By NEIL HARTNELL
Tribune Business Editor
Regulators have modified their much-criticised compensation proposal for larger grid-tied renewable energy systems at Bahamas Power & Light’s (BPL) urging, it was revealed yesterday.
The Utilities Regulation and Competition Authority (URCA), unveiling the results and decision on its Renewable Energy Self-Generation (RESG) consultation, disclosed that it was “obliged” to adopt BPL’s recommendation that it segment the market for grid-tied systems capable of producing between 100 kilowatts (kW) and one megawatt (MW) of energy.
It agreed that altering its approach so that all systems up to 500 kW are compensated for what they sell to BPL by a net billing mechanism would help incentivise the greater penetration and roll-out of renewable energy solutions in The Bahamas.
“URCA has determined that in order to enhance the ease of installation of renewable energy uptake for the RESG projects it is obliged to take BPL’s recommendation of a net billing arrangement applying to installations between 100 kW and 500 kW,” the regulator acknowledged.
This came after the state-owned utility monopoly, in its response to the consultation, warned URCA that imposing a ‘buy all, sell all’ compensation method on all RESG providers would undermine investment returns, increase costs and discourage greater Bahamian adoption of renewable energy technologies.
“It is BPL’s position that this arrangement should only be for installations of greater than 500 kW,” URCA said of BPL’s feedback. “At levels lower levels lower than 500 kW, the associated cost could be a barrier to increased renewable energy adoption. Therefore, BPL proposes that net billing would also apply to installations between 100 kW and 500 kW.”
URCA, following BPL’s call to the letter, adopted the proposal in its entirety. As a result, only renewable systems capable of producing more than 500 kW will be compensated by a “buy all, sell” method for the time being.
The regulator had initially proposed this mechanism for compensating all renewable providers who wish to supply the BPL grid under the RESG scheme. This requires participants, mainly larger businesses and government facilities, to not consume any electricity generated by their renewable systems.
They will instead have to export all energy they generate to BPL, and consume all the electricity they need from the state-owned monopoly at the standard retail tariff levied on all its customers. Those who “sell all” under this arrangement will be compensated by the equivalent of BPL’s appropriate monthly fuel charge, which normally accounts for 50-60 percent of customer bills.
Such a mechanism has been vehemently opposed by private sector renewable energy players on the basis that producers will not be fully compensated for what they produce. They have argued that reducing the rate of return on utility investments in such a fashion will discourage Bahamians from investing in such systems, and they made their feelings clear to URCA in the consultation.
Bahamas Energy Solar Supply argued that the proposed compensation method provided “no incentive for investors as their return on investment is as unpredictable as buying a number from Island Luck”.
It added: “Solar investments are risk prone and a minimum of security is only provided by a set rate. In essence this is a PPA (power purchase agreement) without a predictable cash flow. In our opinion this is an unattractive proposition and must change.
“A better solution would be to unbundle the sector and peg the initial buy rate to the PPA BPL is entering with Shell. This would create a de facto market price for energy that would introduce a competitive price formation based on technological advancement. As it stands renewable energy has reached grid parity, and the tendency is confirmed in island jurisdictions with high renewable penetration.”
Referring to feedback received from Alternative Power Supply (APS), URCA noted: “APS is positing that they do not agree with URCA’s proposal to set a sell-all feed-in tariff. The proposed approach would be counter-productive to the goal of rapid integration of solar PV (photovoltaic) in The Bahamas.
“Any company that knows the PV business would not engage in the process, as it is a win-lose proposition, where the utility wins and the PV integrator loses. The investment versus risk of a 100 kW to 1 MW PV system is too detrimental for a business to connect to the BPL grid.”
And BISX-listed Arawak Port Development Company (APD) argued: “Under the proposed buy all, sell all mechanism, compensation to the RESG project is to be ‘the applicable monthly fuel charge per kWh during the period when the electricity was produced’. This implies the compensation could change each month and could be less than anticipated at the time the investment decision was made.”
URCA, in its defence, argued that ‘buy all, sell all’ is a “provisional arrangement” that will be replaced once the regulator concludes its cost-based pricing study by the end of 2020.
“This study will inform URCA of the cost reflective price point that will be fair to all stakeholders and enhance the desired renewable penetration,” URCA added.