What's driving electricity rates in Jamaica?

As of March 2021, the price of electricity in Jamaica is US$0.307 per kWh for households and US$0.248 per kWh for businesses, which includes all components of the electricity bill, such as the cost of power, distribution, taxes and returns (profits).

In comparison, globally, the average price of electricity for that period is US$0.135 per kWh for households and US$0.124 for businesses.

Understanding electricity charges

If you were to look at your last electricity bill, you would have seen that most of the figures constitute Jamaica Public Service (JPS) fuel (oil refinery fees and government taxes) and independent power providers (IPP) charges.

However, before we deconstruct the bill, it's important to note that supplying energy considers energy generation, transmission, and distribution. Energy generation is the core function of all generation units, including IPP, like the Jamaica Energy Partners (JEP) Group, while energy distribution is the exclusive responsibility of JPS, the island's service provider.

On your bill, JPS charges include the cost to run their units (power plants), administrative costs, and profits. As it relates to fuel charges – this includes fuel used by the JEP Group, South Jamaica Power Company, New Fortress Energy, JPS, and other thermal plants.

The charges are calculated based on oil prices and foreign exchange rates, which vary monthly.

IPP on the pie chart illustrated on your bill includes, Jamaica Energy Partners Group, South Jamaica Power Company (JPS-owned power plant), New Fortress Energy, and the solar and wind power generating entities. The different sections of the pie (JPS, IPP, taxes, and fuel) fluctuate due to the generators that are dispatched that month based on demand and how the utility applies taxes as not every component is levied.

Is Jamaica ready for take or pay?

Independent power providers cannot enter the market without a contract between them and the utility. This contract is called a power purchase agreement (PPA). A PPA underpins the sale and purchase of power generated for distribution to you, the ratepayer, sale of capacity, and energy. The PPA also accounts for pricing, given certain expectations, which, when not honoured, the ratepayers are reimbursed in the form of liquidated damages.

FSA (fuel supply agreement) in Jamaica employ either a take or pay or take and pay contract and is a covenant between the fuel supplier and the IPP. Take or pay contracts stipulate that the utility is obligated to accept the fuel projected to be consumed by the IPP or JPS by Government instructions. In other words, whether the utility takes the fuel supplied, it must pay the agreed cost for the fuel. Take and pay agreements, however, differ in that the utility is only required to pay for the fuel used in the generation of the power produced.

Which contract do you believe is a more cost-efficient and sustainable solution for Jamaica?

The Jamaica Energy Partners Group is the only IPP that currently operates under a take and pay agreement, which means we are only compensated for fuel used to generate power upon a dispatch request. If we are not dispatched, we don't bill the utility for fuel.

The country's wind and solar power generators run based on take or pay arrangements in an 'energy only supply basis', which means regardless of whether the utility can take the power generated, once it's produced, they must compensate these IPPs.

Take or pay agreements are not all bad and can be advantageous when price negotiation is aggressive enough to represent least-cost solutions to ratepayers. However, this is not entirely the case for Jamaica and affects our energy optimisation.

So how are take or pay contracts bad for ratepayers? For example, in 2020, when heavy fuel oil (HFO) prices were at an all-time low, the country could have benefited from a savings of approximately US$40 million in its fuel import bill, which would cause a reduction in the light bills you pay.

Pre-pandemic, Jamaica's energy peak demand ranged anywhere between 600 and 630MW. Today, as denoted in the demand curve above, our base demand starts at approximately 400MW and peaks at 585MW. This demand curve is based on the country's demand over 24 hours. The demand curve guides how and when the power generating units (IPP and JPS) are dispatched. These units (1-16) are arranged based on price (the most cost-efficient units at the top), and the JEP Group sits in the top 6.

Now, how does the take or pay agreements affect the merit order? Here's an example: Even though the JEP Group ranks among the most affordable units, other units below are dispatched in favour due to the take or pay arrangement on fuel contracts. Though an optimum solution, that decision is not the least cost to you the ratepayer.

Moya-Mae Rose is a public relations and digital marketing specialist at Jamaica Energy Partners Ltd. Send feedback to mrose@jamenergy.com

Moya-Mae Rose
Moya-Mae Rose

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