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Can we continue to put all our eggs in the natural gas basket?

Sunday, April 22, 2018

This is in response to an article entitled Wind, solar power not feasible-T&TEC, published in the March 29 Trinidad Guardian.

You are probably thinking, if solar and wind were feasible in T&T, would they not have been installed already?

There is abundant sunshine and the prevailing northeast trade winds provide an excellent wind resource. From an electricity generation standpoint, these technologies can be absolutely feasible in Trinidad, and can contribute to T&T’s electricity mix. This article explores this paradox.

While solar and wind are electrically very attractive options for T&T to offset electricity generation from natural gas, it is important to distinguish between technical feasibility and economic feasibility.

Decisions should, as far as possible, be guided by sound economic principles.

For each unit of electricity delivered to our homes, it costs T&TEC about 67 cents. As residential customers, we pay about 36 cents per kilowatt-hour. That means that T&TEC makes a 45-50 per cent loss on every kWh of electricity it sells.

In other words, the Government is subsidising every unit of electricity sold. Against this background, T&TEC has all the responsibility to maintain the transmission and distribution lines that span our country, and also upgrade transformers and bottlenecks on the system as our electricity demand continues to grow.

In the present situation, taxpayers are supporting an increasingly unsustainable business model, where the more energy we use, the more that has to be taken out from the tax coffers to maintain electricity supply. This system was set up in a time to grow and develop our country, and this has created the standard of living that we enjoy today.

However, the economic environment has changed. The natural gas shortage and the foreign exchange rate are just two factors that influence the changing cost of providing reliable electricity. It is hard to see how Trinidad can achieve true economic prosperity moving forward, if this economic model does not adapt.

It is true that solar and wind require large upfront investments. The savings only come years later, once the capital investment is paid off. This payback period is dependent on the prevailing price of electricity in that particular market, in our case, a heavily subsidised one, which makes these investments unfavourable from the standpoint of private individuals and commercial entities.

In Trinidad, electricity is generated by independent power producers, who install, operate and maintain power plants, and sell the electricity to T&TEC who then sell to us.

The same concept can be applied to solar and wind investments, however, the cost of capital will likely be very high for such a power purchase agreement and the developer will fold the cost of risk of this investment into the price that T&TEC pays. Per unit of electricity, this is will likely be more expensive than the price of power at this time.

To add to this, there is also an excess of generating capacity, so investing in more generation, would only make the total cost of running the electricity system increase.

To sustain a system like this would imply an increased burden on the nation’s treasury and/or an electricity rate increase.

Renewable energy in other Caribbean islands have payback periods of three to seven years since their market mechanisms are priced effectively while T&T’s prices are based on a rate assessment done 25 years ago. T&T is blessed with natural gas resources, and understandably, as citizens we should benefit from this resource. One way is through subsidised energy costs.

We have enjoyed this perk for many years and it has allowed us to develop the standard of living that we enjoy today. While this policy started with good intentions, we are at a point where we, as a country, are now getting severely short-changed.

Natural gas is a highly valuable resource and most importantly, limited. While we burn our gas for electricity generation and consumption locally, there is the lost opportunity cost where this gas could instead be used for producing ammonia and methanol which brings much-needed US dollars into the country—and supports an entire downstream industry and the jobs that come with it.

Because of this large opportunity cost that we are currently not benefiting from, there are clever ways to prevent a rate shock while incorporating solar and wind, and freeing up the already constrained natural gas supply for revenue generating end uses.

It is first up to the Government to adjust its incentives and policy. Solar and wind can make good economic sense and be good for T&T ratepayers. With T&T’s large grid size, the scale of resources, and the mix, we still have the potential to have the cheapest electricity in the Caribbean, once done right.

I fully understand T&TEC’s current position of being strapped until the policy changes. Installing solar and wind into T&T’s grid right now, is nothing more than a band-aid solution, and does nothing to mitigate the underlying issue, which is essentially an outdated policy.

While initially intended to protect the people of T&T, these old policies are now doing a disservice to those it was intended to protect from unaffordable electricity.

The Government needs to take the first and fundamental step of updating this policy towards more efficient use of our valuable and limited natural gas resources. Only then, can the citizens of T&T benefit from a cleaner, more sustainable and robust energy system.

Renewable energy enthusiast


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