By Kimberly Ramkhalawan
kramkhalawan@caribmagplus.com
February 2, 2021
With the majority of CARICOM members signed on to the ratification of the Paris Agreement, one which signals steps taken by nations around the globe to reduce their carbon emissions footprint, comes the question, just how much the Caribbean is ready to take on the Clean Energy market.
The discussion was one taken on by leading environmental economists in the region, including Justin Ram, former Caribbean Development Bank economist, who was joined with IDB and World Bank representatives at the recently held New Energy conference. New Energy, a UK based company held the conference in hopes of presenting the Caribbean as a host for renewable energy business opportunities.
UK Companies interested in exploring just how feasible the clean energy market is in the Caribbean were presented with the potential of existing Renewable energy opportunities within the region.
Currently the Caribbean has been predominantly dependent on Natural Gas resources with its proximity to Trinidad and Tobago, a natural gas producer and the gulf coast along the United States fueling its supply. However, with the need to move away from fossil fuel reliance for environmental purposes, its said the Caribbean is a paradise for the setting up of alternative energy resources, something that should be looked at with greater measure.
The Paris agreement is one of the reasons many nations are taking the step forward, setting lofty goals for achieving in the coming years, with Caribbean nations such as Belize and Suriname already meeting 50 percent of its targeted goals. But with the world in a Pandemic, for some nations this means another setback as it comes almost on the heels of some recovery felt post the 2009 global financial fallout. COVID-19 has also been responsible for widening the deficit gap in many countries, causing severe shrinkages in tax revenues, FDIs and forex, making targeted goals harder to achieve.
Despite this, there has been some positives emerging from the pandemic, as the determination held by countries to achieve these goals has ramped up, as Technology opportunities converging with political ambitions and green finance opportunities, a renewed interest has emerged as the Pandemic is a stark reminder of what pressing climate change can do, with it occurring at a much more rapid rate than before.
This brings along the thinking to reset the current energy system to provide clean energy with employment opportunities to take advantage of the technological progress that has arisen due to the pandemic.
On a global scale, persons have sought to make the switch to more eco-friendlier options in their mode of transport to the places where they live, as sales in Electric Vehicles grew in recent years. Dr. Malaika Massan, Senior Regional Energy Specialist with the IDB, sees this trend trickling down to the Caribbean as more manufacturers provide cheaper new models. In the Caribbean, Electric Vehicle popularity is growing, as Barbados currently has over 450 passenger EVs, while the Dominican Republic has some 1500 of the Electric Vehicles. She anticipates to see more Electric Trucks come onboard as transport vehicles, but adds that its success is dependent on global manufacturers reducing the cost and lifespan of its battery pack.
Dr. Massan says there is need for more financial incentives to be offered, making it attractive for purchase. Last year Trinidad and Tobago reintroduced its tax limiting the amount of foreign used electric vehicles being allowed into the country, a step that was hailed as backward when clean energy should be taking precedence. However, the country is still pushing its cleaner fuel, through tax breaks offered to motorists who covert to CNG tanks as it still remains a producer of Natural Gas.
Currently LNG being the cheapest form of energy in the region due to its accessibility, remains a topic on the table. Proximity to near markets makes it an easy choice, however, weather pattern changes and its vulnerability to hurricane season makes supply chains easy to disrupt, a sentiment shared with Neha Mukhi, energy specialist at the World Bank. Mukhi in her presentation, says that implementing resilient clean energy sources would aid in reducing public’s fiscal burden and expenditure, but much improvement to current grid infrastructure is needed to support the push in this direction. Most Caribbean nations have aged infrastructure supporting their power supply, even at the industry and manufacturing level, which means making the switch will be a costly one.
And while companies have begun to adopt the change in the simple things from the use of energy saving lights and machinery, the reality remains that financing is needed.
Mukhi suggests that productive based cash flows can be done from a fully-collateralized agreement through loaned assets, security in the form of land, moveable assets such as solar panels would all form part of a substantive collateral package.
While the World Bank looks at the feasibility of these projects and the environmental impact, she says it all boils down to the strength of the PPA, and its ability to perform on the market level.
Recent International Development Association projects through the World Bank have quadrupled in its investments in the region, from $120M, to $500M, with geothermal resource development taking place in St.Lucia and Dominica, and grid modernization in the Dominican Republic.
Qualifying for these grants offered by agencies such as the IDB and World Bank is often in favour of governments, while private sector firms looking to access such funding would require a low, but strong public sector component.
Commercial banks such as Republic Bank have sought to provide an avenue for investment once found to be lucrative enough. Ray Klein, who is Head of Investment Banking at Republic Bank says while there are institutions like his that look into the feasibility, with generally 10 percent of the PPA working for senior lending projects. He adds that private equity has been playing a greater role in funding clean energy, citing both greenfield and brownfield projects as another source of funding.
As to what renewable energy has occupied their attention most, Klein says geothermal, wind and photovoltaic has dominated in the region.
Meanwhile, one area that has been in testing within the Caribbean remains the potential of Green hydrogen energy. So far companies such as Worley Parsons have been testing and exploring its profitability in Trinidad and Tobago, as there is some infrastructure already present. Emerging sectors such as these while costly and requires additional infrastructure, still stand to create jobs while achieving decarbonization and reducing its global warming footprint.
Justin Ram went on to indicate that research has shown that the Caribbean has much potential for the development of marine renewable energy, even as the blue economy takes over across the region.
However, with the economic trade in the Caribbean down due to COVID-19, Ram says the region can expect a recovery to be more of a “swoosh shape” on the graph rather than a “U-shape”. He says the bounce-back is all dependent on how quickly the roll out of the vaccines take placein the region. This means that investment in any green sector can be easily pushed to the back burner for any governing nation in the region. It is overcoming the impact the current pandemic is having tied in with other macro-economic challenges faced with the growing sector, that will decide governments’ drive to continue along the clean energy path.
In the end, speakers agreed that the current landscape of things in place to facilitate renewable energy is reflected in the region’s collective policy and legal regulatory framework as many nations look to switching its electricity source to an eco-friendlier one.
Current indicators include an existing regional energy act, independent power producers, along with licenses and arrangements in place, it is agreed that while the policies are not perfect, the Caribbean can be described as moving in the right direction to reducing its carbon footprint.