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GRENLEC Comments on Draft Electricity Supply Act

GRENLEC Comments on Draft Electricity Supply Act

Author: GRENLEC Blogger/Monday, March 2, 2015/Categories: Media Releases

GRENLEC’S PRESENTATION

25th FEB., 2015 NATIONAL CONSULTATION ON DRAFT ENERGY BILL

I am Murray Skeete, Director of GRENLEC and Vice President of Engineering and Regulation with WRB Enterprises, the majority shareholder and operator of GRENLEC. I would like to thank the Government of Grenada for the opportunity to address this Public Consultation on the draft 2015 Electricity Supply Bill on behalf of GRENLEC’s management, shareholders and employees -- many of whom are here today, and have seen first-hand the remarkable changes and progress achieved by GRENLEC since the public-private partnership established in 1994.

There are three main points we want to make today:

1.      GRENLEC wholeheartedly shares the government’s goals of (a) lowering Grenada’s energy costs and (b) reducing the nation’s dependence on foreign fuel by increasing renewable energy generation.

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

3.      GRENLEC again asks for an opportunity to meet with Government to address the technical issues and identify the optimal pathways for accomplishing these shared goals. While we have had very little time to review the new Bill, we have serious concerns that several key proposals could have very adverse effects on the reliability and cost of electric service for the citizens of Grenada.

A. Brief Overview of GRENLEC’s Post- Privatisation History

Many of us remember that privatisation 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 privatisation, 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 modernise the nation’s electricity system. Under our 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.

B. Current Challenges Facing The Electricity Sector

We fully recognise the challenges facing Grenada and other small Caribbean and island nations to control energy costs.  While our rates are comparable with similar-sized islands, we’re continuously improving operational and fuel efficiency to stabilise costs.  In addition, the current statutory regime imposes a critical restriction on GRENLEC’s price increases: specifically, our non-fuel price changes must be 2% below Grenada’s annual inflation rate.  Indeed, GRENLEC’s non-fuel base rate has actually decreased 23% when adjusted for inflation over the last two decades.

However, the cost of electricity remains higher than we all want, due to a series of complex issues that confront most small island utilities around the world.

  • · Grenada’s stand-alone island electric system requires maintaining high generating reserve margins at significant cost
  • · Grenada’s relatively small population and lack of energy-intensive industrial customers creates a higher per unit service cost than in larger economies
  • · Unlike Trinidad and Tobago, today Grenada has no native fossil fuel resources
  • ·Until very recently, the cost of renewable energy generation and its associated reliability concerns did not compare favourably with conventional thermal generation
  • · The risk of hurricanes imposes significant costs on the system to ensure resiliency and speedy recovery.

 

These are the realities of a small island nation.  However, we all have a shared desire to pursue lower energy prices and increased deployment of greener generation technologies.

That’s why we have for the last six years proactively sought opportunities to join with the Government of Grenada and its advisors in order to develop broad-based solutions for stabilizing costs and developing a reliable, sustainable energy portfolio that accommodates renewable energy, energy efficiency, and least-cost planning.  

The essential question for all stakeholders is how to achieve these objectives in a manner that is (1) economically sustainable, (2) does not sacrifice operational reliability and (3) is legally valid, reasonable and balanced.  GRENLEC believes the answer is: through careful analysis, active collaboration and implementation of well-established best practices.

C.  GRENLEC Has Urged A Collaborative Approach In Addressing Sector Challenges

GRENLEC has continuously explored renewable energy options dating as far back as 1996; however, until the 2008 spike in international oil prices, renewable technologies were simply not cost-competitive with fossil fuel generation.  Once those post-2008 economic shocks kicked in, GRENLEC’s efforts to assess and deploy renewable technologies were significantly escalated. 

GRENLEC acknowledged that potential legislative and regulatory amendment should be considered in order to facilitate renewable energy deployments, and voluntarily offered to participate in negotiations along these lines.  Regrettably, and due to no fault of GRENLEC, no progress was made with the Government, either on geothermal development, the wind/diesel hybrid project for Carriacou or negotiations about legislative and regulatory reform.

However, the prospects for legislative and regulatory reform regarding the electricity sector appeared to obtain very constructive impetus in 2014 with the United States Caribbean Energy Security Initiative (“CESI”).

The Grenadian and U.S. Governments executed a Memorandum of Understanding which committed to facilitated discussions between the Grenadian Government, the United States Government, and GRENLEC focused on identifying, assessing and implementing optimal ways to address key electricity sector issues in Grenada.

All parties committed to the following Vision Statement:

“Achieve a reduction in imported fossil fuels and energy prices through a comprehensive process led by Government of Grenada in collaboration with GRENLEC and involving all stakeholders as part of a transition towards a Green Grenada.” (Emphasis added.)

Unfortunately, without explanation to GRENLEC, and despite GRENLEC’s:

  • ·consistent record of outstanding operations,
  •  
  • ·exclusive legal rights confirmed both in its contracts with the Government of Grenada and in existing legislation, and
  •  
  • ·repeated offers to join with the Government of Grenada to explore and implement collaborative reform measures for Grenada’s electricity sector,

 

the Grenadian Government has not proceeded with the collaborative discussions.  Instead, Government chose another path, specifically by tabling a statute that would institute a unilateral and radical restructuring of Grenada’s electricity sector and a fundamental alteration of GRENLEC’s operations.

D.  Observations About The New Energy Sector Restructuring Bill

 

We must stress that GRENLEC has not been given sufficient opportunity to review the far-reaching restructuring provisions set forth in the new Bill that is the subject of today’s “consultation.”  Thus, we cannot provide detailed comments at the present time regarding the full impacts -- operational, technical, economic and legal -- that this dramatic shift will have on Grenada’s electricity sector.  Accordingly, GRENLEC must reserve the right to provide additional comments after further review.

However, from GRENLEC’s initial review of the new Bill, the following observations can be made:

 

  • ·Without discussion or sharing of any substantive facts and empirical data that would support and warrant this far-reaching action, the new Bill summarily terminates GRENLEC’s contractually- and legislatively-granted exclusive licence.
  •  
  • ·In addition, contrary to widely-followed international best practices, 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- politicise the electricity sector.

 

E.  The Bill Appears To Treat Five Assertions As Inherent And Proven Truths

Noting and responding to these assertions in turn:

 

1.      ASSERTION:  Allowing multiple licencees 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.

 

ICF Resources, a recognised leader in international energy consulting with significant experience in Caribbean utility operations, conducted a comparative analysis of the power industry structure and potential for utility unbundling and competitive energy procurement in Grenada.  ICF 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: “… it appears that unbundling Grenada’s generation and wires businesses would be an endeavor more likely to increase costs than provide significant benefits. The endeavor carries risk for the system and for Grenada.”  (Emphasis added.)

 

To stress this critical point again, 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 destabilise the reliability of Grenada’s energy network.

 

 

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

 

Again, GRENLEC has been actively exploring cost-effective renewable energy options since 1996, and aggressively striving to introduce renewable energy generation in Grenada since 2009.

Our voluntary Customer Renewable Energy Interconnection Programme—the first of its kind in the Caribbean—includes more than 70 customer sites, and is about to move into its third phase with an aggregate installed capacity approaching 800 kW.

And with Government cooperation, we can do much more.  We have 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 these proposals have not elicited any official action. 

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

 

Once again, 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, most renewable technologies are not competitive with traditional fossil fuel generation.  Nonetheless, deploying renewable technologies now can help lessen Grenada’s dependence on foreign fuel when higher fuel prices return.

However, it is essential to recognise that renewable generation technologies will not necessarily drive down retail prices in the near term.  The reason for this is simple and unavoidable – 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. 

 

This belief is not only contrary to present experience in Grenada, but is counter to world-wide best practices. 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 Minister and Government of Grenada.  This level of control is reminiscent of Grenada’s electricity sector structure in the late 1980s, and is certain to impede -- rather than foster -- modernised, efficient and effective operations for the nation’s energy sector.  Operating under the current regulatory framework, GRENLEC has diligently and successfully worked to build a sound, efficient system that Grenada can rely upon.  And GRENLEC has never objected to the introduction of a fair, competent and politically-independent regulatory authority for the electricity sector.  However, a race back to the political micro-management of the past is not a constructive approach for achieving those objectives.

 

*          *          *

 

In summary, working under the current regulatory framework for over two decades, GRENLEC has succeeded in creating a world-class and highly-effective utility that serves the entire nation of Grenada.  At the same time, Grenlec agrees that appropriate legislative and regulatory reforms can help the country reduce its reliance on fossil fuels, stabilise 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 Government of Grenada to benefit all residents and businesses of Grenada, and working towards national and regional regulatory change that will help lessen the energy challenges on Grenada, and foster our mutual goals of cost control, continued reliability and sound environmental stewardship.  Unfortunately, this draft bill will not achieve these goals.

Thank you.

Download:

1.  GRENLEC's Comments on the Draft Electricity Supply Bill 2015

2.  Draft Electricity Supply Bill 2015

3.  Summary of Public Utilities Regulatory Commission Bill

4.  Presentation by Consultant Janis Brennan on Draft Electricity Supply Bill 2015

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