Why is my light bill so high?Sunday, September 12, 2021
There is no doubt that electricity costs in Jamaica are too high. Out of 146 countries around the world, Jamaica stands at 142 with the highest charges. There are only four countries — Belgium, Denmark, Bermuda, and Germany — that pay more for electricity than we do in Jamaica (globalpetrolprices.com).
What's more, some of our Caribbean and Latin American neighbours have found mechanisms to supply cheaper electricity costs to their citizens. (See table) There is truly no justification for Jamaicans paying higher electricity costs than Barbados, a smaller country that does not have the benefit of a larger population to recover the capital costs nor the effective capacity for renewable diversification. Yet citizens of Barbados pay 13.56 per cent less for electricity.
This past June it was reported that the Jamaica Public Service Company (JPS Co) had applied for a rate increase in keeping with the annual tariff review provision in the electricity licence (2016), which allows for adjustments to the company's revenue targets each year, over the life of the five-year tariff, “to account for movements in factors such as inflation, the foreign exchange rate, and JPS's technical performance”. (Office of Utilities Regulation, 2021)
The variables regarding energy and all its dimensions are wide and varying. However, supplying electricity to our homes requires two main components — energy generation and distribution. Let us therefore examine the cost components of our electricity bill:
* fuel - 37 per cent
* independent power producer (IPP) - 20 per cent
* JPS - 32 per cent
* General Consumption Tax (GCT) - 11 per cent
Twenty years ago Jamaica's energy generation used 95 per cent oil and only five per cent renewable energy sources. This made the cost of electricity extremely high for residential and commercial consumers, especially with fluctuations in global oil prices. The P J Patterson-led Administration recognised that this dependency on imported oil was detrimental to the future of our country and made structural policy decisions to diversify our country's energy base by adding liquefied natural gas (LNG), wind, and solar. With the subsequent implementation of the National Energy Policy by Prime Minister Bruce Golding in 2009 Jamaicans were hopeful for the creation of “a modern, efficient, diversified, and environmentally sustainable energy sector” to provide them with affordable energy to counteract the US$0.42 per kilowatt hour they were being charged by the JPS. It was argued then that this constituted US$0.32 for generation and US$0.10 for distribution.
However, it was under the leadership of Prime Minister Portia Simpson Miller, between 2012-2015, that Jamaica made unprecedented strides with the largest diversification of energy generation in our nation's history. Then Minister of Energy Phillip Paulwell had the arduous task of ensuring we became less oil-dependent, and urgently set out to realise the conversion of 360 megawatts to LNG generation.
By 2014 JPS secured a deal with New Fortress for them to generate 410 megawatts of energy using LNG at US$0.13 per kilowatt hour. This was transformative and saw the plants in Bogue, Old Harbour, and Jamalco being converted to LNG by 120, 190 and 100 megawatts, respectively. Further, the Government continued to aggressively push the implementation of renewable energy sources in 2015 facilitated by US Vice-President Joe Biden and Phillip Paulwell for the Overseas Private Investment Corporation (OPIC) — the US International Development Finance Corporation — to fund the largest solar plant in the region at Content, in Clarendon, with 20 megawatts, and the wind project at Malvern, St Elizabeth.
By the end of 2015 the Government had successfully expedited 410 megawatts of energy diversification from oil to LNG, and 100 megawatts of wind and solar renewable energy generation, which brought the cost of electricity down from US$0.42 to US$0.28 per kilowatt hour (kWh).
Where's the benefit?
With all these improvements @ZZadiki was justifiable when she asked me last week: “Where is the benefit of renewable energy sources to substitute the fuel?” In other words, are we realising the full benefit of the transformation of the electricity sector? I think not.
Invariably, disbelief, shock, awe, and immediate anger are just some of the emotions felt by Jamaicans upon receiving their monthly 'light bill'. But there are several factors that continue to drive our electricity bills up; namely:
(1) JPS profit margin;
(2) government taxes; and
(3) electricity distribution inefficiencies and theft.
I am advised that some of our independent power providers in Jamaica who still use fuel are supplying JPS at US$0.17 cents per kWh, the renewable providers charge less. Therefore, based on our current costs of US$0.297 cents, this would mean that we are being charged US$0.127 cents for distribution and JPS's profit margin.
Several countries are able to both generate and distribute electricity at less than US$0.06 cents per kWh. An oil-producing nation like Trinidad delivers electricity (inclusive of generation and distribution) to households at US$0.052 cents. Assuming their energy cost is zero, the fact that they can distribute and have a good profit margin at that price, versus the US$0.127 cents being billed to us is instructive. In other words, if power is currently being generated and supplied to JPS at US$0.17 cents per kWh, and could be distributed at US$0.052 cents, it could be justified that we should be paying a total cost of US$0.222 cents, instead of the US$0.292 cents now being charged.
Additionally, with the ending of the PetroCaribe Agreement in July 2015, the Government implemented a hedge tax on fuel as a safeguarding mechanism for the forward purchase and storage of oil. However, in March 2017 Minister Audley Shaw introduced an increase in the Special Consumption Tax (SCT) on fuel to range from $0.43 to $7.36 per litre. This measure was the primary source of funding to earn $7.5 billion to pay for the 2016 $1.5-million tax break that was the Jamaica Labour Party's (JLP) general election promise.
Finally, when questioned about their efficiency to deliver electricity at cost effective rates, the JPS estimates that about 200,000 households do not pay for electricity. Today, all consumers of the JPS have to contribute towards a portion of the electricity stolen by others, which is estimated to be 17.5 per cent of bills.
One solution to bring the cost of electricity down is to simply eliminate theft. I want to urge the Government to use the proposal made by Phillip Paulwell in the sectoral debate earlier this year. Let us use $4 billion of the hedge tax over five years to provide solar solutions for those who currently steal electricity. This is less than the amount of money the Government collects for the hedge annually.
In Jamaica, access to affordable electricity is a necessity. Our low- to middle-income earning citizens need a break, especially during these difficult COVID-19 times. The business sector has seen their profits grow as a result of low interest rates, a more stable exchange rate, and a reduction in property transfer taxes. Now is the time they need to give back. We should wave the taxes on individual households for the next 12 months and supplement the shortfall by an increase from the business community.
In this 'high-light', low-wages time, we demand more efficiency and transparency from the JPS.
Lisa Hanna is Member of Parliament for St Ann South Eastern, People's National Party spokesperson on foreign affairs and foreign trade, and a former Cabinet member.