February 2013

I would not feel dissed if you dress like we are in a tropical climate. – Paulwell

The Government aims to slash its J$13-billion annual light bill by some 15 per cent across the public sector in part as a precondition of an International Monetary Fund (IMF) loan agreement.

The savings would amount to approximately J$2 billion per year.

“We as a Government spend $1.2 billion per month on electricity … up from $500 million a month in 2008,” said Energy Minister Phillip Paulwell at the Jamaica Chamber of Commerce energy forum Tuesday.

“It is a critical component of the IMF agreement to reduce our electricity bill and we will have to do so by specific amounts.”

In furtherance of this condi-tionality, the energy ministry has assembled a team led by project manager Richard Gordon to implement a programme rooted in National Energy Conversation and Efficiency Policy 2030.

The policy, developed since 2006, aims to reduce Jamaica’s dependence on fossil fuels via conservation, implementation of diverse fuels and green energy into the mix.

15 per cent target

Paulwell declined to reveal the level of reduction required as a conditionality of the IMF. However, Gordon, an engineer by profession, told the forum that “we would like to see a 15 per cent reduction”.

A sizeable chunk of the Government’s energy bill relates to the National Water Commission, which requires energy to run its pumps at some J$6 billion annually. Street lights cost the Government some J$3 billion annually.

The energy-conservation project focusses on government offices and street lights. It involves more than simply replacing incandescent lights with efficient LED lights. Other measures include coating roofs with heat-reflective paint to reduce heat by 40 per cent; in conjunction with improving interior insulation aimed at reducing air conditioning by some 20 per cent.

“We will also be relaxing the dress code at ministries where you might not have to wear one of these,” Paulwell said, pointing to his tie. “Guayaberas and bush jackets for men would be appropriate. I would not feel dissed if you dress like we are in a tropical climate.”

Gordon said the energy policy estimated that US$100 million of spending on conversation projects throughout Government would have provided a return on investment in 2.5 years. It was not immediately clear the actual budget for implementation of the project.

“Energy efficiency is a growth area in the economy. If you have US$0.30-US$0.40 per kilowatt-hour for electricity, it provides you an opportunity to make a bankable proposition to your financiers to reduce energy. And through the saving you can easily pay off that loan,” Gordon said.

steven.jackson@gleanerjm.com

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THE electicity grid is so vulnerable to system shutdowns that its deficiencies and weaknesses could be viewed, in some instances, as an ‘accident waiting to happen’.

The factors leading to the last islandwide blackout, not related to a natural disaster, was found to be “typical of those which precipitated the three earlier system shutdowns, including the first major incident in 2006″, by the Office of the Utilities Regulations (OUR) investigation committee into electricity grid shutdown last August.

“While the initiating circumstances are different in each case, the underlying sequence of system collapse from generators and transmission circuits tripping follow a familiar and parallel path,” said the Jamaica Public Service Company (JPS) Power System Integrity Investigation report, which was completed three weeks ago. “Human error and maintenance shortcomings have played a part, as well as manifested deficiencies in the islandwide grid and generation infrastructure.”

Last August, lightning strikes at a pole located on the Duhaney to Naggo Head 69kilovolt (kV) transmission line, as Tropical Storm Ernesto passed nearby the island, led to a shutdown.

But it was the lack of a protection relay, which apparently malfunctioned or was removed from the system the April before, which was “primarily blamed for precipitating the subsequent island-wide system collapse.

Similarly, in 2006, the failure of distance relays to operate at Duncans substation following a lightning strike to the Duncans to Bogue 138kV transmission line caused a system-wide shutdown.

In 2008, a fault on the Duhaney to Tredegar 38kV transmission line wasn’t cleared, after a pole fell to the ground.

The 2006 system shutdown was reviewed by Gowlings Consulting Incorporated and Rusnov Associates Limited, whose recommendations were complied with, in the main.

But the OUR technical staff believes that the most recent episode showed that where a “crucial protection relay was not repaired or replaced for some four months at Duhaney substation, that the intent of this system is not being achieved”.

Either way, the Duhaney substation is considered to be a “major weak link in the transmission grid integrity” because it serves as the only link between generators in the Corporate Area with the generating plants in Old Harbour and Bogue, St James.

“Any failure on either the 138kV, or in particular the 69kV, is likely to precipitate an islandwide System shutdown,” said the report.

The technical team found that the protective relaying system for the Duhaney substation was urgently in need of a complete review.

Also, “the 10 substations reported as not having SCADA visibility need to be put on the system as soon as possible”.

The SCADA (Supervisory Control And Data Acquisition) system allows control engineers to remotely monitor and control the power system, and JPS has 53 substations in all.

“The current philosophy for grid restoration, based on JPS documented policy and operating instructions currently in place, appears satisfactory to adequately address system restoration procedures following a partial or complete shutdown of the system,” wrote the review committee.

However, the system restoration policy appears not to include a provision for a full analysis of the shutdown to be undertaken by technically competent personnel prior to grid restoration activities, in specific instances when the reason for the System shutdown is in doubt. It is recommended that the policy be revised to include analysis by technical personnel.

The committee did find the general system protection philosophy, which governs the basis of JPS’s installation of protective relays at generating stations and also at substations for busbars, transformers and transmission line protection, to be “generally adequate and meets international standards for reliable utility operation”.

“Nevertheless, it is recognised that the human factor plays an important role in the effectiveness of maintenance, together with the dedication to detail and a process of rigid management follow-up on defects is an issue of considerable concern,” said the report. “Indeed, recent system shutdowns have highlighted this problem and JPS needs to urgently remedy the human factor in order to prevent a repeat occurrence.”

In light of the frequency of total system shutdown events in the Jamaican power system (four in since 2006), the committee also recommends that the OUR considers the establishment of an on-going Grid Reliability Committee (GRC) as an added means of addressing issues impacting the reliability and security of the power system.

The group would meet regularly to identify items which currently threaten or could threaten grid integrity and ensure expediting of agreed remedies.

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Monopoly light distributor Jamaica Public Service Company (JPS) recorded close to US$15 million (J$1.4b) in foreign exchange losses last year, reflecting one of its worst currency shocks ever.

The amount shows the brutal impact of depreciation of the Jamaican dollar on one of the largest local companies.

The forex losses in the calendar year reflect mainly the increase in cost to service JPS’s borrowing.

The company disclosed US$14.8 million of forex losses in 2012 compared to US$3.2 million in 2011. The dip was based on the 7.3 per cent depreciation of the Jamaica dollar against the USD arising in part from uncertainty of an International Monetary Policy agreement. The dollar closed the JPS financial year ending December at J$92.98.

JPS unaudited 2012 financials did not significantly explain the forex losses, and queries to the company were unanswered up to press time. JPS listed the loss as a gain but then added the amount to other costs – indicating an error.

Previous audited financials explained that the power utility incurs foreign currency risk primarily on “purchases and borrowings” that are denominated in a currency other than the United States dollar.

“The company manages foreign exchange exposure by maintaining adequate liquidity resources in the appropriate currencies,” stated JPS in its 2011 financials.

The utility purchased US$777 million worth of fuel for the year ending December 2012 and holds US$353.5 million in long-term loans.

Last year’s forex loss was among the worst on record since the company assumed foreign ownership in 2001.

Five years ago, in 2008, when the currency lost 15 per cent of its value, the company recorded US$8 million in forex losses.

In periods before 2008, when the company reported its earnings in local currency, the foreign exchange losses were: J$1.9 billion in 2003; J$313 million in 2004; J$620 million in 2005; J$593 million in 2006; and J$807 million in 2008.

JPS is owned by Japan’s Marubeni Corporation, 40 per cent; South-Korea-based Korea East-West Power (EWP), 40 per cent; Government of Jamaica, 19.9 per cent; while 3,000 shareholders own the remaining 0.1 per cent of the shares.

The utility reported net profit of US$12.7 million (J$1.18b) last year on sales of US$1.14 billion (J$106b).

Equity increased US$7.6 million to US$387 million (J$36b).

business@gleanerjm.com

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Minister of Science, Technology, Energy and Mining, Hon. Phillip Paulwell (left), speaks with President of the

A truck laden with cement at Carib Cement's Rockfort plant. Cement manufacturers in Trinidad benefit from cheaper energy and thus gain better profit margins than their Jamaican counterparts which are more efficient but suffer from meteoric energy bills. - File
A truck laden with cement at Carib Cement’s Rockfort plant. Cement manufacturers in Trinidad benefit from cheaper energy and thus gain better profit margins than their Jamaican counterparts which are more efficient but suffer from meteoric energy bills. – File

Densil Williams, Guest Columnist

It is no secret that Jamaica has a growth problem. For four decades, our average growth rate has hovered around 1%, while similar countries such as Singapore and Barbados grew in the rage of 6-8%. Their citizens now enjoy a higher standard of living as measured by their per-capita income than Jamaicans do.

Singapore has a per-capita income of more than US$43,000; Barbados’ per-capita income is around US$23,000, while Jamaica stands at around US$5,000. The disparity is even more alarming if one looks at the fact that these countries are all coming from roughly the same per-capita income of around US$390 in 1960. Indeed, for Jamaica to catch up, it has to grow its economy, full stop. Meandering along with 1% growth is not going to cut it.

However, it must be appreciated that economic growth is not an effortless task, especially for a small, open economy with so many structural problems and vulnerabilities. It is in this context that the discourse on growth in Jamaica has to take place. This article, and some of the others to come, will focus on various impediments to Jamaica’s growth over the last 50 years and also provide some insights into dealing with these challenges. The first issue that will be tackled is energy.

ENERGY AND GROWTH

The high cost of energy in Jamaica is clearly an inhibitor to economic growth. To grow the economy, Jamaica will have to increase the production of goods and services each year and sell these into the marketplace.

If people are buying Jamaican goods, the producers will be obliged to produce more. So, the greater the demand for a country’s goods and services, the greater the likelihood that the producers of those goods and services will increase their production. All other things being equal, the overall output of the country will be increased as well.

However, because of the high cost of energy, it is difficult for Jamaican goods to compete in the marketplace. Price competition, therefore, is not an option for Jamaican producers in the local and international marketplace. As such, Jamaican producers are at a disadvantage, as the majority of consumers are price sensitive. When they go to the stores, they will choose a product with a lower price, assuming all other factors remain constant.

While in the main it is accepted that Jamaican firms can be more efficient and cut wastage in order to reduce their cost structure and eventually compete at better prices, it is not always true that the high price of Jamaican products results from inefficiency at the firm level. The onerous burden that energy places on the cost structure of Jamaican firms cannot be overlooked when analysing price competitiveness in the marketplace.

Cement production is a good example of how high energy prices impact cost structure of an enterprise although the firm performs efficiently in other areas. To produce one ton of cement, Caribbean Cement Company Limited, a subsidiary of the Trinidad Cement Limited, uses roughly 102kWh of electricity, while in Trinidad, cement producers use 110kWh of electricity to produce the same ton of cement.

Carib Cement, however, pays US$0.30 per kilowatt-hour for electricity from the Jamaica Public Service Company (JPS) – note, this is a preferential rate arrived at through negotiations – while cement producers in Trinidad pay US$0.03 per kilowatt-hour. As such, although the Jamaican plant is roughly 8% more efficient with the usage of electricity, it still faces a US$27 higher cost to produce the ton of cement.

The high price of energy in Jamaica is clearly a deterrent to increased production and, by extension, the future growth of the economy.

THE SOLUTION MIX

There will be no single solution to deal with the high cost of energy in Jamaica. What we all agree on is that we must reduce the exorbitant cost that consumers have to pay for this vital resource. For sure, there has to be greater efficiency on the part of the JPS in providing energy to its consumers. Its heat rate must be improved, similar to those of the private power producers; its system loss has to be improved; and most important, it has to use the most efficient technology to produce electricity for its consumers.

Indeed, the Energy Think Tank at the University of the West Indies, Mona, in its latest publication in the

Professor Jens Born, a consultant on biogas energy, makes a case for local farmers to invest in biodigesters and other appropriate forms of clean, environmentally friendly energy during a workshop hosted by the Food and Agriculture Organization at the Faculty of Engineering, University of Technology. - Photo BY Christopher Serju
Professor Jens Born, a consultant on biogas energy, makes a case for local farmers to invest in biodigesters and other appropriate forms of clean, environmentally friendly energy during a workshop hosted by the Food and Agriculture Organization at the Faculty of Engineering, University of Technology. – Photo BY Christopher Serju

Pig farmers urged to get more out of animals

Christopher Serju, Gleaner Writer

LOCAL PIG farmers have been challenged to get more out of their animals – literally; and in the process, increase the financial returns on their investments in an environmentally friendly way.

That challenge came from Professor Jens Born, a consultant in biogas and renewable energy forms, during a recent workshop hosted by the United Nations Food and Agriculture Organization (FAO) in Jamaica.

“They need to stop wasting the (animal) waste and harness it to not only recover some of their money, but also generate income from it (waste),” he told

Energy Minister, Phillip Paulwell
Energy Minister, Phillip Paulwell

An energy efficiency project aimed at cutting energy costs in smaller hotels is to be implemented in Jamaica by the end of the year.

The project, which is called the Caribbean Hotel Energy Efficiency and Renewable Energy Action Programme, has been successfully tested in Barbados and will be extended to The Bahamas and other countries in the region.

In endorsing the energy saving initiative, Jamaica