Our monopoly electricity company, St Vincent Electricity Services Ltd (VINLEC) has again been in the news lately — and this time the news appears to be good. “VINLEC to invest in solar project” announces one headline, heralding the fact that VINLEC is investing millions into putting solar photovoltaic (PV) panels on public rooftops, so that the electricity generated by this exciting technology can be used by all.
This is VINLEC’s first major investment in renewable energy since the 1980s and it is, in principle, a welcome development. It is a matter of simple fact that this country needs urgent, focused action to develop a sustainable energy sector, fit for the 21st century, and such an investment seems long overdue. After all, it should have been clear by 2005 (when Venezuela’s Petrocaribe scheme was introduced) that our country’s dependence on fossil fuels is unsustainable.
So, finally, here we are. Three years into the second decade of the 21st century, VINLEC is spending a reported 3.5 million EC dollars to add 555 kiloWatts (kW) of solar PV to the grid, to produce some 850,000 kiloWatt-hours (kWh) of electricity per year — which is a fraction of one per cent of St Vincent’s annual electricity consumption. As good as it might sound at first blush, VINLEC’s approach is sub-optimal, inefficient and betrays a striking inadequacy of strategic vision.
The Viable Alternatives
First off, let’s understand that, because electricity prices are very high in St Vincent and the Grenadines, almost any investment, in any viable renewable energy technology, is likely to be a “good” investment. But VINLEC’s CEO himself made the critical point when (as quoted in The News of 9th August 2013) he noted that “renewable cost money to set up and companies like ours have to be extremely careful with the limited resources we have for investment” and “we have to make sure we are prudent with customers’ money”.
What he was suggesting is that investments of this type involve the careful consideration of alternatives. The subtext of his comments is that a good investment may not necessarily be the best alternative. And, of course, he was saying this to suggest that in this case, VINLEC’s investment in solar PV was the prudent choice. But was it?
The major viable renewable energy technology types in SVG are (in no particular order) hydro-electricity, solar energy, wind energy and geothermal energy. Geothermal and wind are special cases, so we’ll deal with those first.
Mainland St Vincent clearly has geothermal resources, and although we’ve heard a lot over the past several years about how geothermal energy can be the “game-changer”, the fact is that no definitive assessment has yet been made of the true extent, specific locations and nature of the geothermal resource in St Vincent. Geothermal development projects are inherently costly, risky and time-consuming, and they are not normally entered into lightly. A full treatment of the geothermal energy issue calls for an article of its own, but suffice it to say that as a renewable energy option, geothermal is definitely on the table — but how it will develop and how quickly, remains to be seen. In this context, recent statements (eg: Searchlight, May 24th 2013) about having geothermal energy on the grid within 2½ years if all goes well, are nothing but fantasy. And the obvious question should be asked here: if geothermal is indeed the huge game-changer we’ve been told it is, and if it can be brought online so quickly, then why isn’t VINLEC itself urgently investing in it?
The situation with wind energy is problematic, in its own way. In June 2008 VINLEC published a request for expressions of interest for the development of a 6 to 8 MegaWatt (MW) wind farm in the Brighton/Diamond area. VINLEC’s document stated that “Feasibility studies have been taking place in the area since August 2005 and the wind regime has been assessed as being very favourable for wind park development”. But now, five years later (long enough for a wind farm project to be planned, designed and built), no wind farm has materialized and we see VINLEC’s CEO on TV (in May 2013) saying that we don’t have the wind regime to use wind effectively.
For the record: those statements are contradictory and one of them must be false. A wind regime does not change in the short term; it cannot go from being good in 2008 to being bad in 2013. So, just a note here VINLEC: the fact that both statements were made by you suggests that either (a) you folks don’t know what you’re doing; (b) you’re not really serious about this wind energy business, or (c) something worse.
More to the point is that other countries in CARICOM (Jamaica, St Kitts & Nevis) have benefited for years from utility-scale wind energy, so the very least that VINLEC should do at this point, is to let electricity consumers know what are the true prospects for wind energy development in St Vincent & The Grenadines.
Now, on to hydro and solar. This country has had a long and productive history ofhydro-electricity development. Starting with South Rivers in 1952, continuing with Richmond in 1962 and culminating with Cumberland in 1988, these various large investments in harnessing the power of our rivers have paid off handsomely. At the end of the 1980s, hydro was generating about 35 per cent of all electricity produced on St Vincent. But today, that percentage is down to about 20 per cent. A study conducted on VINLEC’s behalf in 2009 indicated the feasibility of adding another 1,100 kW of hydro capacity to the existing South Rivers and Richmond systems. Earlier this year we were advised (by the Prime Minister in his budget speech) that the hydro upgrade project was proceeding at a cost of EC$12.4 million dollars, but now we hear that VINLEC is instead investing in solar photovoltaics.
Solar PV is the new kid on the green energy block. It’s high-tech, it’s viable, it’s sexy — it’s just what VINLEC needs to confirm its progressive, forward-looking credentials. The company reports that the recently installed system at their Cane Hall complex is the largest single PV system in the OECS and Barbados. Their plan to install a total of 555 kW by the end of the year puts VINLEC at the top of the sub-regional PV league.
On the face of it, this sounds like great news. But note that we have two viable alternatives for immediate consideration: hydro and solar — so we need to look at which alternative would represent the “prudent” choice and the best use of “the customers’ money”. I’ve run some numbers, and they do not support the choice that VINLEC has made.
For each alternative, the first item to consider is the basic investment cost per unit of installed capacity; let’s call this the nominal capacity cost. This basic cost is derived by taking the total investment cost and dividing it by the number of kiloWatts being installed (and we’ll show the results in US$ for the sake of international comparison). The costs are:
PV: Nominal Capacity Cost = US$ 2,336 per kW
Hydro: Nominal Capacity Cost = US$ 4,175 per kW
So far, so good — the cost to install a nominal kiloWatt of PV is about half the cost to install a nominal kiloWatt of hydro. So solar PV looks like the winner. But here’s the first caveat (which is why we used the word nominal in the first place): all kiloWatts are not created equal.
When a solar panel or a hydro turbine is designed and built, it is tested in a laboratory, under ideal conditions, to determine its maximum capacity to deliver electricity. That maximum capacity is referred to as the rated capacity — and that’s the capacity you pay for. But when it’s installed in the field, things are a little different. The PV panel might live up to its rated capacity at midday on a cloudless day, but its actual capability at night is zero. Similarly, the hydro turbine delivers well during the rainy season, but not so much when the river is dry. So, this practical reality introduces the concept of the capacity factor, which essentially averages out those effects over time. Think of it as the “how much bang do I get for my buck?” factor.
It turns out that PV capacity factors are quite low and in this particular case, the VINLEC PV capacity factor is 17 per cent. Hydro capacity factors, on the other hand, are much higher — and the aggregate capacity factor of VINLEC’s installed hydro plant (measured over the past five or so years) is about 52 per cent.
So we can now calculate the ‘real’ capacity costs, which are derived by dividing the nominal capacity costs by the capacity factors. These are:
PV: Real Capacity Cost = US$ 13,359 per kW
Hydro: Real Capacity Cost = US$ 8,069 per kW
We see that in the real world, the hydro capacity provides significantly more bang for the buck – an actual kW of hydro capacity costs far less than an actual kW of PV.
The above considers the cost of capacity (which is the potential for energy to be delivered). We must also consider the cost of the actual energy (electricity) delivered. The metric normally used for this analysis is the Levelized Cost of Energy (LCOE). This is simply the total cost of the project investment, including the costs of financing, procurement, construction, installation, operations and maintenance, over a period of say 25 years, all combined and converted (levelized) to a present value per kWh. VINLEC normally keeps such numbers a state secret, but I’ve run various scenarios using available cost estimates — and the levelized cost of hydro is at least 12 per cent lower than that of PV, under various scenarios.
The above suggests that if VINLEC were in fact being economic and prudent in “investing its limited resources”, it would at this point be investing in maximizing its hydro output, not on installing PV systems on schools. But there’s still more to the argument than that. To conclude the discussion, we must consider the big picture: the question of the country’s overall energy sector strategy.
The Strategic Problem
In the late 20th century, there were only two groups that could feasibly make investments in green, grid-connected energy: governments and large private-sector interests. In SVG, the only player in the game was VINLEC. Today however, the game has changed: governments, companies of any size and individual households can feasibly invest in renewable energy, to the collective benefit. This realization clearly indicates what should be the strategic objective for our energy sector: it should be to maximize the efficient investment in renewable energy, of all potential parties, within a technical optimization framework (more on that below).
The case is simple. Leaving out geothermal and wind for the time being (as we discussed above), VINLEC has the option to invest in hydro, solar PV, or both. On the other end of the scale, households and local businesses have only one option — to invest in solar. Assume you had any amount of money to invest. Could your household or business set up a hydro plant? No — because, chances are there’s no suitable river running through your property. Could you set up a PV system on your roof? Absolutely.
Now consider that the capital cost of investing in hydro is likely to rise into the future, because of the escalation of procurement and construction costs (concrete, steel, transport and labour costs, etc.). On the contrary, capital investment costs for solar PV are falling and will continue to fall into the foreseeable future, making PV even more affordable to businesses and households.
Based on the above therefore, the optimal strategic approach should be for VINLEC to implement its feasible hydro projects ASAP, while at the same time facilitating private people to invest in solar PV. And note: when I say facilitate, I’m not referring to VINLEC’s occasional “encouragement” of their customers to invest in PV, which we hear from time to time. That’s not facilitation — that’s lip service. Facilitation requires a whole list of other things to be done, which are not being done (and which also requires a separate article to discuss).
In this regard, consider the statement (see Searchlight, Friday 9th August 2013) from VINLEC that they are stopping PV installations in Bequia “for the immediate future”. This refers to the technical optimization issue, but it also contains a strategic dimension. Because of the capacity-related issues outlined above, there is a natural economic limit for the installation onto the grid of intermittent energy sources such as PV systems. According to VINLEC, this limit has been reached on Bequia. Fair enough, but what’s happening now is that VINLEC itself seems to be doing its best to reach the limit on St Vincent. By heavily investing in solar, VINLEC is not only investing inefficiently, it is also crowding out potential private investment. VINLEC’s approach is preventing, not facilitating, potential investments in PV by businesses and households in St Vincent and its ultimate effect could well be to reduce the overall total of green energy actually implemented – which is contradictory to the desirable strategic objective.
So, the prosaic truth: Far from being economically prudent and progressive, VINLEC’s approach is unsound, short-sighted and appears to be firmly rooted in a 20th-century mindset of command and control. But, look at the bright side. Installing all these solar systems on schools sounds like a good thing. It also has the non-technical advantage of facilitating multiple opening ceremonies, thereby making politicians appear as if they’re actually doing something about the nation’s energy problem.Herbert A (Haz) Samuel, September 2013
The views expressed herein are those of the writer and do not necessarily represent the opinions or editorial position of iWitness News. Opinion pieces can be submitted to [email protected].