Minister of Science, Technology, Energy and Mining Phillip Paulwell has vowed to abolish the ‘avoided costs’ system used to compute and compensate independent power providers (IPP) supplying electricity to the national grid as an incentive for renewable-energy producers.
The alternative will be a feed-in-tariff mechanism, designed to accelerate investment in renewable-energy technologies and, unlike the avoided costs system, offer cost-based compensation, price certainty and long-term contracts that can help to finance investments.
Paulwell said that for years, when IPPs entered into purchasing agreements with the Jamaica Public Service Company (JPS), they are told that the price JPS will pay them must be related to the avoided costs, “which is a theoretical concept based on what is assumed to be the least cost of an additional unit of electricity to the grid.”
“That to me does not provide the incentive and the framework to encourage people to get into the business,” said Paulwell, at the launch of an energy cost containment initiative rolled out by Jamaica Broilers Group at one of its contractors’ poultry rearing facilities at Atkins Farm, Four Paths, Clarendon, last Wednesday.
To treat with the issue, “we recently conducted a consultancy through the World Bank and we are about to promulgate a feed-in-tariff mechanism that will reward people based on the actual costs of the technology that is being deployed. And we are going to abolish this issue of avoided costs so that we can properly incentivise those of you who wish to get involved,” the minister added.
According to a declaration by the Office of Utilities Regulation (OUR) dated December 2010, “avoided costs for the JPS electric grid can be defined as the costs to the electric utility of energy or capacity or both, but for the purchase from the qualifying facility(s), the utility would generate itself or purchase from other sources.”
Avoided costs in electricity generation and distribution refer to the cost the JPS escapes by purchasing electricity for resale from other parties instead of building a new plant. It consists of generation fixed costs or capacity costs, and generation variable costs or energy costs.
The OUR said the avoided costs considered in making the declaration are generation fixed costs, which include capital costs for new generation capacity to be installed over the planning period, depreciation of the investment and the fixed operation and maintenance costs for those facilities. Variable costs include fuel costs and variable operation and maintenance costs.
Paulwell told poultry farmers and business people that another issue “we are going to insist on for this year is the ability of businesses to establish generation in one location and to be able to wheel that to another location utilising the grid.”
Emphasising the need for Jamaica to diversify its energy sources, the minister said he intends, very shortly, to present to the country a schema in relation to how the Government will get the price of energy significantly reduced, as well as outcomes in relation to the liquefied natural gas project.
Paulwell said he will again be speaking to the use of coal as an alternative source of fuel, but wanted to “ensure and assure our environmentalists that we are not going to do anything that is going to, in any way, be reckless and careless in how we implement that project.”
The minister, who has installed solar panels – obtained from Cuba – at his home in St Andrew, said the Jamaican Government was also trying to secure a technical agreement with Cuba to train Jamaicans into assembling the panels here.
“I don’t believe it has to be a government project. I want to challenge the private sector to step forward and see how we can manufacture panels in Jamaica” with a view to exporting to other areas in the region “if we can manufacture enough,” he said.
mcpherse.thompson@gleanerjm.com
http://jamaica-gleaner.com/gleaner/20120715/business/business8.html
