Restructuring the Grenada Electric Utility Sector
- Jul 7, 2018 9:15 pm GMT
For Reagan-era Americans, Grenada evokes memories of the 1983 U.S.-led invasion to oust the growing Cuban military presence on the island. Foodies are more likely to associate Grenada with its spice production, particularly nutmeg. For nearly a quarter of a million cruise passengers annually, Grenada represents a lush tropical port of call. However, for the 110,000 people that call it home, Grenada is a growing and thriving nation facing the same energy challenges common to small Caribbean island states. With the draft Electricity Supply Bill and Public Utilities Regulatory Commission Bill, Grenada is also at a regulatory crossroads in its approach to electric utilities.
As a geographical primer, Grenada consists of the island of Grenada and six smaller islands in the southeastern Caribbean Sea. The population is concentrated on the island of Grenada with significantly smaller populations on the islands of Carriacou and Petite Martinique. Grenada has a dry season dominated by trade winds between January and June while the rainy season runs from July to December.
Grenada Energy Services Ltd (GRENLEC) is the sole provider of electricity in Grenada, Carriacou, and Petite Martinique. Formerly owned by the government of Grenada, GRENLEC was privatized in 1994 as a means of attracting capital investment for system improvements and upgrades. GRENLEC has an installed capacity of 48.59 MW and operates a 33kV transmission network with two substations.
Generation diversification and power distribution are the two primary issues for small island states. Dependence on imported fossil fuels subjects Grenadian electricity rates to the vagaries of global hydrocarbon markets. Furthermore, tropical storms expose the vulnerabilities of traditional power distribution systems. Providing plentiful, affordable, and reliable energy on a stand-alone basis to 44,000 metered locations is technically challenging.
Arguments for Unbundling
By way of the 1994 Electricity Supply Act, GRENLEC received an exclusive license to serve Grenada with electric generation, transmission and distribution until 2073. The Public Utilities Commission Act (PUCA) was passed concurrently to provide for utility regulation. The draft Electricity Supply Bill and the Public Utilities Regulatory Commission Bill (PURC) would repeal and replace their predecessor acts.
The criticism of GRENLEC, as inferred by the proposed Electricity Supply Bill, centers on electricity price levels and the lack of diversification of generation resources. Specifically, the lack of utility-scale renewable generation seems to be the focus of the legislation. The Electricity Supply Bill would immediately revoke GRENLEC’s exclusive generation license. This would open the door for independent power producers to obtain generation licenses and build generation that ties into Grenada’s power grid. Power producers utilizing renewable energy generation would receive a preference for licensing. While it appears the intent of the bill is for GRENLEC to maintain an exclusive license for transmission and distribution services, the bill leaves the door open for new network licensees as well. Aside from this point, the legislation would effect a U.S.-style electric utility unbundling.
The focus of the PURC stems from the view that GRENLEC has essentially operated in a self-regulating manner absent of a minister and commission to oversee and approve the rate-setting process. The PURC also contains provisions that contemplate transfer of certain electric regulatory functions to the anticipated Eastern Caribbean Energy Regulatory Authority (ECERA). ECERA is a project of the Organization of Eastern Caribbean States that seeks to address the electricity challenges common to its members. These issues are, naturally, high electricity price levels and diversification of generation resources.
Renewable Energy Status
GRENLEC has a stated goal of meeting 35% of demand with renewable energy by 2016. This is an ambitious goal given that it exceeds the California Renewable Portfolio Standard of 33% by 2020. Perhaps an even more relevant comparison is the Hawaii Renewable Portfolio Standard that requires renewable generation to account for 20% of net electricity sales by 2020 and 40% by 2030.
GRENLEC has struggled with constructing utility-scale renewable energy generation due to the limited availability of suitable land for development. As a nation, Grenada occupies only 132.8 square miles and has a very mountainous interior. From a capacity standpoint, Grenadian utility-scale projects are comparable in size to community-scale projects in the United States and, therefore, difficult to finance without government subsidies.
GRENLEC, however, is beginning construction of a long-awaited wind farm on Top Hill Ridge on the island of Carriacou. The 2 MW renewable energy project, originally announced in 2012, is expected to have construction substantially completed in 2015 with a 2016 service date. The European Union, through a grant to the government of Grenada, and GRENLEC are jointly funding the project. The wind farm project should reduce diesel-fired generation on Carriacou by up to 60%.
Additionally, a GRENLEC 31.59 PV solar ground installation in Petite Martinique currently meets 20% of that island’s peak demand. A proposed solar-wind hybrid project with energy storage is also in the resource plan.
Distributed Renewable Generation
Given the limitations on developing utility-scale renewable generation, the logical focus should be on distributed renewable generation. GRENLEC launched a pilot program in 2007 that provided for interconnection of up to 300 kW in distributed renewable generation. The program was fully subscribed with 54 PV solar installations by its close in 2011.
GRENELEC currently has a new standard offer in place for up to 500 kW in renewable nameplate generation capacity. The program is essentially a feed-in tariff where the customer pays for all electricity they consume at the prevailing GRENLEC rate and receives a credit for all electricity produced by their distributed renewable generation. This differs from the 2007 pilot program that used a 1:1 net metering approach. Using a feed-in tariff rather than net metering solves some of the challenges encountered in U.S. solar tariffs.
An innovative facet of the latest program is that subscribers have two options for valuing their renewable generation. The first is a 10-year fixed price plan that pays EC $0.45/kWh (about US $0.17/kWh). The second option is a 10-year variable rate plan that pays the customer a arte based on GRENLEC’s avoided cost of fuel. The variable rate is set annually based on the fuel cost for the previous 12 months. These options pose an interesting choice for customers given the uncertainties in global and regional energy markets for the required 10-year contract term.
With utility-scale and distributed renewable projects making steady progress, one can question the need for a broad market restructuring. The proposed restructuring of Grenada’s electric utility sector is unlikely to produce the results desired by the government. The Electricity Supply Bill and PURC will not necessarily result in lower electricity prices.
First, independent power producers would be limited to a maximum generation license term of 15 years. Without subsidies, recovering investments on renewable energy generation could take most, if not all, of the initial licensing term. The generation owner has significant regulatory risk that could result in not recovering their investment or making a meaningful return. It is important to note that Grenada would be setting precedent for significant regulatory risk by terminating GRENLEC’s exclusive license 58 years before its expiry. Independent power producers will not find comfort in this legislative action and the risk profile of any project will increase significantly.
Second, a full utility unbundling is unnecessary to effect the diversification of generation resources. Implementing a reasonably aggressive renewable portfolio standard would accomplish the same goal. The Grenada electric market is relatively small and opening the generation side of that market will probably not create a rush of interested parties. There are opportunities for firms such as Grenada Solar Power Ltd (GrenSol) to work closely with GRENLEC to increase renewable energy capacity. However, it seems excessive to restructure the entire industry when a robust renewable portfolio standard would suffice.
Finally, Grenada could achieve electricity ratemaking oversight with moderate revisions to the PUCA. Centralizing regulatory control with a single minister will not necessarily result in lower electricity price levels. GRENLEC’s exclusive license comes with the burden of regulatory oversight and the PUCA should have substantive rules that require GRENELEC to operate in cost-effective manner. An appointed commission of stakeholders is a good idea but this commission should have the real authority as opposed to an individual minister overseeing the commission.
If the goal is to reduce price levels, diversify generation, and provide reasonable oversight of the Grenada electricity sector, the proposed legislation seems more likely to muddle the market than achieve those goals. Applying a U.S.-style utility unbundling scheme to such a small and unique market is not prudent and the government should seek other measures to meet Grenada’s energy needs.
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