RENEWABLE ENERGY and energy efficiency are widely seen as key to the Caribbean reducing its long-standing dependence on imported fossil fuels.
It is estimated that the region spends about US$22 billion annually to import oil with Venezuela and Trinidad and Tobago the major producers in this part of the Western Hemisphere.
So that countries like Barbados have been paying increasing attention to alternatives to foreign hydrocarbons, going as far as detailing, and in some cases implementing, energy programmes focussed on renewable source like solar and wind.
However, while such a change is seen as making economic sense, as it will save the region billions of dollars in foreign exchange, there is a concern that accessing finance to fund renewable energy projects can itself be costly, and in some instances prohibitive. Such an outcome is considered to be defeating one of the main reasons for moving away from oil, that is, reducing costs and overall debt burdens.
Examining the issue in a recent analysis, World Bank senior energy specialist, Mark Lambrides, noted that the Caribbean’s ability to reduce its dependence on oil imports was crucial, since oil now provides more than 90 per cent of the region’s “primary energy needs”.
While noting that “the Caribbean countries are blessed with abundance of renewable domestic natural resources, which can be used to produced electricity”, and the cost of which had “fallen dramatically over the past decade”, Lambridges said there were some financial obstacles.
“For example, policy and regulatory frameworks which aren’t necessarily attractive to investing in these technologies, [and] limited access to financing and the resources necessary to take on these technologies,” he said.
“Being relatively small countries, the costs are sometimes higher than they would be in a larger country. There may be some added benefits to demand between multiple countries, so that orders are larger or that projects developed are on a larger scale.”
In a study on the issue, David Nelson, senior director of Climate Policy Initiatve’s energy finance programme, and Gireesh Shrimali, professor of energy economics at the Monterey Institute of International Studies, concluded that while “renewable energy financing in emerging economies faces particularly daunting challenges, there are creative policy solutions that could potentially reduce the cost of renewable energy support by as much as 30 per cent”.
They recommended reducing the cost of using debt sourced from the developed world, and improving the cost effectiveness of domestic renewable energy support programmes.
“Index renewable energy tariffs to foreign currency, in so doing eliminate the currency hedging costs that are responsible for the largest share of the difference between developed and rapidly emergin country debt costs,” they advised.
“Provide lower cost debt through debt concession programmes, which our research shows could lower the total cost of providing required support.”
Research shows that this issue is not new for the Caribbean. Three years ago at a regional meeting in Kingston, Jamaica, German consulting engineering firm Fichtner produced a presentation in which it told Caribbean representatives that “financing is not a problem, funds are available”. The issue, it noted, was “well structured projects are missing”.
“Before applying for funds, prospective borrowers should provide financial viability of the project and run respective sensitivities; check availability of funds either from development [banks] or from commercial banks; look for guarantees to secure financing; [and] consider the availability of equity from its own balance sheet; look for potential sponsors,” it said.
It was also necessary to “prepare a feasibility study to submit to potential lenders”, and “analyse the risks of the project and prepare a risk mitigation plan”.
