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Why we need a long term strategy for investment in clean energy (turnerjones)
- 1. INTER-AMERICAN DEVELOPMENT BANK Why We Need a Long-Term Strategy for Investment in Clean Energy Therese Turner-Jones Miami, October 18, 2016
- 2. The Caribbean region is highly vulnerable to the effects of storms and flooding Estimated Cost of Climate Change in the Caribbean (in the absence of adaptation) in US$ Billions Source: Source: Bueno et al. (2008) The effects of climate change could cost the region up to 5% of GDP in 2025 and almost 22% of GDP by 2100. Reducing the carbon intensity of energy and investing in resilient infrastructure is fundamental to mitigate the long-term consequences of climate change, which pose a particularly acute threat to small-island states and low-lying coastal nations.
- 3. CARICOM has adopted an ambitious strategy for transitioning to sustainable energy. Achieving these targets will require: •Long-term commitment with prioritizing the transformation of the energy sector •Capacity to mobilize substantial investments •Effectiveness of regulation •Addressing critical challenges associated with the generation, distribution, storage and use of energy in the short run. Caribbean Sustainable Energy Roadmap and Strategy (C-SERMS)
- 4. We have estimated that the required investments would amount to about 7 % of regional GDP. The good news is that these investments would: •Increase economic growth •Improve the competitiveness of products and services •Increase household disposable income •Improve the region’s macroeconomic performance Economic growth and cost- recovery would offset the cost of the debt needed to finance such ambitious reforms. Significant investments are needed to: •Expand and upgrade existing power plants •Improve generation efficiency and reduce system losses •Introduce renewable energy sources •Implement energy efficiency initiatives Private Investment 1 Public Investment 2 Total Investment Total Investment (%GDP) 3 The Bahamas 441 70 511 6.0 Barbados 324 115 439 10.1 Belize 59 - 59 3.5 Jamaica 720 140 860 6.3 Suriname 288 90 378 7.8 ECCU 4 0 0 379 8.6 Antigua & Barbuda - - - Dominica - - 52 9.9 Grenada - - 87.5 9.6 St. Kitts and Nevis - - 86.5 10.2 St. Lucia - - 66 4.7 St. Vincent & Gr. - - 87 11.9 Region Total 2062 1255 3696 11.5 Source: IDB. The Caribbean: Energy Investments Needs (in millions of USD)
- 5. • Caribbean energy consumption in transportation significantly exceeds the global average. • High energy costs negatively impact the overall cost of goods and services. • Technological advancements in the transportation have increased the feasibility of a number of options for fuel switching and fuel replacement. • There is ample opportunity to introduce underutilized public transportation measures. Significant investments are needed and the reform should not focus only on the electricity sector, but also on transportation and tourism
- 6. Projects implemented in Barbados, Bahamas and Jamaica, show that air conditioning alone accounts for 48 % of total electric consumption by hotels. Savings potential of 30-40% in energy and 40-50% in water. The adoption of energy-efficient technologies can improve the competitiveness of the tourism sector. Tourism presents unique opportunities for rapid and significant impact because of its high energy consumption
- 7. • Public-Private Partnerships. • Independent Power Producers. Caribbean authorities need to pursue private financing of energy investments, particularly for projects that require significant upfront capital investments.
- 8. We must all find innovative ways to contribute to the effective transformation of energy in the Caribbean and invite you all to consider the following four propositions: The Caribbean has a problem: well-developed strategies but serious financial restrictions First, we need to be inclusive; we need to make sure that all the Caribbean countries can access resources to implement their energy strategies. Second, we need to ensure that fiscally strapped heavily indebted countries can actively engage in this transformation. Third, the international community should join forces to provide sufficient financial and technical resources to support the energy transformation of the Caribbean. Fourth, the private sector, including private banks and technology developers should rise to the challenge.
- 9. The region is moving forward and we have good examples to celebrate Next week, the 120 MW Bogue power plant in St. James, Jamaica will start running on natural gas. Replacing diesel with natural
- 11. Private Equity for Renewable Energy and Energy Efficiency Last week, MIF approved a US$ 63 Million Caribbean Basin Sustainable Energy Fund (CABEF), dedicated to provide private equity and venture capital financing for renewable energy and energy efficiency projects.
- 12. Without a long-term strategy for investment in the transformation of the energy sector we will not materialize the potential benefits to change radically the energy sector of the Caribbean. This is crucial for more stable macroeconomic conditions, higher competitiveness of local products and services, more disposable income for household and to contribute to building an inclusive, sustainable and resilient future for Caribbean people.
- 13. THANK YOU
Editor's Notes
- I would like to start by expressing my profound sorrow for all the human loss and devastation caused by Hurricane Matthew, the deadliest hurricane to hit our region in the last decade. It has been estimated that the storm took more than a thousand lives and damages in excess of US$5.2 billion, particularly having a devastating impact on Haiti, but causing severe loses in Cuba, Jamaica, The Bahamas, The Dominican Republic and the United States.
- Unfortunately the Caribbean region is located within the hurricane belt, making our countries highly vulnerable to the effects of storms and flooding. In recent years, the frequency and intensity of hurricanes in the Caribbean have been increasing, a trend that is expected to continue with rising global temperatures. According to some scholars the effects of climate change, in the absence of adaptation, could cost the region up 5 percent of GDP in 2025 and increasing to almost 22 percent of GDP by 2100. Energy is the dominant contributor to climate change, accounting for around 60 per cent of total global greenhouse gas emissions. Reducing the carbon intensity of energy is fundamental to mitigate the long-term consequences of climate change, which pose a particularly acute threat to small-island states and low-lying coastal nations. We must ensure that our future infrastructure projects are resilient and pro-environment.
- In recent years the Caribbean Community adopted a new regional energy policy and launched the Caribbean Sustainable Energy Roadmap and Strategy (C-SERMS), a coherent approach for transitioning to sustainable energy. The Region adopted very ambitious targets, such as having 47 percent renewable power capacity, a 33 percent reduction in energy intensity by and power sector CO2 emission reductions 36 percent by 2027. This effort is certainly a great step in the right direction, but achieving these ambitious targets depends largely on the region’s commitment with this long-term strategy of prioritizing the transformation of the energy sector, the capacity to mobilize substantial investments in energy efficiency and renewables, the effectiveness of regulatory structures, and the capacity to deal with critical challenges associated with the generation, distribution, storage and use of energy.
- Significant investments are needed to expand and upgrade existing power plants to meet growing demand for electricity, improve generation efficiency and reduce system losses; introduce renewable energy sources like geothermal, solar, wind and hydro power in countries where these technologies are viable; and implement energy efficiency initiatives, including solar water heating systems and smart street lighting. We have estimated that these investments would amount to about 7 percent of regional GDP. The good news are that an IMF report published earlier this year did a debt sustainability analysis of the implementation of such an ambitious plan and concluded that while results differ by country, the magnitude of the proposed energy investments did not materially alter the trajectory of public debt in most countries. Although undertaking the investment through the public sector increased the public debt ratio for all countries over the medium term, the modeled cost recovery for debt service and the positive impact on growth offset this increase in the long-run. Actually, reducing Caribbean energy costs by diversifying the energy mix and investing in energy efficiency, could essentially improve the region’s macroeconomic performance. Reducing the exposure to oil price movements would improve competitiveness and economic growth over the short and medium term, and alleviate pressures on the region’s external accounts. In the long run, improvements in energy efficiency would lead to higher and sustainable growth.
- The energy reform should not only be focused on the electricity sector, I would argue that priority should also be given to the most energy intensive users as well, namely transportation and tourism. Although it varies widely throughout the region, the transportation sector’s share of total energy consumption in most member states significantly exceeds the global average. In addition to significant fuel requirements and greenhouse gas emissions, fossil fuel combustion for transportation energy has substantial negative effects on local pollution, noise, congestion, health, and safety. The costs associated with existing transportation systems impact the overall cost of goods and services in the region and have been recognized as one of the most important barriers to development for small states. Technological advancements in the transportation sector have increased the feasibility of a number of options for fuel switching and fuel replacement, including the introduction of hybrid and electric vehicles as well as the increased use of liquid biofuels. Furthermore, CARICOM member states have a tremendous opportunity to reform the transportation sector by introducing currently underutilized public transportation measures, thereby limiting the need for personal vehicle use across the region.
- The tourism sector presents unique opportunities for rapid and significant impact because of its high energy consumption and enormous economic importance regionally. Based on the IDB funded Caribbean Hotel Energy Efficiency and Renewable energy Action Program, better known as CHENACT program carried out in Barbados, Bahamas and Jamaica air conditioning alone accounts for 48 percent of total electric consumption by hotels. The adoption of energy-efficient technologies, like the use of energy efficient lighting and AC systems, can have a material impact on reducing overall energy consumption and improve tourism competitiveness by directly lowering hotels’ overhead costs. Savings potential of 30-40% in energy and 40-50% in water. Meanwhile, limiting commercial losses in the form of unmetered electricity consumption would help enforce proper price signaling for all consumers and reduce energy intensity in the economy.
- Caribbean authorities are encouraged to pursue private financing of energy investments, particularly for projects that require significant upfront capital investments. In this regard, public-private partnerships are one modality worth considering, but to reap the benefits it will be crucial for governments to put in place a clear policy direction and legal PPP framework, install PPP-related institutional capacity, including the necessary human capital for project supervision and fiscal management. Promoting other types of private sector participation such as promoting Independent Power Producers would be particularly instrumental for exploiting the renewable energy potential in the region and since these projects involve upfront capital cost and no fuel cost, feed-in tariffs and net-billing schemes should aim to establish adequate cost recovery mechanisms to ensure viability while reducing the overall cost of energy. In addition, setting national energy efficiency standards and providing appropriate incentives will help encourage the adoption of energy efficient technologies by businesses, particularly hotels, as well as households.
- First, we need to be inclusive; we need to make sure that all the Caribbean countries can access resources to implement their energy strategies. Small Caribbean economies, even those with higher income per capita, have limited potential for economies of scale; are very vulnerable to oil price shocks; and require support to transform their energy matrices. We strongly support using vulnerability rather than per capita income as the eligibility criterion for international assistance. Hence enabling high middle income Caribbean countries access existing innovative financing programs. Second, we need to ensure that fiscally strapped heavily indebted countries can actively engage in this transformation. The principal issue for many countries is their limited fiscal space, which prevents them from taking advantage of the many programs currently available to finance energy investments. High yielding public investment that would raise output and be self-financing in the long run without endangering fiscal and debt sustainability should receive special attention. Third, the international community should join forces to provide sufficient financial and technical resources to support the energy transformation of the Caribbean. Which is the case Sustainable Energy Facility for the Eastern Caribbean; the CHENACT program in energy efficiency and LNG programs. This type of collaboration between the IDB, the CDB, the Clean Technology Fund, the Global Environment Facility and now the Green Climate Fund should serve as an example for the financing of large initiatives in other countries. Fourth, the private sector, including private banks and technology developers should rise to the challenge. We need the private sector, national and international, to take more risks, forge joint-ventures and invest in energy efficiency and renewables, and we need the financial sector to develop appropriate financing instruments to promote such ventures. We need hotels and industries to adopt energy audits and implement energy efficiency programs and dramatically reduce their operating costs. We also need the technology firms to keep investing in research and development focusing on solutions that fit the need, complexity and size of Caribbean countries.
- Cleaner fuels, such as Liquefied Natural Gas (LNG) would enable those countries in the Caribbean that do not have baseload renewable energy (such as geothermal power) to switch from heavy fuel oil (HFO) to LNG, hence not only reduce their generation cost but also its CO2 emissions. In Barbados the IDB is supporting the country with their own LNG plant not only for industrial and commercial use but also to replace more than half of their existing generation capacity. Jamaica took the lead and last year the US Company, New Fortress, won the bidding to supply LNG to the Bogue power Plant in Montego Bay and a new 190 MW plant in Old Harbour, Kingston. Next week, the 120 MW Bogue power plant in St. James, Jamaica will start running on natural gas. We congratulate the government of Jamaica, JPS and New Fortress
- In an effort to support the exploitation of geothermal energy in the OECS and to facilitate the participation of private investors in these ventures, exactly a year ago, Luis Alberto Moreno, President of the IDB and Dr. Warren Smith, president of the Caribbean Development Bank, signed the approval of the Sustainable Energy Facility for the Eastern Caribbean, also known as the SEF, with a US$71.5 million in loans and grants from the IDB, including funding from the Clean Technology Fund and the Global Environment Facility. The SEF will radically transform the energy matrix of the Eastern Caribbean, promoting geothermal development in Grenada, Dominica, St Lucia, St Kitts and Nevis and St. Vincent and the Grenadines. Today we are particularly glad to announce that just days ago the Green Climate Fund approved an additional contribution of US$ 80 million to the SEF, including US$ 4million for technical assistance and project preparation; US$ 16 million in contingent recovery grants for exploration; and US$ 60 million for plant development and transmission lines. This type of collaboration between the IDB, the CDB, the Clean Technology Fund, the Global Environment Facility and now the Green Climate Fund should serve as an example for the financing of large initiatives in other countries.
- I am happy to announce that to contribute to this effort, three weeks ago, IDB’s Multilateral Investment Fund approved the establishment of a US$ 63 Million Caribbean Basin Sustainable Energy Fund (CABEF), the Banks first clean energy fund dedicated to the Caribbean Basin and the first to provide private equity and venture capital financing for renewable energy and energy efficiency projects. CABEF is being financed by the Multilateral Investment Fund, the Global Environmental Facility (GEF) and private investors and serves as another example of collaboration.
- In sum, without a long-term strategy for investment in the transformation of the energy sector we will not materialize the potential benefits before us, to radically transform the energy sector of the Caribbean, which would result in more stable macroeconomic conditions, higher competitiveness of local products and services, more disposable income for households and a significant contribute to building an inclusive, sustainable and resilient future for people in the Caribbean. I renew the Bank’s commitment with this strategy and invite you to partner with us in finding new ways to support Caribbean countries in the difficult transition from vulnerability to sustainable development.