Dr. Cezley Sampson, ContributorJamaica's solution to reducing its electricity generating cost depends largely on diversification from fuel oil to natural gas and possibly coal at a later date. The government is developing a new energy policy, and I have been coordinating the development of this policy. We are clear that diversification should form the central cornerstone of this policy and that Jamaica should not be tied to any single source of energy. Diversification brings flexibility, both in terms of future changes in generation technologies and in maximising benefits from relative changes in fuel prices in the coming years.
We also propose that cogeneration should be another important aspect of the policy. Jamalco now supplies about six mw of co-generated power to Jamaica Public Service Company at a price, along with wind and hydropower, that forms the lowest cost power being dispatched into the grid. Alcoa/Jamalco is in the process of expanding the Clarendon refinery, and only recently Alcoa's board approved the addition of 1.5 million tonnes per annum (mta) of alumina to raise the alumina refinery capacity at Halse Hall from 1.3 mta to 2.8 mta.
This means the Jamalco plant will require a further 50 mw of new capacity in addition to the existing 45 mw plant to meet the power needs of the expanded alumina plant.
Oil is no longer a competitive source of fuel on the global alumina market, and this is despite the fact that Jamalco has been using Bunker C oil, one of the lowest cost fuel oil. Through a government initiative, Windalco has agreed to put in a 193 mw power plant, using natural gas from Trinidad, and to export or sell 80 mw of firm capacity to JPSCo. The significant advantage of this move is that we will be integrating the alumina power needs into the national electricity system, allowing the country to benefit from scale economies. The technology will be a hybrid of cogeneration and combined cycle gas turbine, bringing fairly high levels of thermal efficiencies compared to the efficiencies of the existing JPS and Jamaica Private Power plants. Natural gas will also mean more efficient alumina operations to meet an increasingly competitive alumina world market.
Additionally, the cost of the fuel will be met by an export industry, with little or no negative effects on Bank of Jamaica's foreign exchange resources and on the balance of payments. Yet another advantage is that some of the alumina will be sold to the proposed Trinidad aluminum smelter. The CARICOM Single Market and Economy will industrially be vertically integrating its major natural resources, bauxite and natural gas, for the first time, providing further benefits to Jamaica's export earnings and balance of payments. This provides for a highly synergistic industrial production arrangement between Jamaica and Trinidad with economic benefits and security for both countries.
GENERATING COMPETItiON
The Jamaica Energy Partner and Jamalco's solutions will account for 130 mw of additional capacity, which will be needed by 2008. The Office of Utilities Regulation (OUR) and JPS have been informed as a matter of policy that arrangements should be made for the procurement of the next base load plant of 115 mw based on Trinidad's natural gas as the source of fuel.
This new plant should come on stream by 2008/9 and is to be procured through competitive bidding. As of 1 April 2004, JPS lost its exclusive right to the generation market. In other words, the generation market is now competitive, which is the direction of the rest of the world. England and Wales have disintegrated their entire electricity supply industry and consumers can now buy their electricity from a supermarket.
The benefit competition brought to the England and Wales system is reduction in real electricity prices of 30 per cent between 1990 and 2001.
Some argue that small systems like that of Jamaica with less than 1000 mw capacity cannot be exposed to competition. A similar argument was presented in support of the Cable and Wireless telephone monopoly at privatisation in 1997, at much cost and pain to the Jamaican consumer. In the same way cellular, satellite and fibre optic technologies have destroyed the natural monopoly characteristic in the telecommunication industry, combined cycle gas turbine, smart metering and sophisticated information technology have destroyed the natural monopoly of electricity generation and retail business.
choice
The decision to maintain a vertically integrated monopoly is now one of choice and has been so since 1990. Bolivia, a developing country with a system's capacity of less than 600 mw vertically disintegrated generation, transmission and supply, and created 10 new mostly private entities to facilitate a competitive bulk electricity market in 1997. The result has been significant foreign investment flows to the Bolivian energy sector following capitalisation, as the Bolivians call their model of privatisation. Some suggest that government should have retained ownership of the distribution system.
International best practices suggest that government should not seek to own distribution in a reforming electricity market. The case for government ownership can only be made for the transmission system, which remains essentially a natural monopoly. The distribution system is characterised by economies of density and not economies of scope. So it is practical to have several distribution companies, as is the case in South Africa or with the small Bolivian system. Uganda with a system size of only 200 mw opted for more than one electricity distribution company. This, however, is water under the bridge, since we are tied to an existing binding contract and major changes require consensus between Mirant and the Government of Jamaica.
As a matter of policy, government has also given approval in principle for a 120 mw base load coal plant, to incorporate clean coal technology and for this to come on stream by 2010/11. The necessary technical studies, including environmental impact assessments, site location studies, etc. are, to be pursued in collaboration with the energy division of the Ministry of Commerce, Science and Technology, the OUR, JPS and the National Environmental Protection Agency (NEPA).
LIQUEFIED NATURAL GAS
The Government of Jamaica has entered into a 20-year agreement with the Government of Trinidad for 1.18 mta of liquefied natural gas (LNG). The LNG complex will be sited at Port Esquivel and commissioning is targeted for 2008/9. The project consists of a re-gasification plant to convert the LNG back to gas, pipelines connecting the proposed Port Esquivel installation to the power plants of JPS at Old Harbour and Kingston, as well as the Jamalco alumina refinery at Halse Hall. The LNG will be transported from Trinidad in special LNG ocean tankers.
Jamalco is also expected to use a significant portion of the Trinidad gas in its calcinations process, replacing bunker C. This is in addition to the use of the natural gas to generate 193 mw of electricity annually, inclusive of the 80 mw export power to JPS.
equity owner
One of the advantages of combined cycle gas turbine is that the power plant will be able to operate on No.2 distillate, should there be any delays in the commissioning of the LNG facility. The Government of Trinidad is to be 40 per cent equity owner and Jamaica 60 per cent. Both governments are expected to see to the financing of their respective portion of the overall capital, currently estimated at US$250 million. It is also within this framework that the Petrocaribe financing facility, recently concluded by Prime Minister Patterson with Venezuela should be viewed. Jamaica will be able to use some of the low cost development financing from the Petrocaribe facility to fund a portion of its share of the LNG project cost, significantly easing the immediate foreign exchange burden.
Acres Management Consulting, a Canadian energy consultant working with the Jamaican Government, carried out an analysis recently showing that the desired solution is to replace some 320 mw or over 60 per cent of the existing JPSCo capacity, most of which is old and suffers from low thermal efficiencies and high forced outage levels. These are the old steam and gas turbine plants, all over 28 years and which have passed the stated economic life. Replacement on this scale by 2008/9 is not considered practical for a variety of reasons. Therefore, the solution offered by Acres is that of conversion of this 320 mw capacity to natural gas in 2008/9 so as to be able to take up the full supplies of gas committed from Trinidad, followed by replacement of the 320 cc capacity by 2016, with either natural gas or clean coal power plants.
There are discussions with Canadian International Development Agency for additional technical assistance to enable the government to carry out a fully integrated Least Cost Expansion Plan. This plan will not only look at JPS's needs for grid electricity, but the power needs of the entire country, inclusive of the large self-producers, such as the alumina and sugar refining industries, as well as to address the transmission systems requirements. This study is expected to be completed within the next six months, and will address the electricity supply and investment needs, especially after 2010. The end result is that by 2012 Jamaica's electricity base load and mid-range power needs will be met by natural gas or clean coal, with oil relegated to meet the peak load aspects of the load curve.
Stay tuned for Part III.
