Investor urges disconnection of anti-competitive clause in JPS licenceFriday, June 11, 2021
BY ALPHEA SAUNDERS
WRB Energy is urging the Government to eliminate the right of first refusal (ROFR) clause in its arrangement with Jamaica Public Service (JPS) company, as the provision is stifling competitiveness in the electricity market.
The renewable energy development company, in its submission to the joint select committee (JSC) reviewing the Electricity Act, says despite changes made to the law in 2015 to transform the sector, an outdated provision, in the form of the ROFR, remains.
The ROFR grants the light and power company the right to replace its generation units when they become due to be retired, according to the schedule determined by the portfolio minister.
There have been criticisms of the ROFR since JPS received its 2016 licence, including from Government Senator Aubyn Hill, who said it was inconsistent with international trends. Hill is a member of the JSC, which is chaired by Energy Minister Daryl Vaz.
In his presentation at yesterday's meeting, WRB Energy President and Chief Executive Officer Robert Blenker said the Government should seek to do away with the ROFR to enable the procurement of all new generation openly, and competitively.
The company, which operates in Latin America and the Caribbean, has a US$63-million 20-megawatt content solar project here, one of the largest in the region. The solar plant is expected to power more than 20,000 households over the next 20 years under a power purchase agreement with JPS.
“We feel that the JPS ROFR is anti-competitive. I know this is a contractual arrangement and incorporated and enshrined in certain agreements, [but] my fear as a participant in the market [is that] unless very carefully managed, the ROFR will fail to mobilise and capitalise on the competitive nature of the market and the innovative nature of the market to provide the lowest cost electricity with the most cutting-edge technology available. It poses the risk of slipping back into business as usual,” he asserted.
Blenker said, however, that if the ROFR remains, any pricing for energy produced as a result should be done through a synthetic competitive process.
He argued that the traditional competitive process of taking the lowest-priced bid and applying it to the ROFR would not work, as market participants, knowing the monopoly would be the ultimate winner, would not participate in preparing bids for such a time-consuming tender where the outcome is predictable.
“You could run a synthetic tender using an international consultant, and they can develop what they would reasonably expect to be the market pricing coming out of the tender process,” he suggested.
The company also feels there is need for greater transparency and consultation on policy and regulatory issues in the energy sector. It said, although some initiatives have been implemented to address this, there is room for meaningful improvement, such as transparency on fuel costs, for both generators and consumers.
Specifically, it wants the avoided cost of generation to be updated and published with more frequency, as well as the market clearing prices for fuel for the generation of electricity, including the price of natural gas.
“When the PCJ [Petroleum Corporation of Jamaica] publishes fuel pricing, it's very easy for us to benchmark the economic efficiency or competitiveness of our non-fuel generation [but] currently it is difficult, if not impossible, to truly understand what the avoided cost of natural gas is, in particular, in the electricity sector,” Blenker stressed.
Furthermore, Blenker urged, rather than respond to urgent matters there should be more proactive engagement in the sector.
“Transformation of the sector doesn't happen overnight, and there is a danger of falling into cognitive dissonance when there are so many competing alternatives that it is difficult to make decisions. We would suggest working groups with sector participants with very specific agendas [and] timelines,” he suggested.
The renewable energy company is also recommending that the prohibition on the export of power from customer-owned systems greater than 10 kilowatts be removed, and that exported power should be purchased under a standard feed-in tariff established by the regulator. The suggestion is that such purchased power could be applied to the JPS's renewable energy target.
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