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Energising the economy through energy reform

James MCNISH

Thursday, July 24, 2014    

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Amidst the positive news that the country has experienced another quarter of economic growth and high commendation from the Caribbean Development Bank, the country continues to encounter economic challenges such as high debt-to-GDP ratio, persistent depreciation of the Jamaica dollar, and adverse balance of payments. There is not a scintilla of doubt that the country is on the path of economic recovery, but we need to caution ourselves against premature celebration by squandering gains realised so far. The hard work has just begun; there is no time for insouciance. We need to relentlessly pursue objectives that will bring about sustainable economic growth.

Receiving electricity bill is one of the most chilling moments for thousands of consumers. For decades, finding a solution for our high electricity cost has proven to be elusive. Within this context, in December 2011, the then Opposition declared during the pre- election campaign that, if elected, it would reduce electricity cost to consumers by 30 per cent. As the Government, it is currently experiencing the daunting prospect of achieving that promise. The Government's aim is to reduce electricity cost to US$0.30 per KW, an unprecedented move. Currently, household consumers are paying approximately US$0.42 per KW, and simultaneously JPS, a monopoly, is seeking to increase its electricity price by 20 per cent. Undoubtedly, any increase in the electricity price will pile on further economic pressure on its approximately 590,000 customers. An increase will have a deleterious effect on the spending power which eventually will exacerbate the economic growth agenda.

Similar to the preliminary round of the World Cup, our economic recovery is in its nascent stage, and we have a long distance to go to the final round. Within this context, policymakers, through fiscal discipline, should continue reassuring us that gains realised so far will not be squandered. The world is becoming increasingly competitive and Jamaica cannot afford to lag behind the rest of world. It is worthy to note that our economic recovery should be protected so as not to revert to an economic recession. Of significance, the country has not recovered the ground it lost during the economic recession. Since 2008, our economy has contracted by approximately 5 per cent. It is imperative that the Government takes bold and decisive action to lower the cost of electricity to improve our global competitiveness. Based on the World Economic Forum Competitiveness 2013-2014 Report, currently Jamaica ranks 94 out of 148 countries.

New way of thinking

It should be noted that the economic world has changed significantly but our policymaking remains trapped in an old way of thinking, making progress difficult. In 2013, the world produced goods and service valued approximately US$73 trillion at current price. Of this total, more than 30 per cent was sold across national borders.

Presently, Trinidad has a burgeoning trade surplus of estimated US$1b with Jamaica. As our competitor, Trinidad's electricity price per KW is US$0.06 -- recall ours is US$0.42; seven times greater -- while the average price per KW in the Caribbean is approximately US$0.33. According to the World Economic Forum, Trinidad and Tobago is transitioning from an efficiency-based economy towards an innovation-based economy, the highest level, while Jamaica is currently classified as efficiency-based. Possibly, the nub of our economic problem is our high electricity cost when compared with our trading partners, resulting in Jamaica being very uncompetitive. Undeniably, energy reforms are inescapable to narrow the gap between Jamaica and its competitors. Furthermore, many observers believe that the high cost of electricity is one of the impediments to sustainable economic growth.

Let us focus on what is happening across the globe relating to energy. According to Bloomberg, the first quarter of 2014, renewable energy sources has met a record 27 per cent of Germany's electricity demand, producing 40.2 billion kilowatt-hours of electricity, up from 35.7 billion kilowatt-hours in the same period last year. In Africa, a renewable energy source means the creation of a sustainable electrical solution that will power jobs as well as bring enormous socio-economic benefits.

Annual Energy Outlook 2014 is reporting renewable electricity generation in the United States is projected to grow by 69 per cent from 2012 to 2040. A recent report from Eurostat has disclosed that every European Union member nation sets itself a goal for obtaining 20 per cent or more of its energy from renewable-energy sources by 2020. In addition, the International Renewable Energy Agency (IRENA) revealed that international employment across the renewable energy sector rose by almost a million people in the space of a year, with 5.7 million people directly or indirectly employed by the industry in 2012.

I am not suggesting that reducing the cost of electricity is the silver bullet. However, certainly it is part of the solution to spur economic growth. The politics of reform are exceedingly difficult and politicians loathe antagonising vested groups. Impending rising costs in electricity have spawned the idea that we need to move into the direction of renewable energy as a means of reducing electricity costs. Such a decision will have the effect of gradually weaning Jamaica from the huge cost of imported oil, estimated US$2b annually; a fossil fuel addiction; and the possible reduction in carbon emission. As a result, the savings can be invested in needed areas of education, health and infrastructure.

Notably, Jamaica's National Energy Policy asserts that, by 2030, Jamaica should achieve a modern, efficient, diversified, and environmentally sustainable energy sector providing affordable and accessible energy supplies with long-term energy security. It is evident that there is no projection as to how much of the electricity matrix will be provided by renewable energy by 2030. A major rethinking by our policymakers is required in respect to unconventional sources of energy, renewable energy.

Deregulating the electricity market should be a significant feature of energy reform so that consumers can benefit from more players. I am convinced that this idea can be implemented, but successive governments are disinclined to do so due to unknown reasons. Looking at the telecommunications sector, once a monopoly, currently consumers are enjoying lower calling rates due to competition. In Mexico, President Neito has taken bold and decisive steps to introduce an energy overhaul to open the oil as well as the communication sectors -- once sacrosanct -- to competition by taking on vested interests. Against that background, I would like to see the Government act similarly in regards to the energy sector.

I am exhorting our policymakers to take a kinetic approach towards a new conversation, a new perspective and a new passion on energy reform and energy efficiency so as to rejuvenate economic growth and improve our global competiveness. In recent times, a number of studies on renewable energy sources and their potential contribution to long-term economic growth and environmental sustainability has been done. As a reminder, policymakers, you have the authority and power to realise the dream of reducing electricity costs. Internationally renowned magazine The Futurist predicts that, by 2018, a quarter of the global energy will come from non-conventional energy, non renewable. Jamaica cannot continue to dither on this vital issue of energy reform..

Let us make the reduction of electricity costs a national imperative to energise our economy.

James McNish is a lecturer at the University of Technology, Jamaica. Comments: jamcnish@utech.edu.jm

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