Jamaica Gleaner
Published: Monday | December 6, 2010
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Stimulate renewable energy
A panoramic view of some of the wind turbines at the Wigton Wind Farm in Rose Hill, Manchester. - file photos
Roderick Gordon, Contributor

The scale and investment in renewable energy worldwide has been staggering. Staggering when one thinks of the decades of fossil-fuel dominance and dependence.

Indeed, locomotion and static energy needs have been met almost exclusively by some form of generation that uses one form of fossil fuel or another, since man discovered the spark.

To be clear, there are two identifiable areas of renewable energy viability that Jamaica has identified. First, the use of ethanol (and eventually biodiesel) to substitute and conserve the use of imported petroleum.

Second, the use of energy generated from renewable sources to supplement and retire some of the current generation from oil-consuming units.

Both take significant investment and long-term plans by private capital. Private investors, whether local or international, are primarily motivated by the rate of return on the capital employed. There has to be a plausible and definable path to this return in the medium to long term. Such expectation is not new to Jamaica, as historically a number of incentive programmes and laws have been passed to encourage nascent industries.

However, there is a peculiar urgency about the need for such incentive. It is painfully clear to both the Government and private citizen, that fossil-fuel costs will never return to a comfort zone that one can not be concerned about. The pain is felt daily, in virtually every sphere of activity, and is constant.

This urgency is made more acute by the aggressive amount and scope of specific laws passed in developed countries, as well as developing ones, to attract capital to invest in the development of a renewable energy industry. It is well-documented that the world leaders in the solar and biofuel industries, such as Germany and Spain, achieved this status by the early passing of a Renewable Energy Sources Act (RESA).

'Spark plug' law

To use the analogy of the car engine, this law has been the spark plug to get the fuel activated to start and drive the engine.

A RESA recognises the need and desirability for the development of alternative sources of energy. Indeed, it encourages these sources to be renewable and sustainable in nature. Further, it gives incentives to investors and producers of such renewable energy. For example, in Germany it provides for a feed-in tariff for producers of renewable energy and electricity. This means that for every kilowatt hour of electricity supplied to the national grid, a portion is paid to the renewable energy producer, in addition to the price paid by the consumer.

The rationale for this is primarily the fact that, left to itself, the return on investment in this space cannot compete with the older more established means of generation. The incentives are not static though. They are graduated to encourage innovation and lowering of costs by the producer, so that there is economic incentive to accelerate the path to lower cost. So over the period of, say, five years, the rate paid to the producer should gradually decrease as over that time it should be increasing capacity, as well as reducing overheads.

The mere fact that countries that have passed a comprehensive RESA have been effective and successful in establishing a renewable energy industry, from Brazil to Slovenia, suggests practically that the type of investor and capital required to move our industry here will not happen until that investor and his capital is motivated by the spark plug present in every other engine of renewable energy growth.

It is no use offering a favourable investment climate without specific legislation. This may largely explain why other private initiatives did not follow the excellent example of Wigton as a viable concept. The question asks itself - is Wigton attractive enough to private capital without the framework of a RESA? In my opinion, it is not.

It is unfortunate that the all-island electricity licence was not amended at the time of divestment, as this virtually safeguards the monopoly for 25 years. While it does provide for new sources of generation, it allows for the JPS to have a significant input in determining the rate paid.

The amendment of the licence would have resulted in the Office of Utilities Regulation having the power to regulate the cost to consumer more effectively. It would encourage competition on price. A RESA will, therefore, be able to address issues that the current legislation and licence cannot.

We must, therefore, urge the Parliament and the Ministry of Energy to urgently examine the RESAs that have served their purpose in other jurisdictions. While it is clear that the intent is present, and perhaps aspects of the incentive already exist, the lack of a RESA sends the wrong signal to the very interests we seek to engage.

Where there is a lack of a globally recognisable framework, the assumption is that we are either not ready, or more disturbingly, not aware.

Roderick Gordon is an attorney-at-law who can be contacted at rgordon@gordonmcgrath.com.

 

 


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