by Ada Torres-Ramírez
The cost of electricity for most of the island nations along the arc of the Caribbean is triple what the average customer pays in the US (around 38 cents per kilowatt). Almost all of the electricity distributed comes from burning of imported fossil fuel. An oil based economy is a sad reality, in spite of the fact that there’s potential for renewable energy generation. Solar, wind, hydro, geothermal, and ocean kinetic capacity is spread throughout the region. However, because islands are tiny, there’s not enough opportunity to have a return on investment for energy production. Since market scale is the obstacle, one way to go around it is to interconnect. The benefits that a green energy grid could have are worth the effort. In fact, a regional energy market for the Caribbean may already be brewing.
Establishing interconnection between islands through submarine cables can make investment more attractive through economies of scale. Electrical interconnection will facilitate the Caribbean Region’s economic development through access to affordable electricity and the establishment of an energy-trading industry.
Other regions have already taken bold measures to advance their infrastructure planning towards a Green Energy Grid. In the European Union, there is already a formal collaboration between regulatory agencies, transmission system operators, private entrepreneurs, and other groups that are involved in a progressive process of strategic planning. This includes zoning criteria and pre-permitting for project sites for different renewable energy sources. One of the valuable contributions of this meticulous planning process is that, in addition to enabling operational integration, it also facilitates financing for projects. As more efficient use of funding is made possible through the creation of energy markets, these markets will lower the costs of achieving renewable energy portfolio targets. The stability that a regional framework provides is a valuation criterion for investment purposes.
In the Caribbean, the business case for a similar undertaking is becoming clearer. This region’s natural assets make it an attractive tourism destination. Tourism accounts for up to 70% of Gross Domestic Product in some islands, and tourism is an energy-intensive industry. Any effort to secure access to renewable energy for the long term is welcome, as is the fact that the region will become an environmentally friendlier destination. Construction of renewable energy projects is at a very early stage. The capital investments required are huge, which makes any mechanism that will make the projects viable worth considering. Puerto Rico recently enacted its Renewable Portfolio Standard, allowing developers to sell renewable energy credits as part of their financing structure. Other Caribbean countries, like the Dominican Republic, use the Clean Development Mechanism to incentivize mitigation projects.
The establishment of a regional transmission energy grid and market for the Caribbean has many challenges. But the potential arising from it is also exciting. Notice has been taken by savvy international investors, and several projects in the Caribbean have already received funding from investors from as far away as the Middle East. The potential for wind, solar and geothermal energy is there, and the region does not intend on wasting it.
Ada Torres-Ramírez is the owner of BusinessWise, a Puerto Rico-based sustainable management and environmental marketing firm. She can be reached at adatorres [at] getbusinesswise.com.