Energy Minister Phillip Paulwell
Arthur Hall, Senior News Editor
The Government‘s long-touted plan to push down the cost of electricity for Jamaicans with the introduction of liquid natural gas (LNG) has hit yet another snag.
Barring reversals at appeals, for which the administration is likely to lack great enthusiasm, Justice Bryan Sykes may have played a fortuitous hand in favour of Phillip Paulwell, the energy minister.
For Justice Sykes, in his ruling on Monday, broke, at least for now, the electricity supply and distribution monopoly of the Jamaica Public Service Company (JPS) – a matter seemed set to be a battle of attrition, if not a noisy war, between Mr Paulwell and the light and power company.
Whatever may be the Government‘s strategy going forward, JPS, as has been indicated by its lawyers, is not about to meekly acquiesce to Justice Sykes’ decision. But it is a signal for both sides to recalibrate their conversation and settle on a new, serious and mature discourse on Jamaica’s energy future.
The background to these developments is the 20-year (subsequently extended by seven years) licence that was granted to JPS in 2001 by the Patterson administration, of which Mr Paulwell was a Cabinet member, for the exclusive distribution of power.
Breaking that monopoly has been a mantra of Mr Paulwell since January, following the People’s National Party‘s return to office after a four-year hiatus on the opposition benches. At upwards of US$0.40 per kilowatt-hour, Jamaican consumers face among this region’s highest electricity rates. It is conventional wisdom that the cost of power is a major drag on the competitiveness of the island’s economy. Mr Paulwell feels competition would drive down costs.
He has support among Jamaican consumers who largely blame JPS directly for this state of affairs. They see JPS as neither customer-friendly nor efficient, but able to leverage its monopoly to remain profitable.
Two consumer groups and an individual manufacturer brought a class-action suit challenging the minister’s authority (Bobby Pickersgill at the time) under the Electric Lighting Act to have granted JPS an exclusive licence for the transmission and distribution of power.
Justice Sykes rejected the claimants’ argument that under Section 3 of the law, there was no provision for a single supplier of electricity, and that the minister, therefore, had no power to issue an all-island licence. What was wrong, the judge argued, was the pre-emption of the opportunity of other potential licensees.
The problem of the current licence
Said Justice Sykes: “The statute does not give the power to the minister to grant a licence on terms which effectively bar any other applicants from being considered. This, in the opinion of the court, is the problem of the current licence to JPS. The minister has committed himself and his successors to a situation in which there is no possibility of change for the required 20 years (which has been extended), even if new technology or a new company has a better and cheaper way of doing what JPS is doing.”
That, effectively, is the argument of the anti-JPS lobby – and Mr Paulwell.
This week’s ruling does not immediately affect the JPS’s ability to operate, as its licence, but for its exclusivity, remains valid. Further, Mr Paulwell has no other application on his desk. Nor are there protocols for interconnection on the JPS grid. Clearly, other potential players will be emboldened by the ruling. They will receive encouragement from consumers.
It is time for constructive engagement.
The opinions on this page, except for the above, do not necessarily reflect the views of The Gleaner. To respond to a Gleaner editorial, email us: editor@gleanerjm.com or fax: 922-6223. Responses should be no longer than 400 words. Not all responses will be published.
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Energy Minister Phillip Paulwell – file photo.
Jerome Reynolds, Gleaner Writer
Energy Minister Phillip Paulwell has indicated that yesterday
ENERGY and Mining Minister Phillip Paulwell will be travelling to Japan and South Korea this year to discuss liberalisation of the national power grid with the major overseas shareholders in the Jamaica Public Service (JPS).
Speaking in the sectoral debate in the House of Representatives on Tuesday, Paulwell said that he will be travelling to South Korea this week to meet with executives of East West Power, and in the latter part of the year he will visit Japan to meet with the other major shareholder, Marubeni to assess options for liberalising the grid.
He said that he expects “constructive dialogue, cooperation and understanding” from his trips, based on the knowledge that the Japanese Government is exploring similar transmission and distribution of electricity options, while South Korea has some experience in this area.
“Let us face the fact that to fundamentally restructure our energy market we must, as a matter of urgency, take steps to liberalise the transmission and distribution of electricity, to bring down costs to the consumer,” the minister said.
He pointed out that Jamaica has been operating a vertically integrated system, in which the bulk of the generation, systems control, transmission and distribution are controlled by the same entity, the JPS.
He noted that while the JPS has a monopoly on transmission and distribution, the market for generating electricity is liberalised under a single-buyer model: The JPS purchases some 200 megawatts from independent power producers (IPPs) under long-term power purchase agreements (PPAs).
“… As a consequence, while liberalisation in generation has allowed some level of participation and competition in the sector, IPPs are required to negotiate a PPA with the utility which, in Jamaica’s case, happens to be the very company they compete with,” Paulwell told the House.
He said that an example of the “market contortion” was that in the recent procurement process for a new 360 megawatt power plant, JPS established a wholly owned subsidiary which was the sole bidder and winner of the bid.
“This new JPS subsidiary will then proceed to negotiate a power purchase agreement with itself. This underscores the urgency with which we must proceed to restructure the energy market and introduce greater transparency and competition,” Paulwell said.
Read more:
ENERGY and Mining Minister Phillip Paulwell will be travelling to Japan and South Korea this year to discuss liberalisation of the national power grid with the major overseas shareholders in the Jamaica Public Service (JPS).
Speaking in the sectoral debate in the House of Representatives on Tuesday, Paulwell said that he will be travelling to South Korea this week to meet with executives of East West Power, and in the latter part of the year he will visit Japan to meet with the other major shareholder, Marubeni to assess options for liberalising the grid.
He said that he expects “constructive dialogue, cooperation and understanding” from his trips, based on the knowledge that the Japanese Government is exploring similar transmission and distribution of electricity options, while South Korea has some experience in this area.
“Let us face the fact that to fundamentally restructure our energy market we must, as a matter of urgency, take steps to liberalise the transmission and distribution of electricity, to bring down costs to the consumer,” the minister said.
He pointed out that Jamaica has been operating a vertically integrated system, in which the bulk of the generation, systems control, transmission and distribution are controlled by the same entity, the JPS.
He noted that while the JPS has a monopoly on transmission and distribution, the market for generating electricity is liberalised under a single-buyer model: The JPS purchases some 200 megawatts from independent power producers (IPPs) under long-term power purchase agreements (PPAs).
“… As a consequence, while liberalisation in generation has allowed some level of participation and competition in the sector, IPPs are required to negotiate a PPA with the utility which, in Jamaica’s case, happens to be the very company they compete with,” Paulwell told the House.
He said that an example of the “market contortion” was that in the recent procurement process for a new 360 megawatt power plant, JPS established a wholly owned subsidiary which was the sole bidder and winner of the bid.
“This new JPS subsidiary will then proceed to negotiate a power purchase agreement with itself. This underscores the urgency with which we must proceed to restructure the energy market and introduce greater transparency and competition,” Paulwell said.
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Phillip Paulwell, minister of science, technology, energy and mining.
New cellphone, fibre-optic licence for auction
Philip Paulwell, minister of science, technology, energy and mining, said Tuesday that South Korean company Samsung has emerged the preferred bidder to develop Jamaica‘s liquefied natural gas (LNG) infrastructure.
He otherwise announced that Jamaica will auction off a new cellular phone licence and a fibre-optic licence, which will add increased competition in the telecoms market.
Speaking in Parliament, Paulwell told lawmakers that the LNG committee would now begin negotiations with Samsung, which beat out companies such as Exmar Marine of Belgium and Sener Ingenieria y Sisternas, SA of Spain for the job to develop the floating storage regasification unit.
Under the commercial structure formulated by Government, LNG gas will be funnelled through the LNG infrastructure, which will comprise a terminal and pipelines for distribution to end users, such as the Jamaica Public Service Company’s 360-megawatt plant.
Paulwell said that bidders for the supply of LNG have asked Government for a fortnight’s extension to Friday, July 27, which was granted based on a recommendation from the LNG committee now headed by Dr Carlton Davis.
“In terms of the LNG supply RFP (request for proposal), the Jamaica LNG project team received requests from all three short-listed LNG supply bidders for an extension of the original bid submission deadline,” he said.
The bids were originally due by July 17.
The introduction of LNG forms a key element of the Government’s effort to drive economic growth via slashing electricity costs, currently among the highest in the region. The submissions for the LNG terminal were due by Friday, April 27, 2012 and the final second-stage proposals for LNG supply was originally targeted for closure by the end of June 2012.
The initial demand for LNG is approximately 0.8 million tonnes of LNG per year, with future demand projected at 2.5 million tonnes per year by the end of the decade, according to Government. It is expected that the importation of LNG will serve to spur economic growth in industries across the island that would benefit from the availability of natural gas and lower energy prices.
The Cabinet, in March 2012, approved the formation of the Jamaica Gas Trust (JGT), which will act as the sole LNG purchaser for the project. It will be capitalised with US$100 million and managed by the private sector. The JGT will execute the major commercial agreements, including the LNG Sale & Purchase Agreement, Terminal Use Agreement, Gas Sales Agreements and Pipeline Transportation Agreement.
Part of the hold-up of the LNG project has been uncertainty over supplies of gas. Last week, Jamaica’s Ministry of Industry, Investment and Commerce issued a statement saying Trinidad had signalled it was committed to resolving the issue of supply.
Turning to the telecoms sector, Paulwell stated that the Government would auction spectrum to facilitate the introduction of new cellphone services.
“Mr Speaker, we intend to allocate one licence for the 700 spectrum by auction, for which there will be a reserve price. We will also attach to that award a new international fibre-optic cable licence,” said Paulwell.
He explained that the allocation of the 700-megahertz (MHz) band will provide a more cost-effective option for the deployment of 4G and Long-Term Evolution (LTE) networks in Jamaica. He said that 4G has the capacity to deliver data rates of up to 100 megabits per second (Mbits/s) of download, and up to 70 Mbits/s upload, which enables video application on the downlink as well as uplink.
“This will allow video-sharing, surveillance, conferencing and streaming in higher definition than is possible with existing 3G technologies,” the minister said.
business@gleanerjm.com
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A section of the Petrojam refinery. – File photo
Jerome Reynolds, Gleaner Writer
The State-owned oil refinery, Petrojam, is this week expected to furnish a full report to the Energy Minister, Phillip Paulwell, as the government probes the recent release of hazardous fumes in the Portmore area.
Paulwell instructed Petrojam to provide him with a report after the environment minister reported that the fumes may have been the result of illegal activity at the refinery.
It has been reported that the refinery could not account for 260 barrels of petroleum product.
Petrojam has indicated that it has launched an internal investigation into the matter and has also called in the police.
The company says the preliminary findings have already been shared with the Energy Minister.
The release of the noxious fumes last month resulted in 17 employees at the Portmore Toll Plaza becoming sick and caused the closure of the roadway.
jerome.reynolds@gleanerjm.com
We were truly impressed with what Phillip Paulwell has done at his home – the conversion to solar as its primary source of electric power.
Mr Paulwell, of course, is not the first person in Jamaica to do this. But as minister with responsibility for energy, his may be a persuasive example for a more robust Jamaican engagement of renewable energy sources, to reduce the use of petroleum that accounts for more than 90 per cent of energy. Oil is not only expensive, but more environmentally pollutant than other fuels.
Additionally, sunshine, as a fuel, is plentiful. The sun is estimated to generate more energy in an hour than the world’s requirement for a year.
The downside of solar energy to power a national grid, as with many renewables, is its supply and distribution instability, and the cost of technology – though declining – is still relatively expensive. The cost will have to reach grid parity with other technologies before it begins to replace other fuels.
Solar beneficial but …
In the meantime, however, some firms and private individuals will find solar a useful and attractive alternative to oil and other hydrocarbons. Some governments may even find it economically, politically and environmentally strategic to encourage its use, which we presume to be the point of Mr Paulwell’s showing off of his solar panels and storage batteries.
Indeed, most people will find extremely attractive, and would be happy to enjoy, an 83 per cent decline in their monthly electricity bills from the light and power company, as has been reported by Mr Paulwell. He now pays around J$4,000 a month.
But there is a catch. Few Jamaicans could upfront the J$2 million that Mr Paulwell invested for his home conversion. Given his past bills, Mr Pauwell will recoup his investment in around seven years and could reasonably enjoy returns on his capital for another eight.
So, as attractive as these numbers seem, the returns are too far in the future and the upfront costs too high to encourage hordes of individuals to leave the national grid for solar. Nor are firms, except for the few for which the economics are compelling, likely to do so in droves.
Mr Paulwell, wearing his energy hat, has to run on many tracks at the same time. He must promote policies that will make solar and other renewables attractive and affordable.
An economically competitive grid
But more urgently, he has to ensure that there is a more efficient and economically competitive national grid.
At around US$0.40 per kilowatt-hour, Jamaica has among the most expensive electricity in the Caribbean. This has been a major contributor to the denuding of the Jamaican manufacturing sector and also has a hobbling effect on services – whose operations are heavily electricity dependent.
There has been much heated debate in recent years on these issues, including, at one point, a decision to proceed with a conversion to natural gas at some of our power plants. The Jamaica Public Service Company has the monopoly for the transmission and distribution of electricity, and won the tender for more than 400 megawatts of gas-fired power plants. That process, however, seems to have run out of steam, as, it appears, have Mr Paulwell’s other energy initiatives.
Energy is too important a matter to be subject to the Jamaican penchant for talk without effective action.
The opinions on this page, except for the above, do not necessarily reflect the views of The Gleaner. To respond to a Gleaner editorial, email us: editor@gleanerjm.com or fax: 922-6223. Responses should be no longer than 400 words. Not all responses will be published.
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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
The government is moving to liberalise the renewable energy market with amendments to the Petroleum Corporation of Jamaica Act.