December 2012

Maurice McNaughton, Contributor

THE ECONOMIC significance of electricity to Jamaica‘s, and indeed any country’s development, is well documented and supported by international research. There is strong evidence that electricity consumption is strongly correlated to gross domestic product, making it the single best physical indicator of the overall economic activity, whether formal or informal, within a country. Some may debate whether electricity is the cause or consequence of economic growth. Nevertheless, a large part of the productivity growth in most industries, or sectors, is attributable to technical advances that are facilitated by electricity consumption, and in general, productivity growth is found to be the greater, the lower the real price of electricity.

It is worthwhile, within the context of the Jamaica-50 reflections, to contemplate the role of the electricity sector in the economic growth and development of independent Jamaica.

History of electricity in Jamaica

Jamaica became one of the first countries in the world to receive electricity in 1892, only 13 years after Thomas Edison invented the electric lamp.

This service was supplied by the Jamaica Electric Light Company from a plant at Gold Street in Kingston. It was quickly followed in 1897 by the West India Electric Company, which built the hydroelectric plant on the Rio Cobre in Bog Walk. Electricity became a catalyst for the introduction of electric tramcars, which provided public transport in Jamaica until 1948. The Jamaica Public Service Company Limited (JPS) emerged in 1923 through a process of consolidation of several smaller electric companies, and was granted an all-island franchise in 1966.

The period 1958 to 1970 represents the most – and perhaps only – sustained period of economic growth in Jamaica’s modern history, coinciding with the emergence of the bauxite/alumina industry. Electricity consumption over the period reflects this sustained industrial and consumer vibrancy, growing by double digits from an annual consumption of 100GWh in 1954 to just over 1,000GWh in 1972.

The Government of Jamaica (GOJ) acquired controlling interest of the JPS in 1970. This period also saw the establishment of the Rural Electrification Programme, which was incorporated in 1975 with the specific mandate to expand the reach of electricity supply to underserved rural areas.

The 1973 oil crisis, which saw oil prices tripling in one year, also signalled a hazardous future for Jamaica’s largely oil-based stock of generation plants. Over the 40-year period between 1970 and 2010, electricity consumption grew at a more moderate rate to just over 4,000GWh in 2010. By then, Jamaica reported 92 per cent of the population with access to electricity, considerably higher than the world average of 74 per cent.

The ’90s – A Troubled Period

In the past two decades, many countries have sought to pursue the restructuring and introduction of competition into the electricity sector prompted by the view that state ownership of utilities, as well as the absence of competition, invariably results in excessive costs, low service quality, poor investment decisions, and lack of innovation in delivering service to customers.

By the early 1990s, the conditions were ripe for privatisation and competition in Jamaica. Strong evidence of this was exhibited in the frequency of power blackouts, poor power quality, Government’s inability to fund the much-needed expansion in capacity, and the existence of artificial subsidies owing to repeated deferred tariff adjustments.

Prompted by the International Monetary Fund and the World Bank, the GOJ and the JPS briefly flirted with the idea of vertical separation – unbundling the generation component of the company from transmission and distribution – as a precondition for privatisation.

This initiative was started, but then abandoned in deference to the view that the company should be privatised as an integrated whole. Even before the privatisation process got off the ground, a massive explosion at the Old Harbour Power Station in June 1994 – that took out 68.5MW of baseload generating capacity, close to 10 per cent of total generating capacity – resulted in blackouts being the order of the day. The crisis it precipitated then forced the cash-strapped Government to accelerate the negotiations with independent power producers (IPPs) to build, own, and operate generation plants, selling the energy to the JPS, the sole supplier of electricity. Over the period 1992-1996, Jamaica saw the introduction of three IPPs on the grid for a total of 175MW, just over 20 per cent of total generating capacity.

In anticipation of further reform in the electricity sector, the Office of Utilities Regulation was established in 1997 to preside over the orderly development of the industry. In 2001, ownership of the JPS was returned to private hands with the sale of 80 per cent of the integrated utility to Mirant of Atlanta, with the Government retaining almost 20 per cent. Since then, the company’s ownership structure has changed again, with Korea’s East-West Power and the Japanese Marubeni Corporation jointly owning the 80 per cent of the shares initially acquired by Mirant. Today, the JPS accounts for 75 per cent of the island’s generating capacity, with the IPPs making up the rest.

moving back to 85 per cent

With the JPS winning the recent bid – in which it was the only bidder – for additional generation, the installation of another 360MW of capacity by 2014-15 will see the ratio of monopoly ownership of generation move back to 85 per cent.

Reform of the electricity sector over the past two decades, geared at greater efficiency and innovation in service delivery, clearly has not yielded the desired outcomes. Since 2001, the average price of electricity has moved from 14.9 US c/kWh to 40 US c/kWh. Admittedly, there have been substantial increases in oil prices, but the near tripling of electricity rates is staggering. System losses have grown to about 22 per cent. The 2011 study by the Jamaica Productivity Centre ranks the JPS distribution operations among the least efficient in the region for total distribution losses, non-technical losses and reliability, and places the JPS in the group with the highest electricity prices.

Because of the capital-intensive and idiosyncratic nature of electricity investments, decisions made in the sector have long-lasting consequences. Long-term contracts signed with IPPs in the 1990s were negotiated with the threats of blackouts looming in the background, resulting in price and technological outcomes that have not been favourable to the Government or the consumer in the long run.

The Government’s continued involvement in determining the choice of fuel sources has led to protracted delays in fuel-supply decisions that have perpetuated the use of expensive fuel and the purchase of suboptimal generation plants.

We stand now at the brink of a series of critical decisions, the effects of which will reach well into the next 50 years. Most prominent of these is the decision on the 360MW LNG plant and the supporting natural gas storage and delivery infrastructure.

Recent analyses suggest that the anticipated 30-40 per cent reduction in electricity price associated with the 360MW LNG plant is not a foregone conclusion. Further, the project is confronted by challenges of coordination, timing, risks in securing favourable long-term LNG supply prices, and tough negotiations. There are encouraging signs that the critical stakeholders in the electricity sector, including the JPS and the Government of Jamaica, the regulator, the private sector, the media, and academia recognise that the current state of the sector is near crisis proportions. We are guardedly optimistic that there is visibly greater urgency in the dialogue that is inclined towards reconciliation and collaboration.

Looking to the future of the sector

The recent Justice Sykes ruling that rejects the exclusivity of the JPS licence may very well prove to be the tipping point that provides the transformational platform for the next 50 years of electricity service in Jamaica. Prudent dialogue and negotiations will be needed in order to address the appropriate adjustments at the policy, regulatory, and operational levels. An integrated portfolio of initiatives will be required, including:

A more aggressive posture towards renewables and greater incentives and facilitation for conservation by residential, commercial, and industrial consumers. This should be enabled through the establishment of energy service companies and the development of an energy-savings industry that would not only raise the level of awareness and understanding of conservation, but also undertake the effective implementation of energy efficiency and renewable initiatives.

A controlled, managed transition towards a more liberal restructuring of the electricity sector that allows for controlled access to the electricity grid. This should create competitive forces and private-sector incentives that can lead to the wider-scale deployment of combined heat and power (co-generation) systems that provide significantly greater fuel-conversation efficiency compared with the conventional generation technologies currently in use, which would lower the cost.

Seriously examine the prospects for the establishment of one or more industrial zones that could take advantage of such large-scale combined heat- and power-generation technologies to provide low-cost electricity, heat, and air-conditioning to a cluster of commercial and industrial businesses co-located within the zone. The prospect of such an industrial ecosystem in designated areas such as the Kingston Wharf beckons as Jamaica prepares to capitalise on increased trade flows from the expansion of the Panama Canal together with its strategic geographic location.

The image of an electricity sector that transforms from being an economic liability to becoming an industrial catalyst where low-priced energy can attract investments, generate new industries, and create new, sustainable jobs is a compelling one. It is not a far-fetched pipe dream, but is one that requires vision, a sense of urgency, political will, and regulatory diligence to make it happen.

Maurice McNaughton, PhD, is director of The Centre of Excellence, Mona School of Business and Management, University of the West Indies, Mona. Send feedback to editor@gleanerjm.com

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JPS employees make improvements on street lights in the Corporate Area - file photo.
JPS employees make improvements on street lights in the Corporate Area – file photo.

Cabinet has approved the introduction of policy standards for street lights aimed at reducing the cost of powering them.

The government said implementation of the policy will be underpinned by the requisite regulations, to enable the use of the most energy efficient and cost effective units.

The Cabinet has also authorised the exploration of feasible options for the introduction of light emitting diode or LED street lights on a wide scale across Jamaica.

There are over 93,000 street lights in Jamaica.

Projected cost for this year is some $2.8 billion.

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Homeowners are being advised to get a licenced electrician to check their house wiring before putting up decorative lights, in order to prevent fires.

The warning came from Assistant Superintendent in charge of Communication at the Jamaica Fire Brigade (JFB), Emilio Ebanks, as he addressed a recent Jamaica Information Service (JIS) Think Tank.

He said that house wiring that is over five years old needs to be checked before the decorative lights are plugged into the household circuit. He said that the increased electricity demand, coupled with unsafe wiring, increases the risk of fires, the destruction of property and the loss of life.

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The group Citizens United to Reduce Electricity (CURE) is claiming that the Jamaica Public Service Company (JPS) is now in a better position reduce the cost of energy.

In a statement, the group said it had evidence that the independent supplier, Jamaica Energy Partners now provides 30 per cent of the required electricity to the national grid at approximately US$0. 21 per kilowatt hour.

CURE is claiming that the electricity is sold to JPS and then passed on to consumers at US$0. 41 per kilowatt hour.

The advocacy group is recommending that it instead be distributed at US$0.25 which would still be profitable for the JPS and its partners.

The group is of the view that Jamaica is therefore in a position to benefit significantly from lower electricity rates.

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JPS bills councils separately for LED lamps

Disconnects when payments aren’t made

Erica Virtue, Senior Gleaner Writer

A practice by the Jamaica Public Service Company (JPS) to charge parish councils separately for light-emitting diode (LED) bulbs on roadways is infuriating councils, which claim that light is being disconnected from major thoroughfares.

The JPS has disconnected electricity on Ocean Boulevard, forcing the Urban Development Corporation (UDC) to hoist high voltage bright lights atop its building to provide light for the area.

The same is true for the busy and accident-prone Marcus Garvey Drive, as light has been disconnected for non-payment of bills, even though the JPS still bills the Kingston and St Andrew Corporation (KSAC) $58 million monthly.

Last Wednesday, Town Clerk Errol Green said the KSAC has been examining different technologies to reduce the amount it pays to the JPS.

As part of that trend, all new roads in the municipality have been outfitted with low sodium bulbs.

“Even as I speak to you, the JPS has disconnected the light along Ocean Boulevard and along Marcus Garvey Drive. There are no lights there,” charged Green.

Ocean Boulevard bill

According to the town clerk, the UDC is responsible for the lights along Ocean Boulevard, but it is unfair for the JPS to ask the state entity to pay that bill when it already receives payment from the KSAC for streetlights.

Green said it was the view of some councils that the JPS was resisting efforts to use lower wattage bulbs across the system.

“At nights, the UDC has had to put up some bright bulbs on top of its buildings to provide light for the area, because the JPS has disconnected it,” claimed Green.

He said the bulbs on Ocean Boulevard were regular bulbs and not LED bulbs.

In the case of Marcus Garvey Drive along the dualised area near Tinson Pen aerodrome, the streetlights have been disconnected.

“There are no lights there, even though they still bill us. But those are more efficient bulbs that have been included,” said Green.

In defence of its actions, JPS said LED bulbs were not in the system at the time the rate approval was granted by the Office of Utilities Regulation (OUR) and it is hoping to develop a specific rate for these bulbs.

Corporate relations manager at the JPS, Winsome Callum, said LED lamps account for less than 0.5 per cent of the total number of streetlights in the system and as a consequence the overall impact on bills would not be significant.

In the case of the disconnected sections of Washington Boulevard along the new stretch of road, Callum said: “During the period when the LED streetlights were in the name of the subcontractor no payment was made which resulted in disconnection,”

However the KSAC has rubbished the claims.

According to Green, the KSAC is billed separately for that stretch as the subcontractor was forced to take, a contract in his name as “that was the only way light would have been provided”.

According to Callum the JPS is moving to clarify the issue of the LED bulbs.

“The long-term plan is to have standardise LED streetlights across the system. The JPS is therefore now developing rates specific to LED lamps for consideration and approval by the OUR at the next rate review.”

erica.virtue@gleanerjm.com

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Scotiabank‘s energy loan customers can now determine potential loan payments, based on consumption, online.

The financial institution launched its innovative SmartEnergy Calculator on Thursday at its Constant Spring Financial Centre. The nifty energy loan calculator complements the Bank‘s SmartEnergy Loan available to Small and Medium-Sized Enterprises and householders to fund energy efficiency projects that will help the environment and cut energy costs.

(From left) Kelly Tomblin, CEO of Jamaica Public Service Company; Wayne Powell, executive vice-president retail, Scotiabank; Dr Kirk Abbott, managing director of New Leaf Energy and Phoebe Buchanan, manager of Scotiabank

Aubyn Hill, Financial Gleaner Columnist
Aubyn Hill, Financial Gleaner Columnist

THIS WEEK, Blue Energy, a British company, announced that it will build Africa’s largest solar power plant in Ghana. By the time it is completed in 2015, the 155-megawatt facility will be the fourth-largest power plant in the world and is expected to supply 20 per cent of the Ghanaian government’s target of generating 10 per cent of electricity from renewable sources by 2020.

Apart from being the second-largest producer and exporter of cocoa in the world, Ghana is a significant producer of oil and, in March, Tullow Oil of London stated that an oilfield it found off the coast was a major find. Still, Ghana has made it easy for this US$400-million investment in solar energy to go ahead. The Nzema project will be situated on 183-hectares (about 403 acres) of land in western Ghana. The Ghanaian government has given the investor a100-year lease, as well as planning and connection permission to the 161kV West African Power Pool transmission line, which links Ghana to the Ivory Coast, Togo, Benin and Nigeria.

Int’l investors responded swiftly

The CEO of Blue Energy, Chris Dean, speaking to the

In this instillation of our weekly newsletter blast out, we have decided to explain the energy grid system to you our readers. Through this newsletter we hope to help our readers and clients to better understand energy and how it works.

Delivery system:
As electrical energy is generated, it is transformed and transported instantaneously through a network of wires, substations, and transformers to the consumer. Electricity is generated at a comparatively low voltage at most generating stations. In order to transport this energy great distances, the voltage has to be increased, or stepped up.

Generating:
The generation of electricity is most commonly achieved by converting