher electricity rates than comparable island systems. 

 

·         Even with the Government’s Value Added Tax and environmental levy applied, GRENLEC’s rates are comparable with similar small island nations, as well as the U.S. Hawaiian Islands that has a population more than ten times greater than Grenada.

 

·         The current price cap structure puts a critical restriction on GRENLEC’s price increases. Non-fuel price changes must be 2% below Grenada’s annual inflation rate. GRENLEC’s non-fuel base rate has actually decreased 23% when adjusted for inflation over the last two decades. Fuel costs fluctuate based on the cost of imported fuel. The recent falling oil prices have resulted in lower energy bills.

 

·         Factors affecting electricity prices of Grenada and other small island nations:

 

1.   Grenada’s stand-alone island electric system requires maintaining high generating reserve margins at significant cost

2.   Grenada’s relatively small population and lack of energy-intensive industrial customers creates a higher per unit service cost than in larger economies

3.   Unlike Trinidad and Tobago, today Grenada has no native fossil fuel resources

4.   Until very recently, the cost of renewable energy generation and its associated reliability concerns did not compare favorably with conventional thermal generation

5.   The risk of hurricanes imposes significant costs on the system to ensure resiliency and speedy recovery.

 

Change Needed to Achieve Common Goals

·         GRENLEC, the Government and other stakeholders have a shared desire to pursue lower energy prices and increased deployment of greener generation technologies.

 

·         GRENLEC acknowledges that potential legislative and regulatory amendment should be considered, and voluntarily has offered to participate in negotiations, either on geothermal development, the wind/diesel hybrid project for Carriacou or negotiations about legislative and regulatory reform.

 

·         Despite GRENLEC’s consistent record of outstanding operations, exclusive legal rights confirmed both in its contracts with the Government and in existing legislation, and repeated offers and formal agreements to explore and implement collaborative reform measures for Grenada’s electricity sector, the Government has now tabled a statute that would institute a radical restructuring of Grenada’s electricity sector and a fundamental alteration of GRENLEC’s operations.

 

Observations about the New Energy Sector Restructuring Bill

 

·         Without discussion or sharing of any facts and data that would support and warrant this action, the new bill summarily terminates GRENLEC’s contractually- and legislatively-granted exclusive license.

 

·         The new bill turns back the clock and re-vests control over virtually every aspect of GRENLEC’s operations, technical planning and finances to a single Government minister.  This flies in the face of efforts across the Caribbean and the world to de-politicize the electricity sector.

 

The draft bill appears to treat five assertions as inherent and proven truths. GRENLEC’s response to these assertions:

 

1.      ASSERTION:  Allowing multiple licenses to engage in electricity generation, and also potentially to engage in electricity transmission & distribution, will drive down consumer prices. 

 

·            GRENLEC contends that the small size of Grenada and its electricity system would prevent an efficient and cost-effective competitive market from functioning properly.

 

·            Recently a comparative analysis of the power industry structure and potential for utility unbundling and competitive energy procurement in Grenada was conducted.  The industry report concluded that the incremental cost of duplicating operations to separate generation from transmission & distribution on Grenada will carry a much higher cost per customer compared to a larger utility.

 

The report states: “The idea of separating GRENLEC into separate generation and transmission entities would not result in material benefits, and would instead be likely to result in cost increases that could be detrimental to Grenada’s electricity customers and its economy.”

 

·            There is substantial reason to fear that introducing multiple generation and/or network licensees into Grenada’s relatively small and insular market could materially increase electricity costs for some, or even many customers, and destabilize the reliability of Grenada’s energy network.

 

2.      ASSERTION:  GRENLEC’s exclusive license has impeded the development of utility-scale renewable energy generation. 

 

·            GRENLEC has been actively exploring cost-effective renewable energy options since 1996, and aggressively striving to introduce renewable energy generation in Grenada since 2008. Our initiatives to date include:

 

1.      The Customer Renewable Energy Interconnection Programme—launched in 2008 and the first of its kind in the Caribbean—includes more than 75 customer sites, and is about to move into its third phase with an aggregate installed capacity approaching 800 kW.

 

2.      The Petite Martinique Renewable Energy Project, 31.59 kW, is the first phase in GRENLEC’s programme to convert Petite Martinique to virtually 100% renewable energy.

 

3.      Our Grand Anse roof-top solar installation on three GRENLEC buildings, which total 150 kW. Plans are underway to expand capacity to other facilities.

 

·            With Government cooperation, GRENLEC can do much more. Availability of land remains one of the single largest impediments to renewable energy development.  GRENLEC has made multiple proposals to the Government of Grenada for access to land that could have resulted, and still could result, in the rapid deployment of substantial renewable energy generation.  To date, no positive action has been taken.

 

3.         ASSERTION:  Utility-scale renewable energy generation will necessarily drive down prices. 

 

·            Although wind and solar power costs have been steadily decreasing world-wide for many years, the size of Grenada and the relatively small scale of any renewable projects that can be installed will result in significantly higher installed costs than would pertain on larger systems.  It’s simply a matter of scale.

 

·            At today’s lower fuel prices, renewable technologies are not competitive with traditional fossil fuel generation.  However, deploying renewable technologies now can help lessen Grenada’s dependence on foreign fuel when higher fuel prices return. Our Company is committed to aggressively pursuing renewable energy development.

 

·               Renewable generation technologies will not necessarily drive down retail prices in the near term. Intermittent renewable technologies only displace the need to burn fossil fuel, and not the capital infrastructure that must remain for the frequent times when wind and solar conditions cannot support the system’s overall power needs.

 

 

4.      ASSERTION:  Greater self-generation will benefit all citizens and businesses in Grenada. 

 

·               Self-generation of electricity does not necessarily benefit everyone, especially those who are not generating their own electricity and lower income residents who can least afford it.  These customers will inevitably be burdened with a disproportionate share of the carrying costs for the overall electrical system.

 

5.      ASSERTION:  Greater politicization and increased governmental control over the electricity sector is needed to assure efficient and reliable electricity service in Grenada. 

 

·               Contrary to present experience in Grenada and counter to world-wide best practices, increased governmental control does not ensure improved electricity service.  It has been demonstrated repeatedly that private enterprise is far better than Government at managing and delivering essential utility services.

 

·               The draft bill provides an extraordinary amount of discretionary power and micromanagement control to the Government through one Minister.  

 

·               This level of control is reminiscent of Grenada’s electricity sector structure in the late 1980s, and is certain to impede—rather than foster—modernized, efficient and effective operations for the nation’s energy sector.  

 

·               Working under the current regulatory framework, GRENLEC has diligently and successfully worked to build a sound, efficient system that Grenada can rely upon and with which our team members are proud to be associated.  And GRENLEC has never objected to the introduction of a fair, competent and politically-independent regulatory authority for the electricity sector. 

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