By NEIL HARTNELL
Tribune Business Editor
The Bahamas would realise between $172-$186 million per annum in “net savings benefits” if it switched to natural gas as its main energy generation source, with this nation’s electricity system costs the highest in the Caribbean.
A December 2013 study, funded by entities such as Compete Caribbean and the Inter-American Development Bank (IDB), found that the Bahamas’ would be the third greatest economic beneficiary in the Caribbean - behind the Dominican Republic and Jamaica, which have much larger populations - if the region switched from fossil fuels to natural gas.
The Bahamas Electricity Corporation’s (BEC) power generation costs, using its 2010 financial report as the base, totalled $466 million - split into $378 million for oil purchases, and $88 million in carbon dioxide-related emission costs.
But, under three scenarios employed by the report, a ‘Pre-Feasibility Study of the potential market for natural gas as a fuel for power generation in the Caribbean’, it was shown that the Bahamas could slash its annual electricity generation costs by $25 million, $186 million and $172 million, respectively.
The report, which been obtained by Tribune Business, measures the ‘net benefit’ and ‘financial’ savings that would accrue to all Caribbean nations from three different energy supply scenarios.
These are fossil fuels, combined with renewable energy and energy efficiency; natural gas combined with renewable energy and energy efficiency; and natural gas by itself.
In the fossil fuels/renewable energy scenario, with the latter producing just 4 per cent of this nation’s energy needs, the Bahamas’ total fuel (generation costs) would fall slightly against the base - from $378 million to $361 million, a $17 million saving.
And total costs related to carbon dioxide emissions would also drop, from $88 to $80 million, giving the Bahamas total generation costs of $441 million - a $25 million saving. Energy savings, via the renewables, would total 120 Gigawatt hours (GWh).
The financial savings, though, are far more pronounced when natural gas arrives on the scene to replace fossil fuels.
Using BEC’s 2010 financials as the ‘base’ yet again, the report’s authors estimated that this fuel source, together with renewables, would cut average system costs in the Bahamas by around 33 per cent - from 15.72 cents per kilowatt hour to 10.57 cents per kilowatt hour.
Total BEC generation (fuel) costs would drop from $378 million per annum to $242 million, a $136 million or 36 per cent saving, while carbon dioxide emissions would fall in worth from $88 million to $38 million.
That represents a $50 million saving, with total generation costs using the natural gas/renewables combination totalling $280 million. That, in turn, is a $186 million or 40 per cent saving on BEC’s 2010 base generation costs.
All told, the report’s authors said this electricity mix would give $137 million in financial savings to the Bahamas and BEC, and 120 GWh in energy savings.
When it came to the final scenario, natural gas by itself, the report’s authors estimated that BEC systems costs would fall even further, to 10.54 cents per kilowatt hour.
Generation, or fuel costs, would rise slightly, though, due to the absence of renewables, coming in at $253 million as opposed to $242 million. And carbon dioxide emissions would also be up slightly, from $38 million to $41 million.
As a result, total BEC generation costs alone will be $294 million, still a healthy 37 per cent drop on the $466 million baseline costs.
Total financial savings from using natural gas alone would be $125 million per annum, with ‘net benefit’ savings coming in at $172 million.
The study’s findings provide further support for the need to reform the Bahamian energy sector, and to wean both the Bahamas Electricity Corporation (BEC) and the Grand Bahama Power Company off their near-100 per cent reliance on fossil fuels as their generation source.
It backs the repeated assertions by BEC executive chairman, Leslie Miller, that the Corporation’s generation plant needs to be converted from fossil fuels to use natural gas, either the liquefied or compressed variety.
And the findings, revealed for the first time by this newspaper, come at a time when there is increasing public concern over the continued toll high energy prices are exacting on Bahamian households, businesses and the economy.
Also factoring into the mix are the impending implementation of Value-Added Tax (VAT), and its cost of living impact, and the fact that energy sector reforms - and resulting price decreases - would be the greatest ‘game changer’ and counter to this.
Then there is the fate of the protracted process to reform BEC, via splitting it into separate generation and transmission and distribution arms, with private sector parties contracted to manage both.
Tribune Business understands, based on information from sources close to the process, that the Government and its advisers, KPMG and the former DNV Kema, have completed their ‘site visits’ to energy facilities run by the remaining bidders.
The visits were led by Kenred Dorsett, minister of the environment, and key figures on them included Deepak Bhatanagar, who is understood to be heading the Government’s Energy Task Force and is Prime Minister Perry Christie’s financial numbers ‘guru’.
Tribune Business understands that the Government and its advisers are now negotiating ‘offer terms’ with the remaining bidders, and that recommendations have been submitted to the Government.
These go first to the Ministerial Committee, headed by Deputy Prime Minister Philip Davis. Also on the committee are understood to be Mr Dorsett, Khaalis Rolle, minister of state for investments, and Attorney-General Allyson Maynard-Gibson.
Once they ratify the recommendations, they then have to be approved by the full Cabinet. The BEC process, which is now almost a year past target, only awaits a government decision and completion of negotiations with the bidders.
The 2013 study, meanwhile, showed that the Bahamas’ average electricity system generation costs were among the highest in the Caribbean, at 15.72 cents per kilowatt hour.
And BEC’s fuel surcharge, standing at 27 cents per kilowatt hour in August 2103, was more than double - 145 per cent greater - than its base tariff.
This, again, shows how BEC reforms will not be successful without generation reform in the shape of both new plant and fuel sources.
The study obtained by Tribune Business also backs the Oxford Economics report produced for the Caribbean Power Partners bid on BEC, and latterly the Bahamas Chamber of Commerce and Employers Confederation (BCCEC).
The Chamber told Tribune Business earlier this year that using gas piped from Florida as BEC’s primary fuel source would boost the increased economic output from energy reform by 150 per cent
While the Bahamian economy’s gross economic output was projected to increase by $10.1 billion over a 25-year period using diesel fuel, the Oxford Economics report projected this would rise to $13.2 billion employing LNG, and by some 150 per cent to $25.2 billion using piped gas.
The income earned by Bahamian workers over the same period would increase by $2.8 billion over the same period using diesel fuel, according to Oxford Economics, and by $3.4 billion and $6.5 billion using LNG and pipeline gas, respectively.
And, the report predicted, full-time job creation would jump from 1,700-6,200 per year using diesel fuel to 12,400-13,500 under pipeline gas, as it was a much cheaper source of fuel.