THE fuel rate on electricity bills climbed by 6.1 per cent this month.

What’s more, at $27.17 (26.1 US cents) a kilowatt-hour (kWh), the rate Jamaica Public Service (JPS) charges for the cost of generating and buying electricity from independent power providers is 21.5 per cent higher in October than it started the year.

And that doesn’t include the non-fuel rates and demand charges, which were increased by 10 per cent across-the-board to adjust for inflation following approval by the Office of Utilities Regulation (OUR) in June.

Certainly for foreign exhange earners, the rise in electricity cost may seem less daunting, given that the Jamaican dollar lost 13 per cent of its value since the start of the year.

And promises of cheaper electricity to come by 2015 may seem like a beacon of light for most, now that the preferred bidder for the 360 megawatt generation plant — Energy World International/Pacific LNG (EWI) — has ponied up its US$7.4 million bid bond.

The company, which plans to build a natural gas-fired plant for US$737 million, is supposed to commence negotiations with JPS with a view to “signing a power purchase agreement, finalise a fuel supply agreement for the project as well as meet and present all the statutory requirements needed to achieve financial closure to allow for the commencement of construction”, according to the OUR.

Ground is scheduled to be broken by next January.

But Business Observer calculations show that EWI’s proposed price is not likely to result in a significant reduction in electricity cost.

Indeed, 14.56 cents per kWh is less than the fuel rate now, but residential customers pay an additional 15.3 US cents per kWh (after the first 100 kWh), while commerical customers pay 13 US cents.

Industrial customers pay a far lower non-fuel rate of 3.5-3.7 US cents a kWh, but they also pay a demand charge (applied to consumers with heavy loads such as industrial motors) — in 2012, JPS collected $5.2 billion from demand charge compared to $4.6 billion from the energy charge.

All the same, come 2015 when old plants rated at 292 MW are taken off line and 68 MW is added to the grid (not including 78 MW to be added by renewable energy sources), the new generating plant will represent approximately 36 per cent of total installed capacity.

In other words, 64 per cent of the fuel rate will still be based on what exists now. So if EWI is able to deliver at its proposed price, the fuel and IPP rate may decline to 21 US cents across the board.

Assuming the price paid for electricity for the additional 58 MW of wind energy and 20 MW of solar-powered generation that has been approved is just as low as EWI’s bid, the fuel rate may even fall below 20 US cents.

Of course, further depreciation of the Jamaica dollar can go a far way towards making electricity even cheaper for exporters, but for most a higher

valued greenback means pricier energy.

In any case, the OUR said that EWI’s proposal may be “less attractive in reality than they appear in the modelling exercise as the provided heat rates and capacities are quoted in ISO conditions unadjusted for the ambient conditions of Jamaica”.

“The average temperature in Jamaica is higher than the ISO temperature and it is established that gas turbines are affected more adversely from high temperatures than gas engines,” said the OUR in its evaluation.

The regulator calculated that the penalty to the efficiency of the plants could reach two percentage points and capacity could be reduced by 10 per cent of the stated ISO net capacity.

Another factor to consider is the five-year annual tariff review, which is due in 2014. In 2009, the last time the periodic review was done, the OUR approved rate increases ranging from eight to 51 per cent, depending on the type of customer.