Addressing the misconception that renewable energy will immediately lower electricity prices
By Clive Hosten, Chief Engineer, Grenlec
Countries around the world, including small island states like Grenada, are aggressively pursuing increased renewable energy to lessen dependence on fossil fuels, mitigate climate change, and reduce electricity costs for economic growth. For more than a decade, Grenlec has acted upon its commitment to increasing the use of renewable energy to best serve our customers.
While there’s no doubt that renewable energy is a sustainable approach for electricity generation, there is a misconception that renewable energy will immediately lower electricity prices. Grenlec wants to present the facts that support its balanced, prudent approach to diversifying Grenada’s energy portfolio with cost-effective clean energy sources while stabilising electricity costs and ensuring high-quality, reliable electric service.
Experience shows that transitioning to greater use of renewable energy is a long-term investment and does not reduce electricity prices in the short term. While many small island nations are heavily dependent upon imported fuel for electricity production, investments are being made to increase renewable energy generation; however, it does not result in electricity prices going down immediately. As shown in the chart below, even some islands with renewable energy production of 25% or more, such as Dominica, Aruba, and Hawaii, have higher electricity prices than Grenada.
Independent small islands with stand-alone electrical systems face high upfront development, financing, and capital costs for renewable energy investments without the benefit of economies of scale that countries with larger populations would enjoy. Upgrades to the existing electrical grid must also be made to integrate multiple energy sources to maintain reliability and quality. And, because renewable sources such as wind and solar are intermittent and dependent upon weather conditions, the current generation system needs to be maintained to provide power to all customers continuously. All of these costs are borne by a smaller number of customers than in larger countries, therefore the per customer cost is higher.
Data: 2014-2016. Sources: Utility websites, National Renewable Energy Laboratory (NREL), U.S. Energy Information Administration, and other online resources.
LEARNING FROM OTHER COUNTRIES
Larger nations, including Germany, Spain, and Canada, have accelerated renewable energy production aggressively over the last decade, as part of a long-term investment strategy that includes government subsidies and customer surcharges to support renewable energy development.
In 2015, Germany, the fourth largest economy in the world with a population of 80.89 million, boasted almost 33% renewable energy generation. 2015 marked the first time in more than a decade that consumers experienced a decrease in electricity prices since the start of Germany’s energy transition, Energiewende. In the 1990s, the nation introduced Energiewende as a long-term energy strategy to accelerate renewable energy use to help mitigate climate change and reduce reliance on nuclear power and coal for electricity generation.
Since 1998, electricity rates have increased by 70%, mainly due to the renewable energy surcharge that subsidises renewable energy investments in Germany. In 2016, Germany’s average cost for electricity is US$0.28 (EC$0.77). More recently, Germany has announced that it is slowing renewable energy development to curb increases in electricity costs. According to recent public polls, Germans are willing to pay higher prices for electricity generated from renewable energy for the long-term benefit of reducing reliance on nuclear power and fossil fuel and mitigating climate change.
Spain, with a population of 46.77 million, once the leader in the renewable energy market, faced a significant slow-down in renewables after the global financial crisis in 2008, and a shift in government policy to reduce subsidies for renewable energy investments for both consumers and businesses. The change in policy came about because of a deficit of more than US$28 billion in Spain's energy market, built up by subsidies to cover the gap between the cost of producing electricity from renewable sources and the price charged to consumers. From 2006 to 2012, Spanish consumers experienced a 60% increase in electricity rates.
Ontario, with a population of 13.6 million, launched its Green Energy Act in 2009, which subsidised the use of renewable energy by providing long-term guarantees at above-market prices for renewable generation through a feed-in tariff system. Since 2004, the total annual power cost in Ontario has risen by more than 59%. Wind and solar energy contribute to approximately 4% of Ontario’s power, and accounts for about 20% of the electricity cost.
Taking a Prudent Approach to Increased Renewable Energy in Grenada
Given our small population and relatively low consumption, Grenlec believes in taking a balanced, steady approach to increasing renewable energy without placing undue financial burden on customers or risking the reliability and quality of electricity service. Grenada needs to maintain a prudent approach as the nation steadfastly transitions to greater integration of renewable energy to control costs and reduce its carbon footprint. The consequences of any misstep in Grenada’s energy sector transformation will lead to increased electricity costs and threaten reliability.
A Sustainable Path Forward
Grenlec can further accelerate the transition to clean energy sources with proven, cost-effective technologies by utilising Crown land for future renewable energy installations. To date, the availability of suitable land has been the biggest challenge to increasing renewable energy generation in Grenada.
For more information about Grenlec’s renewable energy initiatives, please visit grenlec.com/energise