THE Jamaica Public Service Company (JPS) said the introduction of liquified natural gas (LNG) in the energy mix in 2016 has so far brought $5.5 billion in savings for its customers.

The JPS first introduced LNG into the power generation mix in 2016 when it undertook a US$22.7-million conversion of its 120-megawatt (MW) plant in Bogue, St James. Since then, LNG has been used to generate about 42 per cent of the island’s power with the JPS’s 190MW plant in Old Harbour, St Catherine, and a 94MW gas-fired plant built in Halse Hall, Clarendon, coming on stream. It also converted another 20MW unit at Bogue to gas and has a 10MW plant at Hill Run, St Catherine, bringing the total LNG-fired plants on the grid to 434MW. Up to a decade ago, heavy fuel oil (HFO) and diesel were used to generate more than 90 per cent of the electricity produced in Jamaica with electricity rates mirroring the volatility in the price of oil.

However, seeking lower and more stable prices, the country turned to gas, tapping US-based New Fortress Energy for supplies. And while concerns have been raised that due to its nature as a monopoly supplier, the gas supply contract may be inimical for consumers, the JPS said significant savings have been realised.

“We have benefitted from the introduction of LNG and the last check I made…even with increased prices due to the Russia-Ukraine war, we benefitted significantly from the gas contract we have,” Joseph Williams, senior vice-president for power generation and business development, told the Jamaica Observer.

“During that world crisis they were able to supply us with LNG right through, there was no disruption,” he continued.

That is unlike disruptions in LNG supply to countries like Bangladesh and Pakistan which suffered electricity outages with the fuel being redirected to Europe to replace Russian pipeline imports which were sanctioned after that country invaded Ukraine.

But security of supplies apart, Williams said the JPS has been monitoring the impact of LNG on electricity prices in Jamaica since its introduction into the fuel mix.

“Over that period from 2016, based on simulations we have done, we estimate that our customers would have saved about US$36 million ($5.5 billion),” Williams said, noting no similar study was done to ascertain the savings brought by using more renewables on the grid. He, however, said prices which were approximately US$o.40 per kilowatt hour a decade ago has not come down much — prices hovered between US$o.36 and US$o.42 per kilowatt hour last year according to Energy Minister Daryl Vaz — because “there are other factors that came into play that resulted in people not seeing what they would have expected with things like the movement of the dollar.” Higher taxes on electricity also played apart. “If it wasn’t for those contracts, we would have seen significantly higher prices than we have seen,” he added.

Take-or-pay contract

Concerns have also been raised in the past that the take-or-pay contract signed between the JPS and New Fortress Energy could leave the light and power company holding the bag were also dismissed by Williams. Under the take-or-pay contract, the JPS must purchase of a minimum quantity of gas for each power plant (whether they use it or not, hence take-or-pay) which guarantees a minimum revenue for New Fortress Energy and was the basis on which it made the investment to set up the infrastructure to bring gas to Jamaica.

“We have not hit those take-or-pay thresholds on many occasions,” Williams said as he explained that there has been only a single occasion in which the terms of contract resulted in it having to pay for gas it did not use. Williams, however, said the impact on consumer bills was negligible at under one per cent.

“Most of the time the contracts are above that take-or-pay number, so it has not influenced the prices in any significant way.”

His colleague Blaine Jarrett, senior vice-president with responsibility for energy delivery (responsibility for transmission and distribution network), said it’s because the company was deliberate to ensure the plants to use gas were committed plants.

“You wouldn’t plan yourself into a penalty,” Jarrett told the Caribbean Business Report. “You know the levels you should not go below, and so you make your plans around it,” he added.

“If you are a gas supplier and I wanted you to come and give me fuel for 20 years and we didn’t have a take or pay agreement…your business would not be able to survive if the Government comes before the end of that 20 years to increase renewables which reduces the demand for your product.”

“We haven’t found any credible supplier who would come without having something that would give them some sense of security that they would remain financially viable while supplying you.”

Jarrett added that competition coming into the market to supply gas for the benefit of consumers is welcomed, but he noted: “If competition is going to and use the existing infrastructure, consumers will benefit. If a competitor comes with its own infrastructure, then the consumers will not benefit as much.”