The Tribune

By NEIL HARTNELL

Tribune Business Editor

nhartnell@tribunemedia.net

The Bahamas could reduce its national electricity bill by 11 per cent through hitting the renewable targets set in its National Energy Policy (NEP), an IMF working paper has estimated.

The authors of ‘Caribbean Energy: Macro Related Challenges’, a paper released yesterday, disclose that the Bahamas could reduce energy costs by more than one-tenth if it generates 30 per cent of its energy from renewable sources by 2030.

Using CARICOM and Inter-American Development Bank (IDB) studies, the IMF paper predicts that the Bahamas would also reduce oil imports by 17 per cent - and increase GDP growth by 1 per cent - should the National Energy Policy goals be attained.

Authored by 11 persons, the document provides further evidence to support the Bahamas’ accelerating energy industry reform efforts, which have begun with the contract for PowerSecure to manage BEC’s newly-created operating subsidiary, Bahamas Power & Light (BPL).

The IMF working paper estimated that the Bahamian energy sector required $511 million worth of investment between 2018-2023, a figure not far away from the $450 million that the Deputy Prime Minister recently said was required at BEC.

The paper broke that $511 million down into $150 million for new and upgraded generation plants. Should PowerSecure and BPL opt to shift the fuel mix to natural gas, it added that a further $251 million would be needed.

The Bahamas’ renewable energy and energy efficiency/conservation investments needs were pegged at $70 million and $40 million, respectively, with the total $511 million equivalent to 5.8 per cent of gross domestic product (GDP).

Such an investment would produce $39 million in annual debt servicing costs, the IMF working paper projected. It added that the minimum cost savings required to finance this would be between a 1.9-2.2 cent KWh tariff reduction, and a 7.1-8.3 per cent drop in BPL’s operating costs.

The country’s weakness, though, was under-scored by the fact that around 60 per cent of Bahamian companies own or have access to a generator - the second highest percentage in the Caribbean behind Guyana.

And, with the IMF paper noting that around 25 per cent of Bahamian companies identified energy costs as a major impediment to business, this nation’s relatively high costs and unreliable supply are brought into sharp focus.

Warning that the region should not be lulled into a false sense of security by the recent oil price drop, the IMF paper reiterated: “The cost of electricity in the Caribbean has been persistently high over the past two decades, and has eroded competitiveness.

“This is largely due to serious inefficiencies in the power sector and dependence on expensive imported petroleum products.

“In turn, these problems have contributed to the region’s high cost of doing business, have increased external sector vulnerabilities, and have undercut growth in many Caribbean economies.”

Using 2012 data, the IMF paper ranked the Bahamas’ electricity costs as the region’s fifth-highest at $0.39 per kilowatt hour {KWh).

“ Although each country has unique energy sector conditions, most face the same supply constraints,” it added.

“These include limited generation capacity, outdated power systems, isolated grids and lack of technical expertise that, together with episodes of high and volatile oil prices, have resulted in high average electricity costs.

“Electricity tariffs increased by almost 80 per cent over 2002-2012, exceeding $0.30 per kWh for most countries in 2012.”

The Bahamas’ commercial and technical losses from the energy grid were estimated at between 9-15 per cent, but the sector’s 100 per cent dependence on fossil fuels makes it extremely vulnerable to oil prices and other external shocks.

“Fixed exchange rate regimes in many countries, like Barbados, the Bahamas, Belize and the Eastern Caribbean states, have limited the extent to which the exchange rate can cushion the impact of oil price shocks on external balances,” the IMF working paper said.

It estimated that the Government had foregone a sum equivalent to between 0.4-0.6 per cent of GDP in taxes by exempting the Bahamas Electricity Corporation (BEC) from paying 7 per cent Stamp Duty on its fuel imports.

“Another idiosyncrasy observed in some Caribbean countries studied is that utility companies, when state-owned, tend to partially absorb the oil price shock in their balance sheets, therefore reducing the need for households to adjust, which in turn results in a lower adjustment of consumption and growth to a change in oil prices,” the IMF working paper said.

“This effect can be seen in the balance sheets of state-owned utility companies in Antigua and Barbuda, the Bahamas, St. Kitts and Nevis, Suriname, and Trinidad and Tobago, which have accumulated large balances of receivables from households and the public sector in periods where the oil price was high.

“Again, this absorption of losses (or gains) from the utility companies reduces the need for adjustment after an oil price shock, particularly through cushioning the impact on households’ consumption.”

The paper added, though, that the Bahamas has yet to set any targets for achieving energy efficiency savings.

The IMF working paper estimated that, should the Bahamas switch to natural gas and successfully implement its renewable energy strategy, it could save between 8.5 to 26.4 cents per KWH on electricity prices between 2019 and 2038.

And, measured as a percentage of BEC’s operating expenses, these could be reduced by an average of 53 per cent depending on global oil price movements.