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JPS writes off $100m of electricity bills

February 8, 2016 Webmaster

Kelly Tomblin, president and CEO of JPS.

Jamaica Public Service Company (JPS) said it wrote off $100 million in debt owed by residential and commercial customers for electricity under its year-end amnesty programme.

It offered customers the opportunity to start the new year at least partially debt free.

The power utility also said it continues to work with the Government, through the Ministry of Finance, to ensure payment for street lights on a timely basis.

In introducing the amnesty, which ran from November to December 2015, JPS said it had identified critical cases where some of its customers’ debts to the light and power provider had accumulated so significantly over time that they had been classified as bad debt.

However, for customers who wanted to regularise their accounts and in some cases restore their electricity, JPS gave residential rate 10 and commercial rate 20 customers an opportunity to negotiate up to 70 per cent debt forgiveness.

Persons qualified to apply were those owing in excess of $50,000 at August 2015 and had their service disconnected; as well as residential and small commercial customers who owed more than $100,000 up to August, but whose accounts were still active.

Last Friday, JPS President and Chief Executive Officer Kelly Tomblin, addressing a media briefing at the company’s offices in New Kingston, said more than 1,000 account holders benefited from the amnesty.

STREET LIGHT REPAIRS ONGOING

As for the issue of defective street lights, Tomblin said repairs were ongoing, while acknowledging that the utility got daily complaints.

JPS has about 100,000 street lights and last year the company replaced 27,700 of them, an average of 514 per week.

“We are replacing street lights, hundreds and hundreds every week, so it’s not that JPS isn’t aware…”, she said.

Against that background, Tomblin said: “There are two things that are going on that we have to fix.

“We are working with the Government right now to find a way for us to get paid more promptly,” she said. “I have a commitment by the minister of finance. We work with him all the time. We all know that we have a lot of different obligations and a lot of different challenges to meet and we do know today that we are working on solutions to run our street lights on, for instance, LED.”

At the same time, she said the company has to be careful how much it invests in the current solution “if we are going to have this three to four year plan to replace them.”

She acknowledged the issue is, for some, one of security, but said the street light problem is compounded by theft.

“With the level of electricity theft, we will never have first-class street lights … we cannot have street lights operating if we have a couple of hundred people stealing,” the utility boss said.

JPS is manager of the national grid and monopoly distributor of electricity supplies. The utility collects around $100 billion per year in billings.

The Gleaner

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PSOJ Backs Oil Hedge Strategy

February 3, 2016 Webmaster

The Private Sector Organisation of Jamaica (PSOJ) says it is in the country’s best interest to further hedge against the upward movement in the price of oil, a strategy the Government first adopted in June last year.

The hedge purchased by Jamaica last year at a strike price of US$66 has come in for criticism because oil prices are currently falling, and analysts are predicting further decreases this year.

However, PSOJ president William Mahfood said if the world crude prices remain low for an extended period, the options to buy will also be reduced and gives Jamaica an opportunity to hedge at concomitantly lower prices.

“We feel strongly that if the strike prices are attractive and if prices are maintained at these lower levels that it is in the country’s best interest to buy that insurance policy going forward,” Mahfood told Wednesday Business.

Asked if the PSOJ would encourage the Government to negotiate any differently in entering into such contracts, Mahfood, while noting that “it’s really a function of time, and it’s a question of volatility,” emphasised that “if oil prices remain low for an extended period of time, what you will find is that the option prices will come down, and if those prices come down further, it will definitely be in the country’s interest for us to hedge further”.

While some projections are for prices to fall to US$20, Mahfood said that no one knows exactly where they will end up.

“The best analysts in the world will tell you that the oil price might be a US$53 in December or it might be at US$100.”

He said the PSOJ feels strongly about maintaining some sort of stability in terms of the prices, given what the impact the lower costs have had on the economy in terms of energy which has, for example, resulted in lower electricity bills for both households and manufacturers.

In a release on Monday, the PSOJ said it has taken note of commentary on the oil hedge strategy Jamaica effected last year by purchasing options to buy eight million barrels of oil, representing about half the country’s annual requirement, at a price of US$66 per barrel.

The total cost of the option, which became effective in June 2015 and expires September this year, was approximately US$20 million.

One argument, the PSOJ said, was that the hedge was a waste of money as oil prices have fallen to US$30 per barrel, and the strike price, where Jamaica would have started to benefit, is US$66 per barrel.

The PSOJ noted that projections last year were for oil prices to recover in 2016 with most expecting it to go past US$66 per barrel and settling at around US$80 per barrel, which at 17 million barrels per year, would have had an annual cost above the strike price of US$234 million.

“If this had happened then we would have saved US$214 million (net of the option cost of US$20m). So for us to even have broken even on the cost of the option, oil prices would have had to go to US$67.20 per barrel (additional US$20 million based on our usage above the strike price),” PSOJ said.

It noted that the hedge is not a contract for supply at the strike price of US$66, but an option to purchase at that price so the only cost would be the US$20 million fee.

“It is also important to note that the amount applied to pay for the hedge was applied while prices were falling, so it was not an additional cost, which was important as it did not reduce already existing consumption spending,” the private sector group said.

“The fact is that we could ill afford oil moving back to US$80 per barrel, and the cost of US$20 million to mitigate a US$200 million risk, like insurance, makes good business sense,” said the PSOJ.

The Gleaner

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Paulwell says net billing to resume, but solar energy providers still in limbo

February 1, 2016 Webmaster

Energy Minister Phillip Paulwell

ALMOST a year after net billing was suspended, there are indications that the programme is to resume, although Energy Minister Phillip Paulwell is yet to set a timeline.

He said recommendations have been made to the Office of Utilities Regulation (OUR) to resume processing licences. But, before that can happen, the Electricity Lighting Act must be amended and the Jamaica Solar Energy Association (SEA) raised concerns that nothing has been done to have the legislation amended.

At Wednesday’s national conference for the development of an energy services company industry in Jamaica, Paulwell said that the Government is committed to reopening net billing.

He, however, explained that while the law names the Energy Sector Enterprise Team (ESET) as the body responsible for regulating new generation capacity, it was felt that it (net billing) is not appropriately placed at ESET, and that the OUR is expected to resume processing net billing licences.

So far, more than 300 licences have been issued, but solar energy providers have not been able to interconnect to the JPS grid since May of last year.

David Barrett, president of SEA, says the association’s membership is still in a state of confusion.

“It’s static now (the sector) because people have no entity to get a licence from, they don’t know who to go to. Some persons have gone to the OUR or the JPS (Jamaica Public Service company) but they can’t do it because of the obvious reasons,” he told the Jamaica Observer last Thursday.

Over the months, entrepreneurs in the solar energy sector have complained bitterly of suffering millions in losses after the JPS stopped net billing to carry out an assessment of the pilot. The review was completed by the United States’ National Renewable Energy Laboratory and the report made public in June, but all grid interconnection for new net billing projects islandwide have still remained on hold.

Solar energy providers say the prolonged suspension has dealt their outfits a serious blow, arguing, too, that the JPS has too much power over the arrangement and that the Government needs to act decisively on the issue.

Barrett said the members are neither pleased with the pace of the process nor the new conditions that are being established.

“What has been decided is that the cap is to be five megawatts instead of 11 as it would have been in the previous phase, and that the cap for the individual locations will remain as they are. The association is not too happy about that because we feel that there is easy opportunity to increase potential for renewables in Jamaica without disturbing the grid in any way,” he told the Observer earlier this month.

Additionally, Barrett expressed disappointment that the association had not been invited to the table when the new cap was being set. “So we don’t have the information that fed into the decision-making process,” he stated.

Net billing permits JPS customers, who own renewable energy generators, to produce electricity for personal use and to sell excess energy to the light and power monopoly at wholesale prices, which are set by the OUR.

Jamaica Observer

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OUR Gets 10 Bids For 37MW Renewable Project

January 29, 2016 Webmaster

Ten companies submitted bids to build and operate renewable energy plants that run on solar, wind, water or waste, but two are in danger of being disqualified for non-payment of the bid security.

The Office of Utilities Regulation (OUR) received the bids for supply of up to 37 megawatt of renewable power to the grid on Wednesday and will determine the preferred bidders by April.

The bids included a 24.7MW waste-to-energy plant at US$110 million, by Green Waste Energy Inc; a 37MW wind plant at US$61 million by Wigton WindFarm Limited; a 20MW solar plant, at US$33.15 million, by WRB Enterprise Inc and a separate bid to build a 37MW solar plant at US$72.15 million, which contains three options.

Great Valley bid US$50 million to develop a 26.4MW wind farm; Tamarind Energy proposed a 36.3MW at US$76.96 million; and BMR Jamaica bid US$18.27 million for a 9.9MW wind farm to expand the existing wind farm that it is developing in central Jamaica.

The other four bids were a 37MW solar project at US$48.7 million with an alternative option by Eight Rivers Energy Company Limited; a 2MW hydropower project, at US$8.9 million, by Petroleum Corporation of Jamaica; a 37MW solar plant at US$77.14 million by Jamaica Energy Partners; and a 30MW biothermal energy plant, at US$93.8 million by Bio Energy Resources Limited.

“We are happy with the process. It was done in an orderly and professional manner,” said Angella Rainford of Eight Rivers Energy Company following the bid openings held at the OUR.

“The returns are attractive, but it’s also the right fit for the country as it mitigates against the reliance on oil,” said Rainford.

Eight Rivers took no chances and submitted a US$700,000 bid security.

Two of the 10 bidders – Green Waste Energy and Bio Energy Resources – did not put up the required security, OUR legal Chenee Rily disclosed at the bid opening.

The OUR required each bidder to submit security equivalent to one per cent of the project cost.

“The only two bids with firm capacity failed to offer a bid security it’s unfortunate,” said Cecil Gordon, the director of generation at Jamaica Energy Partners, in discussion with the Financial Gleaner at the OUR event. “Waste-to-energy gives a constant output so it’s firm capacity.”

Gordon explained that wind solar and hydro can fluctuate depending on external factors, including weather. He also indicated that waste-to-energy projects are more expensive to operate – “which means a lower return,” he added.

OUR said on Thursday that the decision on whether to disqualify the two waste-to-energy bids would be considered by the bid review committee when it convenes.

Last July, the OUR issued a Request for Proposals (RFP) from local and international interests to supply up to 37MW of electricity generation from renewable energy resources on a build, own and operate basis. Wednesday was the deadline for the receipt of bid documents.

This latest project is to complete an RFP process started in 2012 to identify interested entities to submit proposals for the supply of one or more plants of varying configurations greater than 100kW and up to 115MW of renewable energy. At that time, 78MW was identified from three successful bidders.

The Gleaner

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Fossil Fuels Are A Terrible Investment, And They’re Only Going To Get Worse

January 29, 2016 Webmaster

A woman wears as mask while walking in a neighbourhood next to a coal-fired power plant on Nov. 26, 2015, in Shanxi, China.

The market is encouraging pension funds and institutions to jettison fossil fuels from their portfolios, waving a clear warning flag to investors about the financial future of oil and coal companies.

Fossil fuel stocks are performing poorly compared to the market as a whole — and perhaps most importantly, compared to renewable energy stocks, said Michael Liebreich, chairman of Bloomberg New Energy Finance, at a summit on climate risk put on by the nonprofit sustainability advocacy group Ceres.

Referring to investors who won’t divest and continue to own fossil fuel stocks, Liebreich pointedly said that the market was “divesting through value destruction” — in other words, cutting their holdings in traditional, polluting energy companies by slashing their value.

Renewable energy stocks have dramatically outperformed fossil fuels.

Over the last 10 years, the S&P 500 index is up just over 50 percent. Yet energy stocks over the same time period have risen only 1.3 percent.

For big investors to simply allow their holdings in big energy companies to fall toward a vanishing point of worthlessness is deeply irresponsible, observers say.

Indeed, former Vice President Al Gore, who shared the Nobel Peace Prize in 2007 for his work on climate change, compared the risk that some fossil fuel companies’ assets will become worthless to the danger of mortgage-backed securities, whose collapse triggered the 2008 financial crisis.

The nonprofit research group Carbon Tracker estimates that if the world changes its energy sources to keep climate change below 2 degrees Celsius, $2 trillion in fossil fuel assets will be stranded — that is, unusable, far less valuable, and in some cases, liabilities.

Huffington Post

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Jamaica To Do Its Share Of Climate-Change Mitigation

January 28, 2016 Webmaster

Jamaica is to reduce greenhouse gas emissions by the equivalent of 1.1 million metric tonnes of carbon dioxide per year by 2030, as part of its global commitment to take climate-change mitigation action.

To bring this about, the island – as reflected in its nine-page Intended Nationally Determined Contributions (INDCs) document to the United Nations Framework Convention on Climate Change – has undertaken to implement energy policies that ensure the island:

– uses energy wisely and aggressively to pursue opportunities for conservation and efficiency;

– has a modernised and expanded energy infrastructure that enhances energy generation capacity and ensures that energy supplies are safely, reliably and affordably transported to homes, communities and the productive sectors on a sustainable basis; and

– achieves its energy resource potential through the development of renewable energy sources by increasing their share in its primary energy mix of 20 per cent by 2030.

Such policies are also to ensure that government agencies and ministries are a model/leader in energy conservation and environmental stewardship, and that the island has a well-defined and established governance, institutional, legal, and regulatory framework.

Fully implemented energy polices need, too, to ensure that private industry embraces “efficiency and ecological stewardship to advance international competitiveness and to move towards a green economy”, the document said.

The Gleaner

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Government Moves Full Throttle On Climate Change Policy

January 28, 2016 Webmaster

With the ink now dry on Jamaica’s Climate Change Policy Framework and Action Plan, the island’s Climate Change Division (CCD) is to drive the realisation of its goals.

“We never did have a launch of the policy framework per se, but Minister (of Water, Land, Environment and Climate Change Robert Pickersgill) did speak to [its completion]. The Climate Change Division will now drive the implementation,” Colonel Oral Khan, the ministry’s chief technical director, told The Gleaner.

Khan added that the publication of the policy was expedited last September, following the inclusion of comments from public consultations done, final approval from Cabinet and some three years of work.

“Some of the priorities highlighted include the mainstreaming of climate change in policy and development planning frameworks, and we have started that process,” noted CCD head Albert Daley.

According to Daley, “There is a 2015 to 2018 framework which highlights the priority actions to be done and who is to do them, timelines, and so on.

“We have been working closely with the Planning Institute of Jamaica to ensure climate-change concerns are reflected in the actions for the various sectors,” he noted.

WORK IN PROGRESS

As things stand, there are a number of adaptation and mitigation sector plans on which work has been ongoing.

The policy was made possible through the Government of Jamaica/European Union/United Nations Development Programme Climate Change Adaptation and Disaster Risk Reduction project, funded by the EU under the Global Climate Change Alliance.

In addition to facilitating and coordinating the national response to the impacts of climate change and promoting low-carbon development, the 36-page policy is to:

– mobilise climate financing for adaptation and mitigation initiatives; and

– improve communication at all levels on climate-change impacts and also adaptation- and mitigation-related opportunities so that decision makers and the general public will be better informed.

This is while mainstreaming climate-change considerations and supporting those institutions, including research entities that would enable that process.

The Gleaner

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Jamaica Stands To Lose If World Bank’s Oil Price Prediction Holds

January 27, 2016 Webmaster

While Jamaica has spent US$20 million (about J$2.3 billion) to hedge against the risk of a sharp increase in oil prices, the World Bank has lowered its forecast for crude oil to US$37 a barrel from US$51 a barrel in its October 2015 predictions.

The bank, in its latest commodity markets outlook, said that oil prices fell by 47 per cent in 2015 and are predicted to decline, on an annual average, by another 27 per cent this year.

If the World Bank’s prediction prevails, it would mean that Jamaica would take a hit, given that its hedging contract, with a strike price averaging US$66.74 per barrel, started in June 2015 and is set to expire in about September this year.

Lower oil prices, as well as the ongoing economic adjustment under Jamaica’s economic support programme with the International Monetary Fund (IMF), have been attributed to the macroeconomic stability which the fund’s executive board reported last month has continued to strengthen.

Those factors have also been credited for the inflation and the current account deficit falling to historical low levels.

In the report released yesterday, the World Bank said the lower forecast for crude oil reflects a number of supply-and-demand factors.

These include sooner-than-anticipated resumption of exports by the Islamic Republic of Iran, greater resilience in United States production due to cost cuts and efficiency gains, a mild winter in the Northern Hemisphere, and weak growth prospects in major emerging market economies, according to the World Bank’s latest quarterly report.

However, from their current lows, a gradual recovery in oil prices is expected over the course of the year, for several reasons.

“First, the sharp oil price drop in early 2016 does not appear fully warranted by fundamental drivers of oil demand and supply, and is likely to partly reverse,” the report said.

“Second, high-cost oil producers are expected to sustain persistent losses and increasingly make production cuts that are likely to outweigh any additional capacity coming to the market. Third, demand is expected to strengthen somewhat with a modest pick-up in global growth,” it added.

The anticipated oil price recovery is forecast to be smaller than the rebounds that followed sharp drops in 2008, 1998, and 1986.

PROSPECT

“Low prices for oil and commodities are likely to be with us for some time,” said John Baffes, senior economist and lead author of the commodities markets outlook. “While we see some prospect for commodity prices to rise slightly over the next two years, significant downside risks remain.”

In the IMF report submitted to the board for the 10th review in December, the Jamaican authorities also observed that despite increased surrendering requirements since the beginning of last year and reduced foreign exchange demand from public enterprises, given lower oil prices, there has not been any trend increase in the central bank’s net foreign exchange purchases. “Indeed, net purchases were negative in September and October 2015,” it added.

When Jamaica purchased hedging contracts from Citibank NA, covering six million barrels of oil imports over a 15-month period, expectations last year were that crude prices may climb back to US$75-US$80 per barrel on the world market.

However, prices have since fallen to just over US$30 a barrel.

The transaction was the Jamaican Government’s first oil-hedging arrangement, resulting from a policy decision to manage the country’s exposure to a predicted spike in oil prices from lows of about US$40 per barrel reached earlier in 2015.

The fall in world prices since 2014 has boosted Jamaica’s balance-of-payments position due to a lowering of the oil import bill – crude imports total nine million barrels per year – even as it threw tax revenue collections off-target due to lower special consumption tax receipts from the state refinery Petrojam.

Jamaica imports about nine million barrels of crude oil per year.

A new Energy Stabilisation and Energy Efficiency Enhancement Fund (ESEF) has been introduced to, among other things, finance the purchase of the hedging instruments.

Legislation and regulations governing the use of the ESEF are expected to be adopted by February this year, ahead of the parliamentary debate for the fiscal year 2016/17 Budget.

The Gleaner

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JPS, New Fortress Pursuing Separate Parts Of LNG Project

January 25, 2016 Webmaster

The oil-fired JPS power plant in Old Harbour Bay, St Catherine is to be replaced with a gas-fired plant.

The announcement of an agreement between Jamaica Public Service Company (JPS) and a Chinese firm is expected this week for the construction of the new energy plant at Old Harbour.

JPS and American company New Fortress Energy are executing separate projects at Old Harbour – the Jamaican utility company is building a new 190 MW plant, while Fortress is financing and developing the gas infrastructure to supply the plant with LNG.

Together, the projects are estimated at around US$500 million.

JPS said it will have no ownership in the gas infrastructure project nor contribute to the cost of developing it, but will solely be a client of New Fortress, which will build its pipeline to connect to the JPS plant. The same arrangement applies to the gas infrastructure under development by New Fortress in Montego Bay, which will feed gas to JPS’ Bogue plant.

The utility company said previously that the 190 MW combined cycle plant at Old Harbour is expect to cost close to US$300 million.

The name of the Chinese contractor will be disclosed only after the deal to develop the plant is finalised, JPS said. The utilitycompany had previously chosen Abengoa to develop the plant only to be embarrassed when the Spanish firm filed for bankruptcy protection in its home country just days later.

JPS is also in final negotiations with General Electric (GE) as the primary equipment supplier for the Old Harbour plant.

“JPS is currently finalising the agreements with both GE and the ‘EPC’ contractor and coordinating the start of this new generation facility with the completion of an associated LNG facility that will be built to provide gas. These two projects will total over US$500 million and begin operation in early 2018 with full commercial operation by the middle of 2018,” said JPS via email.

EPC is a categorisation, which stands for ‘engineering, procurement and construction’ contractor.

The plant’s advance GE turbines will utilise cleaner burning natural gas, replacing the heavy fuel oil currently used at Old Harbour, and will be able to integrate increased solar, wind and hydro resources as Jamaica moves towards producing more electricity from renewable resources.

“GE will provide four turbines – three gas turbines and one steam turbine the three heat recovery steam generators, the four electrical generators and the major controls,” said JPS.

Once the new Old Harbour plant is built, the current structure will be dismantled, and the property will resort to brownfield status, according to JPS spokeswoman Winsome Callum.

New Fortress is negotiating separately with the Electricity Sector Enterprise Team regarding its gas project, Callum said.

JPS has spent some US$4 million so far in preparing for the upgrade over the past 24 months.

The Gleaner

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As oil glut hits, GOJ oil hedge for 2016 set at US$65.90 strike price

January 22, 2016 Webmaster

The Bank of Jamaica (BOJ) indicated on Wednesday that to date, the Government of Jamaica (GOJ) has spent US$27.87 million or J$3.2 billion on oil hedge contracts. In total, five contracts have been signed with Citibank covering periods up to December 2016.

For the current period, the contract runs from January 2016 to December 2016 with a strike price of US$65.90.

The strike price means that Jamaica will begin to receive payouts if the price per barrel of crude hits that mark or exceeds it.

Some analysts to whom the Jamaica Observer have spoken say that it is clear a better deal could have been struck had the Government waited a while before spending money for the hedge in 2015, but they also note that it could not have been predicted that oil prices would continue to slip downwards to the extent to which they have.

Earlier this week, benchmark crude prices fell to their lowest since September 2003 on worries about a global glut.

A new drop came Tuesday after the International Energy Agency, which advises industrialised countries on energy policy, used the alarming term “drown in oversupply” in relation to the oil markets of 2016. The market has begun to react to plans by Iran to ramp up supplies to regain market share.

The West Texas Intermediate index slid 2.3 per cent to US$27.80 per barrel of crude on Tuesday, while Brent slipped 2.3 per cent to US$28.09 per barrel.

On Wednesday the downward spiral continued with Brent Crude down 5.2 per cent at US$27.28 a barrel, while WTI sunk 6.6 per cent to US$26.59.

Analysts note that oil price has plummeted 75 per cent since mid-2014 as oversupply, mainly due to US shale oil flooding the market, has driven down the cost, even while a slowdown in economic growth in China and Europe has cut demand.

Locally, technocrats had suggested a return to US$70 per barrel by year end 2016, a prediction informing the decisions by the GOJ technical committee set up to manage the hedges. The technical committee is chaired by Michael Hewitt of Petrojam and has representatives from the BOJ, the Ministry of Finance, and Development Bank of Jamaica.

One analyst in Kingston, who spoke on condition of anonymity, commented, “To be honest, hindsight is 20/20. We could not have anticipated the current prices. It is easy to say the obvious, which is that if we had waited we could have got a better deal, in the form of a lower premium. In fact, it is obvious, based on where things are, the hedge (for contract periods already covered) was not needed.”

The BOJ informed the Caribbean Business Report that the GOJ is prepared to write new contracts for the period beyond 2016, before year end.

Funds already spent on hedging, provided for in the FY2015/16 budget, were paid out of the Consolidated Fund to facilitate the upfront purchase of the hedge contracts, the central bank stated.

It said that the advance is now being repaid from the proceeds of the new special consumption tax introduced in March 2015 to pay for the hedge.

The amount paid out so far is only about half of what the Government plans to raise from the SCT of $7 per litre on petrol — about six US cents per litre — which is expected to fall in the ball park of $6.4 billion by year-end.

The five existing contracts for hedging are all with Citibank which was the successful bidder for that round of contracting.

Periods covered by the contracts range from June 2015 to May 2016 (two contracts) with a weighted average strike price of US$66.55; and September 2015 to August 2016 (two contracts) with a weighted average strike price of US$66.80. The last is the contract for January 2016 to December 2016 with a strike price of US$65.90.

Regional governments have been eyeing hedging as a new strategy to protect against changes in the price of crude. Mexico, which hedged against a fall in prices, collected US$6 billion under hedge contracts in 2015.

Jamaica Observer

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