In his first inauguration speech in late 2011, Prime Minister Andrew Holness addressed the issue of the high cost of energy which, he said, was “a universal cry across all divides in Jamaica”. Furthermore, he added that, “It is also universally agreed that Jamaica must diversify its energy sources and create competitive markets for the provision of electricity.”

At that time we were also awaiting the calling of an election within two months, and the political parties then were also in the process of drafting their manifestos — five-year business plans on how the respective parties propose to run the country.

Former Energy Minister Phillip Paulwell, in his address at the October 2011 Jamaica Chamber of Commerce (JCC) National Economic Forum, aptly named Plugging into Downtown, stated that energy was the most critical issue currently facing Jamaica. However, other than the move to natural gas and some increase in renewables, not much has changed in Jamaica’s energy structure, particularly its cost, in the almost 15 years since — until now.

The current Energy Minister Daryl Vaz has made the bold move to give formal notice to the Jamaica Public Service (JPS) of the Government’s intention “upon expiration of the current all-island licence not to renew under existing terms” one week before the actual two-year notice period. Condition 27 of JPS’s licence provides for the Government of Jamaica to acquire the business at the expiration of the term of the licence on July 8, 2027. As they made clear at the press conference yesterday, however, it is not the intention of the Government to take over and operate JPS, but “to negotiate new licensing terms and conditions with potential investors”. He states the alternative would have been to renew the existing licence on its current terms, which “does not provide sufficient incentives to bring renewables onto the grid at scale, and it provides for generation via imported fossil fuels.”

At that same JCC forum in October 2011, there was a presentation by Ireland’s former director general for energy, Tom Reeves.

Reeves argued that there should be “no monopolies” in energy, either public or private, as they are all “bad news”. He observed that in Ireland the European Union drove the liberalisation of the energy sector over a decade before, which was now fully deregulated. At that time in Ireland there were nine suppliers competing in a fully free market to generate electricity, with vibrant competition between three retail distribution companies.

Reeves argued then that competition was effective as even ordinary customers had the ability to switch suppliers with little more than a phone call, “like going to a supermarket”, with only the transmission lines regulated as a natural monopoly.

In response, some argued at the time that Jamaica’s energy production was too small to create a competitive market in energy, as despite its similar size population, Ireland’s energy consumption was then approximately 10 times Jamaica’s. Jamaica’s energy consumption has not grown much since, whereas Ireland’s has grown significantly, mainly due to the demand for data centres for big US tech companies based in Europe.

Importantly, Reeves argued that there had been such rapid advances in energy technology over the past decade that no one knew the minimum efficient size of energy production, other than that it has fallen drastically. This is likely to be even more true now.

He argued that an independent energy regulator needs to set clear performance targets, unbundle distribution networks, and move the risk of energy prices to where it belongs and can be managed — namely the utility and not the retail customer, who cannot manage the risk.

Finally, and most importantly, Reeves argued that not taking a decision on this vital issue was, in itself, a decision.

Vaz has given us another chance to decide our energy future. One key decision would be whether to “unbundle” the generation from the distribution of electricity, as under the current licence JPS has the sole right to transmit and distribute electricity, and it is also the major supplier. The Government still owns 20 per cent of JPS, and listing a portion of one or more pieces of an unbundled JPS is also a possibility.

The key will be to get the economic incentives right for the many objectives that the Government needs to address, such as halving the current 20 per cent of generation lost to theft, finding a better way for people to afford their electricity bills, increasing renewables without sacrificing system stability (pumped water storage could be considered), and reducing the overall cost of energy without grid defection increasing costs for the rest of us.

There are a number of key questions to resolve. One critical issue will be determining who is part of the needed dialogue for energy reform. Another will be determining whether there is sufficient access for renewable energy under the current licence to encourage “distributed” energy for community self-generation, even as part of an upgrading of informal communities, for which someone will need to pay. Electricity wheeling, meaning generating in one location and moving the energy to another location, despite having been agreed for a decade, is still not in effect. The expansion of net billing should be encouraged. Overall, energy storage, particularly the role of battery or other systems, is key, while any generation procurement must still allow the correct return on capital. And this is by no means an exhaustive list.

Incentives matter. We need more energy consumption to drive economic growth through electrification, but simultaneously we need to incentivise higher energy efficiency, perhaps through sharing the benefits of improved efficiency on a performance basis.

Finding the right solution for Jamaica’s energy problem is a very complex issue that should be elevated above the party politics of an election. Instead, there should be an urgent, bipartisan public debate to decide an energy future for Jamaica that ensures our successful transition to renewable energy at lower cost, all without destabilising the grid.

Phillip Paulwell

Energy production is considered to be one of the most critical issues facing Jamaica.

Keith Collister