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20 Facts You Should Know About the Draft Electricity Supply Bill

20 Facts You Should Know About the Draft Electricity Supply Bill

Author: GRENLEC Blogger/Tuesday, March 24, 2015/Categories: General

GRENLEC shares the Grenadian Government’s goals for stabilizing electricity costs and increasing the use of renewable energy to lessen our dependence on foreign oil. GRENLEC wants to continue efforts to make changes collaboratively with the Government and build upon the efficient, reliable, well performing electric system that has steadily improved the quality of electric service on Grenada since Privatization in 1994.

The Government of Grenada’s draft Electricity Supply Bill, 2015 proposes to repeal and replace the 1994 Electricity Supply Act, calling for a comprehensive restructuring of Grenada’s electricity sector. It intends to open Grenada’s electricity market to domestic and foreign investment for the generation, transmission and distribution of electricity.  In addition to GRENLEC, the bill allows multiple licensees to compete for the production, transmission, distribution and sale of energy. The Government believes that this new bill will lower electricity costs, reduce dependence on foreign fuel, and increase reliance on renewable energy through competition.  Analysis shows that it’s not that simple to create a cost-effective, competitive energy market on island nations as small as Grenada. A recent industry report analyzing the power industry structure and competitive procurement in Grenada concluded that:  “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.”

This fact sheet addresses some of the myths and misconceptions about energy competition and renewable energy to help you understand the negative impact that this draft bill can have on the cost and reliability of electric service in Grenada.

Myth

Fact

Grenada has high electricity prices compared to the rest of the world.

1.    Grenada’s current average electricity price (US$0.38/kWh)) is comparable to other small Caribbean island nations with similar characteristics. On a larger scale, with a population more than ten times that of Grenada, the U.S. Hawaiian Islands’ average residential rates are US$0.35-$0.46/kWh. 

2.    GRENLEC is regulated by the 1994 Electricity Supply Act. Non-fuel charge adjustments must be 2% below Grenada’s annual inflation rate. In fact, the non-fuel base rate has decreased 23% when adjusted for inflation over the last 20 years. GRENLEC does not have control over Value Added Tax (VAT) and the environmental levy, which GRENLEC pays directly to Government and the Solid Waste Management Authority respectively.

Allowing multiple licenses for electricity generation, as well as network licenses for transmission and distribution, will drive down consumer prices

3.   Due to the relatively small size of our country and our energy demand, we are not able to benefit from economies of scale that allows a competitive energy market to function cost-effectively.

4.   Injecting independent power producers and operators into our environment can increase costs with the duplication of systems, administrative overheads, legal and other operational and management expenses.

5.   Replicating transmission and distribution systems will unlikely result in cost reductions, and can destabilize the reliability of Grenada’s energy network.

6.   Investment in developing a fair, competent, experienced regulatory body with defined roles, responsibilities and accountability will be critical. Those costs will be borne by customers.

7.   The cost of regulating multiple power generators and transmission & distribution networks will inherently be greater than regulating one integrated utility. These additional administration costs will be passed on to customers.

RENLEC’s exclusive license for electricity generation, transmission and distribution has impeded the development of utility-scale renewable energy generation.

8.    GRENLEC has pursued renewable energy options since 1996, with efforts escalating after the economic shocks of 2008 international oil price spikes that caused record high electricity price levels. Until then, pricing for most renewable technologies was not economical. The cost of generation from renewable energy was greater than the avoided cost of fossil fuel.

9.    GRENLEC has invested in renewable energy projects over the last decade as a cost-effective way to develop an economical, diverse, and sustainable energy portfolio.

10.  GRENLEC’s Voluntary Customer Renewable Energy Interconnection Programme—the first of its kind in the Caribbean—includes more than 75 customer sites for installed capacity approaching 800 kW as it moves into its third phase.

11.  GRENLEC has made multiple proposals to the Government for major renewable energy projects, including geothermal, wind and solar, which have not resulted in positive action.

Utility-scale renewable energy generation will drive down prices. 

12.  Although wind and solar costs are decreasing, the size of Grenada, availability of suitable land, 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 due to economies of scale.

13.  Intermittent renewable energy (solar and wind) only offsets the cost of burning fuel. Power needs to be available when weather conditions are not conducive to renewable generation. The present capital infrastructure must remain to support the system’s overall needs.

14.  Costs associated with base-load renewable energy generation, such as geothermal, are extremely difficult to predict without expending significant exploration and development dollars. Pricing from around the world suggest that it might yield energy costs at or above Grenada’s current cost of traditional fuel generation.

15.  Accommodating intermittent renewable generation resources often requires additional investment in transmission system upgrades to ensure quality and reliability.

Significant increased reliance on renewable energy generation cannot have any adverse operational impacts on the electricity sector. 

16.  High levels of intermittent renewable energy generation penetration on isolated island systems is technologically challenging for the reliability of the electrical grid system. Utilities in Hawaii and California have been struggling to maintain grid stability in environments with high levels of customer connections for roof-top solar. To date, we have not found a high penetration of intermittent renewable energy systems operating on an unsubsidized, commercial basis.

Greater self-generation of electricity will benefit all citizens and businesses. 

17.  Some customers are able to take advantage of self generation more readily than most lower-income households. This could leave the burden of paying a larger, disproportionate share of the fixed electrical system costs to customers who cannot afford to invest in renewable energy.

Greater politicization and increased governmental control over the electricity sector will lead to more efficient and reliable electricity services. 

18.  Increased Government control over the electricity sector can have an adverse effect on low-risk investors and discourage investment in lower-return, longer-yield technologies such as renewable generation, energy efficiency and energy storage.

19.  Government control of the electric power sector increases risk due to the potential for political interference and disruptions, resulting in higher administration and capital costs which ultimately leads to a higher cost of electricity for customers and threatens reliability.

20.  Experience and world-wide best practices demonstrate that private-public partnerships with a fair, competent regulatory system is better than Government at managing and delivering vital utility services.

GRENLEC supports our Government’s goals of lowering energy costs and reducing dependence on foreign fuel by increasing renewable energy generation. However, this draft bill will not achieve these goals. GRENLEC asks the Government for collaboration to create solutions that will foster mutual goals for cost control, increased use of renewable energy, reliability, and environmental stewardship in the best interest of our economy and citizens.

For more information, please contact GRENLEC at pgreenidge@grenlec.com.   

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