The Tribune

BY NEIL HARTNELL

TRIBUNE Business Editor

nhartnell@tribunemedia.net

BAHAMAS Power & Light’s (BPL) latest fuel hedge is forecast to save households and businesses a combined $43m during 2026, a newly-released report has revealed, shielding energy users from the worst effects of the Middle East conflict and crude oil price spikes.

The Inter-American Development Bank (IDB), in its just-unveiled Caribbean Quarterly Bulletin for the second quarter, said the year-end 2025 move to lock-in the price of 2.5m oil barrels at $65 per barrel will give BPL’s consumers “365 days of protection” from the worst effects of oil price volatility sparked by the Iran war and last through to year-end.

Drawing on data from the Prime Minister’s Office and the International Monetary Fund (IMF), which is predicting per barrel oil prices will average $82.20 over the 2026 full-year given current market conditions, the IDB said the fuel hedge’s $65 price will result in BPL and its 100,000-plus users enjoying a $17.20 per barrel saving.

Asserting that this means the Government’s “prudent risk-sharing policies have paid off”, the multilateral lender said the outbreak of conflict between the US/Israel and Iran at end-February, which resulted in the key Strait of Hormuz shipping artery through which 20 percent of the world’s oil supply must flow being choked off, had left the BPL hedge in the money.

“In December 2025, two months before the Iran conflict escalated, BPL locked in approximately 2.5m barrels of fuel oil at $65 per barrel, providing 365 days of protection through calendar year 2026 at a time when Brent crude prices averaged $100 per barrel for three months, and remained well above $70 for most of the first half of 2026,” the IDB recalled.

“The hedge decouples domestic electricity tariffs from global spot prices, shielding households, hotels and businesses from energy-driven cost pressures. Fuel costs represent approximately 74 percent of total consumer electricity bills in The Bahamas, making the hedge’s coverage directly consequential for disposable income and operating margins.

“Still, the hedge does not cover fuel prices at the pump, leaving the transportation channel open to oil price pressures…The Bahamas is projected to save $43m (0.25 percent GDP) with respect to expected post-shock bills using IMF oil price forecasts.” Instead of paying $205.5m for the same 2.5 million barrels of oil, based on the IMF’s average spot price estimate of $82.20 per barrel, the IDB predicted that it will now only cost BPL $162.5m at the lower hedged price.

These findings are likely to make little impression on, and will prove cold comfort, to many Bahamian households and businesses more concerned with BPL providing reliable, consistent power that remains on so that they can keep cool amid the summer heat, not endure sticky nights and avoid disruption to workplace and daily routines.

However, the $43m in fuel cost savings should - in theory - go directly to reducing Bahamian household and business light bills. This is because the fuel charge is supposed to be passed through 100 percent to consumers by BPL, with the former - and not the state-owned utility - covering this portion of the bill.

However, when spread across 100,000-plus business and household consumers, the impact of the $43m forecast savings - which translates into $3.583m per month throughout 2026 - becomes somewhat less than implied by the headline figure. And, notwithstanding the hedge, BPL’s fuel costs still remain relatively high - standing at 17.4 cents and 21.4 cents per kilowatt hour (KWh), respectively for consumption below and above the 800 KWh benchmark.

The latter figure, in particular, is still more than double the 10.5 cents per KWh fuel charge that resulted from the Minnis administration implementing its fuel hedge in summer 2020 amid the COVID-19 pandemic. Still, all savings help, and the Davis administration’s falls into this category even though the latest BPL and energy sector woes - which have spread to New Providence after impacting multiple Family Islands - appear to have occurred after the IDB composed its report.

“The BPL fuel hedge carries a direct implication for tourism sector competitiveness. Stable electricity tariffs, locked at the $65 per barrel equivalent through December 2026, protect hotel and resort operating margins from the cost pressures that are compressing margins across higher energy-cost Caribbean competitors,” the multilateral lender said.

“For an archipelago where energy represents a significant share of hotel operating costs - air conditioning, water desalination, cold chains and food and beverage operations - this insulation will translate into a relative cost advantage while high oil prices last. Combined with the proximity advantage on air fares, the hedge contributes to making The Bahamas one of the more insulated Caribbean destinations in terms of the demand and cost pressures of geopolitical events.”

The Davis administration’s strategy, based on the timing rather than anything in the IDB report, appears to have been that the BPL fuel hedge would offer businesses and households some protection until the Government’s energy reforms begin to take full effect next year via the conversion to cheaper, cleaner liquefied natural gas (LNG) fuel for New Providence’s baseload generation as well as the launch of utility-scale solar in both Nassau and the Family Islands.

“The BPL fuel hedge expires in December 2026. The hedge provides electricity price insulation only through the end of calendar year 2026. If Brent crude oil prices remain above $65, the full cost adjustment will hit in 2027 unless the hedge is renewed and widened. The fiscal and tourism competitiveness implications of expiration of the hedge without a successor strategy represent the most significant medium-term risk,” the IDB warned.

However, it acknowledged: “Healthy growth and continued institutional reform, particularly in the energy sector, have generally improved [economic growth] expectations. Fiscal and growth metrics have been revised upward, but so has inflation.

“Taken together, the BPL hedge and the broader energy sector reform under way since 2024, anchored by the Electricity Act, the Natural Gas Act and a target of 30 percent renewable penetration by 2030, signal a meaningful improvement in the Government’s institutional capacity to manage the energy vulnerabilities that have historically transmitted directly into fiscal costs, inflation and external imbalances….

“The Government has proactively insulated the domestic economy from the energy shock through a forward fuel hedging strategy executed by BPL, which has helped to preserve household purchasing power. Inflation remains below the regional average. Consumer price inflation in March 2026 posted a year-over-year change of 3.1 percent, driven mainly by a rise in the restaurant and hotels components,” the IDB said.

“The IMF projects a stable outlook of 1.8 percent for 2026, well below the Latin American and Caribbean average of 6.6 percent, reflecting a moderate pass-through of higher import and freight costs due to the oil price shock, but partially offset by the containment of energy costs due to the BPL hedge.”