Don Wehby, Guest Writer
Bill Clinton last week reinvigorated the public discourse on the use of renewable energy in Jamaica. Solar energy, of which Jamaica is in abundant supply, is particularly important if we are to diversify away from imported sources of energy and become energy self-sufficient.
While much has been said about solar electricity over the past few years, actual usage has been slow to spread because of the large initial investment required and the scarce availability of financial incentives.
It currently costs somewhere between J$2 million to J$3 million to fully equip a three-bedroom house with solar-generated power. This puts solar systems out of the reach of the majo-rity of Jamaican homeowners.
4kW job in Kingston. Jamaica
Although the upfront expenditure is burdensome, solar panels have a lifespan of 25 years or more and a minimum battery life of seven years. They are built to withstand 125-mile-per-hour winds and will start losing power after about three days of overcast conditions.
The payback period for solar investments is typically 6-8 years and can be sooner, depending on rising fuel costs, taxes on electricity (currently 10 per cent GCT in Jamaica) and foreign-exchange movements.
Despite these benefits, there are few incentives to invest in solar technology in Jamaica.
Currently, solar systems – including panels, batteries and inverters – are exempt from GCT and import duties.
The National Housing Trust (NHT) also offers low-interest “solar panel loans” of up to J$1.5 million for individual applicants and J$3 million for co-applicants. The interest rate ranges from 1 per cent to 7 per cent, depending on your weekly income, with a repayment period of 15 years.
The NHT also offers a solar water heater loan of up to J$250,000 at 3 per cent for 5 years. These loan options should be more aggressively marketed so that more Jamaicans are aware of their existence.
On the commercial side, the National Export-Import Bank of Jamaica has implemented a special credit line for manufacturers and agro-processors to establish alternative- energy systems at relatively low interest rates.
While these incentives are commendable, they are not enough to fuel a solar energy revolution in Jamaica. In fact, Barbados is the leader in the Caribbean in terms of structuring incentives to drive renewable energy adoption.
Homeowners receive significant income tax deductions for investing in systems and equipment that make their homes more energy-efficient and/or generate electricity from renewable sources.
Along similar lines, I recommend that the following provisions be added to Jamaica’s income tax code to encourage solar energy adoption among both commercial and residential property owners:
An individual owner of residential property who spends, inter alia, on energy saving or water-saving devices be entitled to a maximum deduction from yearly taxable income of up to J$1,000,000.
Up to J$250,000 can be deducted for expenditure related to a home energy audit and the purchase of any conservation materials or systems recommended in that audit. A home energy audit is defined as an evaluation by an authorised energy auditor of the energy consumption in a household to determine ways in which energy can be conserved.
Up to J$750,000 can be deducted for expenditure on the purchase or installation of ‘environmentally preferred products’. ‘Environmentally preferred products’ means pro-ducts that cause significantly less harm to human health or to the environment than alternative pro-ducts that serve the same purpose; or products, the consumption of which contributes significantly to the preservation of the environment.
A tax policy for commercial enterprises should also be implemented based on the following guidelines:
Up to 30 per cent of the capital cost of investing in renewable energy technologies can be deducted from profit before tax, with a maximum claim of J$20 million; and
Accelerated depreciation on qualifying environmentally preferred assets – for example, depreciation of up to 50 per cent of the asset in one year.
These tax incentives will drive adoption of solar technology at both the residential and commercial levels, helping to move Jamaica towards becoming self-sufficient in energy.
NET METERING HAS A ROLE
Finally, we need to reach a consensus with the domestic power company on the issue of net metering.
Net metering allows an electricity customer’s meter to run backwards if the electricity he or she generates is greater than that consumed, effectively banking the electricity until it is needed by the customer.
This provides the customer with full retail value for all the electricity produced and is used in more than 30 states in the US and widely throughout Europe.
Under Jamaica’s proposed net billing policy, an additional meter will have to be installed at the customer’s expense, and a much lower ‘avoided cost’ value is placed on surplus electricity despite it being generated in a more environmentally sustainable way. This is a financial disincentive.
Net metering will make the payback period on deploying solar technology shorter and is a matter of priority if we are truly serious about energy self-sufficiency.
At approximately J$25 per kWh of electricity, Jamaica’s energy costs are among the most expensive in the world – with adverse effects on our standard of living and productive capacity.
Let us use the reinvigorated public discussion to effect real change in how we incentivise renewable energy use.
Don Wehby is group COO of GraceKennedy Limited.
don.wehby@gkco.com
Jamaica Gleaner
