The damage done to the true competitiveness of the Barbados economy is being further complicated by the Government’s insistence on building an alternative energy plant without reference to what is happening in the international energy market.
The evidence is compelling that Barbados needs to pursue some form of alternative way of generating electricity. According to a 2008 report of the Barbados Light & Power Company (BL&P), fossil fuel accounts for all of the country’s electricity generation – “82 per cent with heavy fuel oil (of which 19 per cent is used in steam plants and 63 per cent in low-speed diesel plants) and the remaining 18 per cent with diesel fuel”.
In justifying the pursuit of a sustainable energy framework for Barbados, the Government identified that “the biggest challenge of our generation is the drain of foreign exchange created by the high cost of oil”. Since the Government cannot control the price of oil, the obvious pursuit is in reducing the demand for oil from abroad.
In order to reduce the demand for oil, some alternative energy must become available. The objectives of the Government and those of local consumers must therefore be in harmony. The lofty goals of reducing energy costs, achieving greater energy security and improving environmental sustainability only make sense to the consumers if the price of alternative energy is affordable and competitive with fossil fuel.
In the absence of any major thrust in alternative energy, the fall in international oil prices has and will reduce the drain on foreign exchange. More importantly, the fall has translated into lower domestic prices for gasoline and electricity and has serious implications for the viability of alternative energy.
Whatever the findings from the studies in alternative energy conducted a few years ago, it is evident that the dramatic changes in the international energy market in recent times will affect the pervious findings. They will need to be revisited from the perspective of the costing of the alternative investment proposals such that a six is not taken for a nine.
In spite of the changing circumstances, the Government seems unwilling to give more thought to pumping a lot of money into alternative energy that may be better used to deal with some of the more immediate and obvious matters confronting the Barbados economy. It may be feeling some pressure to put a big project in place to impress the electorate in time for the next general election.
The Government may also be buckling under the threats of the minister of agriculture who has a way of making public noise in order to have his way, but the issues involved in alternative energy are far bigger than the minister and must be fully ventilated to justify or not justify a $500 million investment at this time.
Furthermore, it must be recognised that power generation represents 50 per cent of the fuel usage in the country, followed by transport at 33 per cent. It is highly unlikely that any major breakthrough will come in the transport sector to save significantly on fuel consumption and therefore the focus will have to be on power generation.
In the circumstances, the size of the alternative plant is critical in determining the level of investment that is both economically and commercially viable. The concept of viability has more to do with the price of the product being used to generate electricity than with anything else. This leads to the conclusion in the final report of the sustainable energy study of the Government; “we are convinced that so long as Barbados has a cane industry, cogeneration of bagasse will be a viable part of the sustainable energy matrix”.
If Barbados does not have a cane industry, then it has to resort to importing some other product which introduces concerns about the volatility of price and in essence, the concerns are back to square one, along with issues of reliability of supply. The notion that “river tamarind” is a viable alternative to cane is ignorance.
In the existing arrangement for electricity production, the variations in the price of fuel are borne by the customers via a fuel adjustment clause which works well because of the developed nature of the international oil market. Consider an arrangement with some imported product that does not have the history of oil and begin to imagine the service delivery issues. Furthermore, if the raw material to generate electricity has to be imported, how are the lofty goals stated earlier – energy security, environmental sustainability and costs reduction – going to be met?
• Dr Clyde Mascoll is an economist and Opposition Barbados Labour Party adviser on the economy. Email mascoll_clyde@hotmail.com