The Tribune

By LARRY SMITH

ENERGY sector reform is in the air. The government wants to split the state-owned, loss-making Bahamas Electricity Corporation into two separate companies by the end of this year, and several private sector management bids are now being evaluated.

Most of the bids that were presumably received last week were from generation companies, one of whom will be selected to help operate and expand BEC’s ageing plant. But the government also wants a partner to help manage the corporation’s transmission and distribution services, which is set to become a new monopoly.

Such an arrangement would be similar to the situation that has existed in Trinidad and Tobago since the 1990s, where a state-owned utility retails electricity via a single interconnected grid, while a privatised joint venture company produces the electricity. This “single buyer” model also allows for competition in the supply of power.

We face major challenges in energy production that successive governments have been unable to come to grips with over many years.

These challenges include old and poorly maintained equipment, the lack of interconnection between island grids, high costs, underinvestment, labour issues and, most importantly, no pathway for a much-needed transition to renewable energy.

Early attempts to address these issues began during the first Christie administration, when steps were initiated to develop a national energy policy. Following in-depth research commissioned by the Ingraham government in collaboration with the Inter-American Development Bank, a draft policy was produced in 2010, but has yet to be finalised.

This document calls for 30 per cent of our electricity to be derived from renewable sources by the year 2030, together with a 30 per cent increase in energy efficiency in both the public and private sectors.

Renewable technologies considered feasible here include the burning of garbage and pine trees (or biomass), and generating energy from the wind, sun and sea.

The draft energy policy also calls for a transformed sector framework, including legislative changes, an independent regulator and a new government agency to promote and monitor sustainable energy goals and help improve energy efficiency in the public sector. No headway at all has been made on any of this to date.

Over the past six years, the government has issued at least three official invitations to investors to bid on the supply of renewable energy, and both Bahamian and foreign groups have made scores of proposals, but all have gone exactly nowhere. The excuse has been the lack of a modern framework to support independent renewable power producers.

The IDB-financed German consultants who advised the previous government left proposals on the table for this new energy regulatory system, which the current government said last year it was working “assiduously” to implement, so that renewables could quickly become a part of our energy mix.

Specifically, this would mean amending the 1956 Electricity Act, introducing a Renewable Energy Act with provisions for net billing, and creating an independent sector regulator by expanding the role of the Utilities Regulation and Competition Authority (which currently oversees the communications industry).

But these pending changes have now been superseded by a new process to help government find partners to restructure the Bahamas Electricity Corporation itself. And a pathway for the transition to renewable energy has been postponed yet again.

In response, the Bahamas Chamber of Commerce and Employers Confederation has called for greater transparency from government on energy matters “to ensure full opportunities for participation by the business community and a full understanding of the environmental, economic and social impacts.” But information remains hard to come by.

The bidding process to take over one or more parts of BEC closed last Friday, and Environment Minister Ken Dorsett said at least eight companies had registered to bid. He added that the proposals would be scored by private consultants and then sent to an official evaluation committee, which has yet to be formed. Until that happens, the process is being handled by the Office of the Prime Minister – in the person of Sir Baltron Bethel.

Prime Minister Perry Christie has said that the realignment of BEC and the implementation of a new regulatory regime will take place early next year. Although this timetable for such a major restructuring is considered extremely short, Christie has denied that the government’s policy is influenced by special interests.

Some observers have suggested that the proposed arrangements are part of a done deal with generation specialists. Under this scenario, the most likely player is Genting Group, the Malaysian multinational which is making major investments in Bimini. Genting had a relationship with the Pindling government’s Hotel Corporation in the 1980s, when Baltron Bethel was its manager.

Genting generates power in Malaysia, China and India, and also produces and prospects for oil and gas around the world. It is worth noting that the Bahamas is about to embark on exploratory oil drilling in offshore waters, although the only current licensee is the Bahamas Petroleum Company.

Genting also provided the government with an advisory report on energy matters at the end of last year, which has never been published, or even discussed (in fact, Investments Minister Khaalis Rolle declined to respond to my request for information on the report). And this past May, Christie was said to be in “high-level talks” with Genting in New York on energy and resort investments in the Bahamas.

In July, the government approached KPMG (the international accounting firm which had worked with the BTC privatisation committee under the Ingraham government) to develop a formal bidding process for the BEC restructuring. KPMG’s partners include the government’s transatlantic law firm, Hogan Lovells, and DNV Kema, a global technical consultancy based in the Netherlands.

The prime minister has insisted that his administration does not have any specific candidate in mind to take over BEC. He said he was pushing to seal the restructuring deal by the end of this year purely in response to complaints about the country’s high electricity rates.

It is true that there had been no public discussion about restructuring BEC until Christie’s surprise statement in mid-August. But the previous FNM government had been engaged in behind-the-scenes talks with Canadian energy giant Emera on a possible management role in BEC prior to the 2012 general election. That deal was never consummated, sources say, because the numbers could not be agreed.

Meanwhile, Christie has said that he envisages a structure for BEC that is similar to the Nassau Airport Development Company. “You simply come in and manage BEC, or a private company becomes responsible for the generation of electricity at BEC and the management and distribution of it.”

Nassau Airport Development Company is owned by the government and currently managed by a Canadian firm called Vantage Airport Group under a ten-year contract. In 2007, NAD signed a 30-year lease with the government to operate Lynden Pindling International Airport.

Information about the proposed BEC deal aside, many experts say there is an urgent need to bring renewable energy on stream in markets like the Bahamas because this will have the biggest impact on end user costs and environmental issues. This has led to a lot of talk about grid stability, because power produced from renewable sources like wind and solar is variable.

Grid stability means that, since power can’t readily be stored, supply and demand need to be in balance at all times to prevent voltage drops. This problem can be addressed with capacitor banks and back-up power plants to provide “spinning reserve”, or extra capacity when needed. Limiting the total capacities of renewable sources can also reduce this concern.

For example, in Jamaica the initial Wigton Wind Farm capacity was limited to just over 20 MW in a system with a 700 MW peak (the wind farm capacity was recently increased to almost 40 MW). And since BEC’s peak is around 240 MW, the maximum initial production from wind would initially be limited to around 7 MW in Nassau.

On the other hand, a properly managed waste-to-energy project at the Harrold Road landfill would provide continuous power to the grid like a normal power plant. So it is almost criminal that such a project (which would simultaneously take care of the island’s solid waste problem and the toxic fires at the dump) has not been implemented - despite many proposals from both foreign and domestic groups over several years.

In terms of solar power, the government has backtracked. Last year, Environment Minister Dorsett was touting utility-scale solar plants to provide power to BEC and help reduce electricity rates. A request for a proposal was subsequently withdrawn and consideration of such projects has been postponed until after the BEC restructuring has taken place.

In the meantime, the government is planning a residential self-generation programme enabling consumers to install solar panels on their homes, but it is not clear exactly what this means in practice. Householders on New Providence can self-generate up to 250kw under existing law.

The prime minister has said the government’s objective is to “create efficiencies which will allow for significant reductions in the cost of energy, increased energy security, environmental responsibility, reliability, and increased competitiveness as a country”. The tender documents say the reforms are designed “to enable both increased competition in the generation of power, as well as a more efficient and modernised transmission and distribution network.”

With the current aggressive timetable, it probably won’t be long before we see for ourselves whether the end result matches those words. But more transparency would be useful for everyone. After all, what is there to hide?

• What do you think? Send comments to larry@tribunemedia.net or visit www.

bahamapundit.com.