The Jamaica Public Service Company (JPS), the island’s sole distributor of electricity, said it will be doubling its expenditure on energy projects by December this year in an attempt to drive down the cost of energy.
JPS views the investment as key to driving efficiencies, according to Chairman Seji Kawamura, who was appointed earlier this year, as well as incoming President and CEO Emanuel DaRosa, who takes up that position effective August 1.
The big project entails the construction of its cutting-edge storage facility, which will store energy produced at renewable plants.
“This year, we are spending US$100 million on investments on the purchase of properties and plant and equipment,” stated Kawamura following the JPS’s annual general meeting at its Knutsford Boulevard, New Kingston, head office on Friday.
The JPS spent US$56 million and US$65 million, respectively, on the purchase of property, plant, and equipment in the 2016 and 2015 financial years.
“We are making sure that when the renewables are coming in, that there must be a storage system to accommodate them,” Kawamura said.
In June, the JPS announced plans to build a 24.5-megawatt facility to store energy as a safeguard against power outages. It was described as the first of its kind in the Caribbean.
The light and power supplier plans to build the facility next year, but no cost was disclosed at the time. It will act like a giant battery that charges when solar or wind-energy plants generate energy. It then kicks into action to feed the grid the power these renewable plants generate when there is cloud cover or low wind speeds.
“This represents the confidence of shareholders in the future of the business,” Kawamura said, explaining that renewables would reduce the reliance on oil imports, the cost of which are passed on to customers.
“So we will charge less fuel on the bill to you, so we are not making it more expensive,” he added.
Kawamura and DaRosa lauded the outgoing president and chief executive officer, Kelly Tomlin, and indicated that she had put the company in a good position for growth.
The JPS made US$24 million net profit on revenues of US$712.5 million for its 2016 financial year or 9.4 per cent less net profit than a year earlier.
“We are taking up from where Kelly has left off. We are not ignoring what she’s done,” said Kawamura.
He added that the major Asian-based shareholders want to raise the return on equity, which hovered at six per cent for its 2016 financial year (US$24 million over total equity at US$395.4 million). Japanese-based Marubeni and Korean-based East West Power each own 40 per cent of the JPS, while the Government of Jamaica holds 19 per cent and individual investors owning the remainder.
“At this moment, we cannot say that we are satisfied. There are things to do before we can achieve that target,” Kawamura said, adding that investment in equipment and plant remains a priority, along with maintaining the quality of service to customers. “Then the return that we want will be gained. But we have to earn it.”
Tomblin served as JPS president and CEO for five years after joining in 2012, following the departure of Damian Obiglio, who, himself, served for five years in the position. Obliglio led the organisation during period of oil spikes, which led to costly light bills, which reduced customer goodwill for the utility.
Tomblin entered the market as a personable CEO who focused on customer service. Her leadership also coincided with a reduction in oil prices since summer 2014.
DaRosa, a Canadian, prior to his appointment at the JPS served as the CEO of the Northwest Territories Power Corporation.
“The reason we chose him is because he has a big heart. The perception of the customers might be different due to gender. But still, love is love,” said Kawamura, referring to DaRosa.
DaRosa pledges to lead the energy distribution monopoly with compassion. “Every organisation has to have a heart, otherwise it will fail,” DaRosa told Gleaner Business.
Tomblin did a “fantastic job” for the people of Jamaica, reasoned DaRosa, adding that he will certainly continue down that path without any major course correction.
“My number-one priority is the health and safety of the general public, employees, and contractors. That’s imperative for JPS as a utility. Number two is that I will focus on efficiency to ensure that JPS is the most efficient organisation that it can be. Number three would be the socio-economic development for the people of Jamaica,”he said.
The JPS can have a positive impact on the economy through conservation, he added.
JAMAICA IS preparing to take advantage of what is seen as the next big thing in climate financing – the Green Climate Fund (GCF) – even as rising sea levels, warmer temperatures and extreme weather events remain a clear and present danger.
Head of the Climate Change Division (CCD), UnaMay Gordon, revealed Tuesday that the island is, within two weeks, to ink an agreement with the GCF for a longed-for readiness grant.
The grant, valued at US$300,000, was applied for more than two years ago to help prepare the island to take advantage of financing under the GCF.
“We came back (from the GCF structured dialogue in Belize) with the grant agreement. We are just doing the finishing touches in terms of the account … . We should be signing very, very soon and when I say soon, I mean within the next two weeks at the most,” Gordon told The Gleaner from a workshop on integrating climate change into national and ministerial budgets, held at the Ministry of Finance and the Public Service.
The Belize meeting took place between June 19 and 22, and afforded regional participants the chance to share experiences while directing their attention to identifying project opportunities, as well as project preparation and support needs under the GCF.
The signing of the Jamaica agreement will usher in 18 months of work that is expected to yield, among other things, the establishment of a GCF desk at the offices of the CCD.
“We will get a body just to handle GCF matters. Anybody, after that, who will want information on the GCF will have a go-to person – under guidance, of course – so they won’t need to be looking for UnaMay Gordon,” the CCD boss said.
The grant is also expected to yield a set of national stakeholder consultations and two projects ready for funding consideration.
“Before we went into Belize, we did a little country programme brief. We will validate that to ensure that the projects that we have already submitted will also meet the needs of the country and then we will develop from this readiness programme, a macro country programme for engagement with the GCF,” explained Gordon.
“We hope that we will engage either one or two consultants, local or international, to come to help us through that process and to provide guidance, especially from countries who have done this before. We hope as well that at the end of that, we will have two project profiles ready for submission to the GCF,”she added.
The CCD is the national designated authority for the GCF, which is mandated “to limit or reduce greenhouse gas emissions in developing countries, and to help adapt vulnerable societies to the unavoidable impacts of climate change”.
“Given the urgency and seriousness of the challenge,” the GCF notes on its website, “the fund is mandated to make an ambitious contribution to the united global response to climate change”.
Up to this month, the GCF had raised the equivalent of US$10.3 billion in pledges from 43 states.
Talk to a Big Oil executive these days, and the chances are they’ll steer the conversation toward gas.
“In 20 years, we will not be known as oil and gas companies, but as gas and oil companies,” Patrick Pouyanne, chief executive officer of French giant Total SA, told a conference in St. Petersburg last month.
Pouyanne and his peers have pitched the fuel as a bridge between a fossil-fuel past and a carbon-free future. Gas emits less pollution than oil and can be burned to produce the power that grids will need for electric cars.
But with the cost of renewable technologies falling sharply, some are warning that the outlook may not be so rosy. Forecasters are beginning to talk about peak gas demand, spurred by the growth of alternative power supplies, in the same breath as peak oil consumption, caused by the gradual demise of the internal combustion engine.
In a long-term outlook published last month, Bloomberg New Energy Finance predicted that gas’s market share in global power generation will drop from 23 percent last year to 16 percent by 2040, and that gas-fired power generation capacity will start to decline after 2031. BP Plc has highlighted “risks to gas demand” as a key uncertainty, including the possibility that consumption plateaus by 2035, “squeezed out by non-fossil fuels.”
If those forecasts play out, it has huge implications for Total, BP and other oil majors already grappling with a possible surge in electric car use. Gas-exporting nations most notably Russia, Qatar and Australia will also be exposed. The global gas industry, based on multi-billion dollar pipelines and export plants, has decades long investment cycles and decisions being made today rely on rising demand until the middle of the century.
The energy transition is “fundamentally a force that cannot be stopped,” Royal Dutch Shell Plc Chief Executive Officer Ben van Beurden said last month. “It is both policy and public sentiment, but also technology that is driving it.” Oil demand will probably peak in the 2030s or 2040s, he said, while “gas will not peak before the 40s if not in the 50s.”
Shell is still betting heavily on the future of gas after last year’s $50 billion purchase of BG Group Plc, but it’s also planning to spend $1 billion a year on new energy technologies such as renewables.
“There’s no question that gas usage declines over time,” Geisha Williams, CEO of PG&E Corp, the largest investor-owned utility in the U.S., said at a conference in San Francisco. “But I don’t think it’s overnight. I think it’s something that we have to manage.”
Until recently, the energy industry had been hoping that natural gas would play the role of a bridge fuel between polluting coal and emissions-free renewables. That’s because producing electricity from gas generates around half the carbon dioxide emissions that burning coal does. The International Energy Agency predicted a “golden age of gas.”
But rapid changes in the economics of renewables, combined with low coal prices, have put that outlook in doubt. The IEA last week predicted global gas demand for power generation would rise just 1 percent a year in the next six years, down from 4 percent a year in 2004-2010.
Driving the shift has been a sharp decline in the cost of building new renewable power –- which, unlike generating electricity from coal or gas, is almost free to run after the initial capital investment has been made.
“Wind and solar are just getting too cheap, too fast” for gas to play a transitional role, said Seb Henbest, lead author of the BNEF report.
The consultant estimates that onshore wind and solar power are already competitive with coal and gas in Germany, and that within five years they will be cheaper to build than new coal and gas plants in China, the U.S. and India. By the late 2020s, it will start to even be cheaper to build new onshore wind and solar power than run existing coal and gas plants.
The trends that are undercutting optimism about the global gas outlook are already playing out in Europe. Natural gas demand remains well below a 2010 peak, as greater energy efficiency, rapid adoption of renewables and resilient coal consumption cut into its market share.
The IEA does not see European gas demand returning to its 2010 high. In its base case scenario, European gas demand would be at the same level in 2040 as in 2020.
Still, most forecasts anticipate strong growth globally for natural gas demand for two decades or more. In the U.S., plentiful cheap supplies thanks to the shale boom helped gas displace coal as the primary fuel for power generation for the first time last year.
The IEA sees global natural gas demand growing almost 50 percent by 2040. Exxon Mobil Corp. sees a 44 percent increase. BP’s base case forecast is for a 38 percent increase in demand by 2035.
Several things could upend those predictions.
Much of the forecast growth in gas demand is dependent on China and India adopting policies that favor gas rather than coal in an attempt to improve air quality. The Chinese government, for example, has set a goal of getting as much as 10 percent of its energy from gas by 2020 and 15 percent by 2030, up from 6 percent in 2015. The country also plans to more than double import capacity by 2025. If that doesn’t happen, gas demand could peak sooner.
And the power sector, while the largest single source of natural gas demand, only accounts for 40 percent of the market. By contrast, nearly 60 percent of global oil use is as a transport fuel and vulnerable to the rise of electric vehicles.
“The future of oil is down to whether electric vehicles take off or not; the future of gas is quite nuanced,” said James Henderson, director of natural gas at the Oxford Institute for Energy Studies. “Gas producers are talking about how to adapt to a different type of gas market.”
While the outlook for wind and solar for power generation appears limitless, renewables will have a harder time replacing fossil fuels in other sectors. The IEA last week said industry will drive gas demand’s 1.6 percent a year growth through 2022 as it replaces crude oil as a raw material for petrochemical manufacturing, especially in the U.S.
“Gas will play a significant role in the decades to come,” Johannes Teyssen, chief executive officer of EON SE, told Bloomberg on May 24. “Coal will decline much, much faster, but gas probably needs also to accept that its own role will not grow to eternity.”
In the weeks after Energy Secretary Rick Perry kicked off a 60-day study examining the impact of wind and solar on fossil baseload power plants — hinting that he might use DOE authority to halt state renewable energy targets — an army of researchers, grid experts and renewable energy professionals showed up at his doorstep.
They were armed with a deep body of research (including a report from a prominent anti-subsidy libertarian think tank) and real-world experience (including from Perry’s home state of Texas) showing that variable renewables aren’t the threat to grid reliability that the Energy Secretary implies.
The latest to weigh in: David Hochschild of the California Energy Commission and David Olsen of the California Independent System Operator Board of Governors.
The two prominent energy experts penned an op-ed in the San Francisco Chronicle, calling DOE assumptions about grid reliability “nonsense.”
“In California, which has installed more clean energy than any other state, there have been no threats to the reliability of the electric grid caused by renewables. Instead, the three biggest threats to our grid over the last 20 years came from market manipulation (Enron et al., during the 2001 energy crisis), a nuclear plant failure (San Onofre, 2012), and the largest natural gas leak in history (Aliso Canyon gas storage facility, 2015). Rather than create these emergencies, renewable energy was part of the solution and continued to operate reliably and prevented these events from becoming worse,” wrote Hochschild and Olsen.
They also look at grid reliability in other countries. Denmark and Germany, which host some of the highest levels of non-hydro renewables in the world, have 10 times fewer minutes of outages each year.
The graph below comes from Dan Shugar, CEO of NEXTracker, who compiled outage data sets back in April.
Shugar posted a response to Perry’s assumptions about solar and wind causing grid reliability problems: “Sorry, Secretary Perry, the facts don’t support that.”
“We analyzed how the grid reliability, as measured by ‘customer outage minutes per year’ of countries with the highest renewable penetration (Denmark, Germany) compare with the USA. The result? Germany and Denmark have two to four times the renewables of the USA, but have much more reliable power — in fact, only 10% of the outages that U.S. customers do,” wrote Shugar.
This isn’t to say that renewables are the reason for Europe’s better outage record. A lack of spending on transmission and distribution infrastructure throughout the 1990s in the U.S. is a major factor in outages. America’s vulnerability to hurricanes is another reason. Europe also buries more of its distribution infrastructure, making it less susceptible to weather-related disruptions.
Still, the presence of very high amounts of renewable energy in European countries — made possible with sophisticated grid management techniques — does not itself make the grid less reliable.
Hochschild and Olsen echoed Shugar’s point in their Friday op-ed.
“What happens when the wind doesn’t blow, or the sun doesn’t shine? To answer that question, one needs to examine the many countries that have more renewable energy than we do. Wind and solar contribute a share 2.5 times larger in Germany’s electricity mix (18.2 percent in 2016) than they do in the United States (6.9 percent). Germany produced 82 percent of its electricity from renewables for a period of several days in May. Denmark gets 100 percent of its electricity from renewables on many days of the year. Yet both nations have electric grids that are 10 times more reliable than America’s. Germany and Denmark average 23 and 24 minutes of customer outages per year, respectively, while the United States averages 240 minutes per year,” they wrote.
The DOE study should be released later this week. It’s one of the most anticipated reports from the agency in years — and it’ll likely be the most scrutinized, too.