Sustainable Energy for Trinidad and Tobago Final Report

Inter-American Development Bank Government of Trinidad and Tobago

23 August 2011

Table of Contents
Executive Summary 1 Introduction 1.1 1.2 1.3 2 2.1 2.2 2.3 2.4 2.5 2.6 2.7 3 3.1 3.2 3.3 3.4 4 4.1 4.2 4.3 Scope of the Assignment Objectives of the Assignment Structure of this Report Trinidad and Tobagos Current Energy Matrix (Power Sector) Institutional Outlines of the Energy Sector Electricity Demand Electricity Supply Regulatory Framework for Electricity Electricity Tariffs Government Initiatives for Promoting Sustainable Energy Summary of Viable Technologies Potential for Energy Efficiency Potential for Renewable Energy Potential for Efficient Generation Recommended Priorities for Sustainable Energy in T&T Comments on the Draft Green Paper Comments on the Framework for the Development of a Renewable Energy Policy 1 1 1 1 3 3 6 8 10 17 19 21 25 25 28 32 35 38 38 43 45

Background to Sustainable Energy in T&T

Potential for Sustainable Energy in Trinidad and Tobago

Preliminary Recommendations and Comments

Appendices Appendix A: Policy Matrix Appendix B: Results Framework Matrix Appendix C: Means of Verification Matrix Appendix D: Monitoring and Evaluation Methodology Appendix E: Cost-Benefit Analysis

Executive Summary
The Inter-American Development Bank (IDB) hired a consulting firm to develop a preliminary assessment of sustainable energy for Trinidad and Tobago (T&T). In the context of this assignment, sustainable energy refers to electric energy efficiency (EE), renewable energy generation (RE), and efficient use of fossil fuels for electricity generation (efficient generation). This executive summary focuses on our preliminary assessment of sustainable energy for T&T; recommended measures for realizing T&Ts sustainable energy potential; and comments on the recent policy initiatives of the Government of T&T (the Government) for promoting sustainable energy. The report also contains an analysis of the power sector in T&T; and documents required by the IDB and the Government to process a Programmatic Policy-Based Loan for the Energy Sector. Preliminary Assessment of Sustainable Energy for T&T The figure below displays a preliminary CO2 abatement cost curve for EE, RE, and efficient generation. The CO2 abatement cost curve shows the cost that each technology requires for abating one additional ton of CO2. The figure identifies viable and non-viable technologiesby viable we mean economically viable, because we compare the technologies against benchmarks that are adjusted to reflect economic cost. Technologies that have a negative abatement cost are viable (they can abate one ton of CO2 emissions while saving money compared to the conventional technologies they displace). Technologies that have a positive abatement cost are not viable (although they can reduce CO2 emissions, they require an additional cost to do so). A few technologies have a positive abatement cost that is lower than the global price of CO2.1 These technologies are viable, but only from a global perspectivethey can avoid emissions at a cost that is competitive with other GHG abatement projects implemented globally. The abatement costs of the technologies shown below are based on a number of simplified assumptions regarding the costs and performance of technologies. Detailed feasibility studies would be required to confirm the viability of each technology. Nevertheless, the abatement cost curve is helpful for identifying the key technologies that may be viable in T&T: There are several viable EE technologiesCompact Fluorescent Lamps, power monitors, magnetic induction street lights, premium efficiency motors, efficient window air conditioning (AC) systems, and variable frequency drives can save electricity at a lower cost than the benchmark electricity tariff. Efficient split AC systems are marginally viable Combined cycle turbines are viablethese turbines can reduce a ton of CO2 emissions at a lower cost than the combined cycle plant that is currently being used for electricity generation in T&T Solar water heaters are the only RE technology that is viabletheir abatement cost is just slightly positive, and lower than the global price of CO2.
1

The figure shows a price of US$16 per tCO2, which is the rounded price of a December 2010 CER (Certified Emission Reduction) as of June 27, 2011 (source: Point Carbon).

Figure 1: CO2 Abatement Cost Curve with RE, EE and Efficient Generation
600 900 1,662 481 308 330 362 392

Abatement Cost, US$/tCO

500 400 300 200 100 2 5 9 81 38

416

Global price of CO: US$16/ton

109 110
134 139

248 212 220 230

278 283

40

0 -100
-200 (2) (38) (23) (70) (50) (97) (80)

Recommended Priorities for Sustainable Energy in T&T Based on our analysis of the potential for EE, RE, and efficient generation summarized above, we draw recommendations for sustainable energy in T&T. These recommendations are preliminary; they should be further refined after a thorough analysis of barriers to sustainable energy in T&T. The rationale for these preliminary recommendations is an understanding of barriers as something that prevents from happening those projects that, according to economic viability, should be happening. Something that does not allow implementing a project that makes no economic sense is not a barrier. We recommend that the Government: 1. Give top priority to promoting energy efficiency, by: Focusing on the largest consumption centersthat is, prioritizing the identification of best options for savings in the industrial sector, then in the residential sector, and then in the commercial sector. Street lights are a lower priority Focusing on key end-useswhen choosing which technologies to focus on, the Government should consider not only the savings cost of EE technologies, but also the relative size of the end-uses that these technologies are operated for Procuring an ESCO for auditing and retrofitting public facilitiesif the Government wants to lead by example, it may start by identifying and implementing savings in the facilities it owns. If these are numerous and large enough, an Energy Services Company (ESCO) could be engaged to audit and retrofit a bundle of facilities Revising the building code so that it mandates EE for new buildings ensuring that new facilities are constructed according to best EE practices is just as important as retrofitting existing onesperhaps even more so, since a new facility will have a long life, and building it according to an appropriate EE standard in the first place will be far cheaper and easier than retrofitting it Reducing fuel subsidies and the tariff distortions they createthe Government should prefer supporting measures that save energy, rather than subsidizing an inefficient consumption of that energy Supporting the financing of EE measuresif there proved to be barriers to access credit for EE projects in T&T, the Government could establish financial instruments to help implement projects Establishing tariffs that allow recovery of investments in EEthe Trinidad and Tobago Electricity Commission (T&TEC) and Independent Power Producers (IPPs) could be given an incentive to invest in EE by being allowed to recover the costs of any such projects, and earn a reasonable return on them too. This would allow power companies to save fuel and earn some additional return although sales of electricity may decrease; and customers to save money on their bills

2. Promoting solar water heating for residential and non-residential uses. Solar water heaters could save the country fuel and money. However, they are not commercially viable under current tariffs. The Governments existing customs and fiscal incentives address this situation by lowering the capital cost of solar water heaters, and are a good measure from a national perspective. Regional experience shows that similar incentives are a very effective tool to increase the uptake of solar water heaters. The Government could also consider including mandatory provisions on installation of solar water heaters in the building code 3. Limit the promotion of other RE technologies to pilot projects and assessments of potential key options, when justified by preliminary analysis, and to those projects that are cost-benefit justified from a national perspective. Comments on the Draft Green Paper The MEEA asked the consulting firm to comment on the latest version of the Draft Green Paper on a National Energy and Minerals Policy (dated July 2011), focusing on those aspects that are related to the scope of our assignment. Having reviewed the Draft Green Paper, we think that: The Draft Green Paper is a great first step towards an energy and minerals policyit has ensured comprehensiveness in policy development (thanks to covering all key subsectors, and all aspects related to the energy sector in T&T in an exhaustive way); and ownership and participation in policy development (thanks to the wide consultations and stakeholder involvement in the process) The next step should condense the Green Paper into a more agile and focused White Paper for guiding T&Ts energy and minerals sector before becoming T&Ts official policy, the Green Paper would transition to a White Paper. This next exercise should turn the National Energy and Minerals Policy into a more agile document, structured and focused on stating: (i) overall policy objectives; (ii) priorities among various objectives; (iii) actions to achieve priorities; and (iv) resources required (human, and financial) for doing so. The Government could do this by: Making the Policy more concise Clarifying priorities and tradeoffs between competing policies and objectives Focusing on creating the right framework for promoting what makes sense, without committing to specific actions that are not supported by analysis Avoiding misrepresenting the competitiveness of RE Clarifying global and local costs and benefits when discussing carbon reduction strategies. Comments on the Framework for the Development of a Renewable Energy Policy The MEEA also asked us to comment on the four measures that the Framework for the Development of a Renewable Energy Policy suggests should be incorporated in T&Ts legal and regulatory framework for the power sector: (i) open access; (ii) feed-in tariffs; (iii) net

metering; and (iv) a renewable portfolio standard.2 Regarding these four potential measures, we think that: Open access network is not a priority or even necessary for promoting RE. There is excess generating capacity in T&T, and no additional capacity is needed to meet demand in the short to medium term. IPPs already exist in T&Ts electricity sector, generate electricity using least-cost technologies, and sell that electricity at a very competitive price. It would be impossible for existing or new IPPs to be competitive with RE generation technologies for the foreseeable future, even if the opportunity cost of gas were considered. It would also be unlikely for any customer to be interested in buying more expensive electricity when there is a choice for cheaper electricity thanks to natural gas Feed-in tariffs for RE should be limited to pilot projects for small-size systems with capped eligibility, and set at avoided fuel cost. There is no need for additional capacity in T&T, and even less for additional capacity that is not least-cost. If the Government really wants to allow the sale of excess power to the grid, it should limit the eligibility of RE systems that may do so, minimizing the impact on cost of service; and pay no more than avoided cost of fuel. Otherwise, customers who do not have a system eligible for feed-in tariffs would end up subsidizing those who do Bidirectional metering should be preferred to net metering for any limited feed-in tariff program. Net metering spins a meter backwards, and does not measure separately quantities of electricity consumed and sold: therefore, under such an arrangement the feed-in tariff for distributed RE generation would be the same as the tariff that T&TEC charges to customers eligible for net metering. Bidirectional meters, on the other hand, allow measuring separately electricity consumed (for applying to that the retail tariff) and sold (for applying to that a feed-in tariff at avoided cost) A renewable portfolio standard would be a premature and unwise measure. Setting national targets for RE generation would make no economic sense given that no additional capacity is needed in the short-medium term; RE technologies are not cost-competitive in T&T; and no RE resource has actually been assessed in T&T. A renewable portfolio standard would certainly (and easily) promote RE, but certainly not in the interest of the country, since it would increase costs with unnecessary infrastructure built for the sake of meeting obligatory targets.

Renewable Energy Committee (January 2011). Framework for the Development of a Renewable Energy Policy for Trinidad and Tobago. Pages 30-31.

Acronyms and Abbreviations

AC ADO Bcf CFL CNG CO2 EE GHG IDB IPP LNG LRMC MMBtu MEEA NG NGC O&M PBL PV RE REC RIC TT$ T&T T&TEC US$ Exchange rate Air Conditioning Automotive Diesel Oil Billion Cubic Feet Compact Fluorescent Lamp Compressed Natural Gas Carbon dioxide Energy Efficiency Greenhouse Gas Inter-American Development Bank Independent Power Producer Liquefied Natural Gas Long Run Marginal Cost Million British Thermal Unit Ministry of Energy and Energy Affairs Natural Gas National Gas Company Operation and Maintenance Policy-Based Loan Photovoltaic Renewable Energy Renewable Energy Committee Regulated Industries Commission Trinidadian Dollar Trinidad and Tobago Trinidad and Tobago Electricity Commission United States Dollar 1 TT$ = 0.157 US$ (July 2011)3

Source: XE Universal Currency Converter; 11 July2011 www.xe.com/ucc.

Introduction

The Inter-American Development Bank (IDB) hired a consulting firm to develop a preliminary assessment of sustainable energy for Trinidad and Tobago (T&T). This document represents the Final Report for this assignment. Below we define the scope of the assignment (1.1); present its objectives (1.2); and describe the structure of this report (1.3).

1.1

Scope of the Assignment

In the context of this assignment, sustainable energy refers to energy efficiency (EE), renewable energy (RE), and efficient use of fossil fuels for electricity generation (efficient generation). Consistent with the Work Plan submitted on 17 May 2011, this assignment focuses on the power sector. It does not address sustainable energy in the transportation sector (where the Government is already considering measures such as conversion of vehicles to compressed natural gas). It also does not address measures that mitigate greenhouse gases (GHGs) in all other sectors (another, separate operation is being prepared by the IDB and the Government, focusing specifically on climate change).

1.2

Objectives of the Assignment

The general objective of this assignment is to support the preparation of a first programmatic policy-based loan (PBL) by the IDB to the Government. The specific objectives of the assignment are: To conduct a preliminary assessment of the potential for EE, RE, and efficient generation in T&Ts power sector To conduct a broad estimateconsistent with the requirements of PBL preparationof costs and benefits of viable interventions To recommend preliminary measures that may help the T&T Government attain the countrys sustainable energy potential.

1.3

Structure of this Report

Section 2 provides background information on the power sector in T&T, including a brief description of T&Ts energy matrix, institutional responsibilities in the sector, electricity demand and supply, an overview of the regulatory framework, electricity tariffs, and initiatives to encourage sustainable energy Section 3 evaluates the potential for sustainable energy in T&T. It provides a preliminary assessment of the viability of EE, RE, and efficient generation technologies in the country Section 4 comments on the Governments recent initiatives on sustainable energy policy, and recommends a few measures that the Government may want to consider to realize T&Ts sustainable energy potential.

The remainder of this report includes the following three sections:

This Report also contains five appendices, which represent the documents required by the IDB and the Government to process a Programmatic PBL for the Energy Sector: Appendix A contains the policy matrix discussed by the Government and the IDB Appendix B contains the results framework matrix Appendix C contains the means of verification matrix Appendix D contains the Monitoring and Evaluation Methodology Appendix E contains a Cost-Benefit Analysis of a Sustainable Energy Program that would increase the uptake of viable EE measures and solar water heaters in T&T.

Background to Sustainable Energy in T&T

This section provides background information on the power sector in T&T, as a basis for the preliminary assessment of, and recommendations for, sustainable energy in the country. We begin (2.1) by describing T&Ts current energy matrix for the power sector, showing the flow of electricity from its production to its final use. We continue (2.2) by outlining the institutional responsibilities of the sector. Then, we analyze electricity demand (2.3) and supply (2.4)including current generation capacity and plant dispatch to meet demand, costs of electricity generation, system efficiency, and related CO2 emissions. After that, we examine the regulatory framework for electricity (2.5), and electricity tariffs in the country (2.6). We conclude this background section by describing the initiatives that the Government has taken to date for promoting RE, EE, and efficient generation (2.7). Unless otherwise specified, the source of information presented in this section is a recent study on the energy sector in T&T, commissioned by the IDB in March 2011.4

2.1

Trinidad and Tobagos Current Energy Matrix (Power Sector)

Figure 2.1 below shows primary energy sources, transformation of energy into electricity, and final uses of electricity by customer categories in T&Ts power sector, using 2010 data. 2.1.1 Primary Energy Sources Almost all electricity is generated from natural gas, and a minimum share is generated by diesel oil. The contribution of RE generation is negligible, being limited to a few microscale systems (solar photovoltaic (PV), and wind turbines, not connected to the grid) and a few solar water heating systems. T&T produces all the natural gas and diesel oil it uses for electricity generation. Natural gas T&Ts proven reserves of natural gas were estimated at 14,416 Billion cubic feet (Bcf) at the end of 2009. Probable reserves were estimated at 7,837Bcf, and possible reserves at 5,983Bcf. T&T produced 1,496Bcf of gas in 2010. The countrys natural gas proven reserves-to-production ratio is currently estimated at 9.6 years. However, using the total proven, probable, and possible reserves (3P), the R/P ratio is 18.9 years.5 About 58 percent of T&Ts natural gas production in 2010 was exported as Liquefied Natural Gas (LNG). 35 percent was used for petrochemical manufacturing (mainly methanol, ammonia, iron, and steel). The remaining 7 percent of natural gas produced was used to generate electricity.6 The total volume of natural gas used for electricity generation in T&T was 116,449TJ in 2010.7 This was used to generate about 98 percent of T&Ts electricity in gas turbines (total installed capacity 1,439MWone gas turbine was using diesel

Meister Consultants Group (March 2011). Technical Assistance to Support the Government of Trinidad and Tobago in the Energy Policy Public Consultation. It should also be noted that excluding gas-based export products such as ammonia, methanol and LNG, natural gas produced for energy use and domestic manufacturing represents 12 percent of total production. Renewable Energy Committee (January 2011). Framework for Development of a Renewable Energy Policy for Trinidad and Tobago. p.14. Regulated Industries Commission (2011).

oil as a temporary fuel until the commissioning of a natural gas pipeline in 2011), and one combined cycle turbine (236MW).8 Figure 2.1: T&Ts Current Energy Matrix Power Sector (2010)
Primary Energy Sources
98% natural gas, 2% diesel Gas turbines 1,439MW Nat. Gas 32,373GWh

Transformation of Energy
8,739GWh Generation losses ~254GWh

Final Use of Energy

8,485GWh 7% T&D Losses 580GWh

CC Gas turbines 236MW

MSD 22.1MW Gas Turbine (Tobago) 64MW Micro-scale RE systems ~2MW?

1% Electricity (grid) 8,845GWh 60%

Street lighting 110GWh

Diesel fuel 592GWh

Industrial 4,765GWh

Wind Solar PV Solar water heating

Electricity (selfgeneration) n/a Thermal energy (self-generation) n/a

10%

Commercial 766GWh

29%

Residential 2,263GWh

Source: Regulated Industries Commission Note: To estimate generation losses, we assume that gross generation is three percent in excess of net generation. In 2011, T&TEC switched the 64MW gas turbine in Tobago to use natural gas.

Natural Gas prices for electricity generation are lower than prices of natural gas sold to commercial and large industrial export manufacturing plants in T&T, and do not reflect opportunity cost. Natural gas is sold to the Trinidad and Tobago Electricity Commission (T&TEC, the transmission and distribution utility) at about US$1.18 per MMBtu (million British Thermal Units).9 In contrast, we estimate that the opportunity cost of natural gas in T&T (using exported LNG as a benchmark) would be about US$3 per MMBtu. This rough estimate (a preliminary one, to be used only for purposes of this study) is based on using the average netback price at the wellhead for 2010 (representing the price of gas exported, net of costs incurred in transportation to destination, liquefaction, storage, and gasification), which was US$2.66 per MMBtu;10 and adding the transportation cost of natural gas within T&T, which is estimated at about US$0.30 per MMBtu.11 The total (rounded to US$3 per MMBtu) would represent the opportunity cost of natural gas in T&T. Using this opportunity cost
8 9

Regulated Industries Commission (2008). http://www.ric.org.tt. Price for January 2011, provided by the Regulated Industries Commission. Ministry of Energy and Energy Affairs (June 2011). The National Gas Company (NGC) advises that, although there is no explicit gas transportation tariff (since this is rolled into the delivered price of gas), an implicit one for non-LNG gas may be estimated. A very preliminary estimate is in the range of US$0.08-0.30 per MMBtu, based on the cost of operating the pipeline and the throughput. We use the higher end of the estimated range.

10 11

and the price that T&TEC currently pays (US$1.18 per MMBtu), we estimate that in 2010 the total revenue foregone by the country on gas prices for electricity generation amounted to about US$195.7 million.12 Oil In 2007 T&Ts proven oil reserves were estimated at 605.8 million barrels; probable reserves at 334 million barrels; and possible reserves at 1,560 million barrels. In 2010, the country produced about 100,068 barrels of oil per day. About 20 percent of this oil is consumed in the countrys domestic and transport sector as LPG, Avjet, gasoline, and diesel. Natural gas is used almost exclusively as fuel for power generation, except as backup fuel during very infrequent short periods when there may be a temporary problem in gas supply or transmission operations. The price of locally consumed transportation fuels is determined by the Ministry of Energy and Energy Affairs (MEEA). Current retail prices of fuels are as follows: TT$1.50 (US$0.24) per liter for diesel and kerosene TT$2.70 (US$0.43) per liter for super gasoline TT$4.00 (US$0.63) per liter for premium gasoline. Every month, the MEEA monitors the total subsidy by calculating the difference between the international market price (as determined from international market prices), and the approved retail price for each of these products. The MEEA determines the retail price as the ex-refinery price plus fees for filling and handling charges, an excise tax, and a fixed margin for fuel wholesalers and retailers. Petrotrin is an integrated state-owned oil company in charge of exploration, production, refining, and marketing. The government provides a subsidy based on the difference between the Caribbean posted price, and the ex-refinery price for the local market. The subsidy amounted to more than US$630 million in 2008, and US$210 million in 2009. Part of the cost of this subsidy is recovered through the Petroleum Levy, applicable to the larger oil producers, which amounts to a cap of four percent of the monthly revenues of oil producers. Renewable energy sources T&T benefits from good solar radiation (about 4.8 kWh per square meter per day). However, penetration of solar technologies is limited in the country. There are a few off-grid solar PV systems for remote rural households, telecommunications, and oil and gas platforms. Solar PV cannot compete with electricity sold through the grid. Solar water heating amounts to only about 100 units installed in the residential sector, and about 15 in the commercial sector. There are also a few solar water distillation and solar pool heating systems. According to meteorological data, T&T also has wind energy resources, but there is no information available on their actual quantity and quality for the specific purposes of power generation. The MEEA plans to commission a wind energy assessment in 2011. Wind energy
12

We estimate this by converting the total volume of gas used for electricity generation in 2010 (116,449 TJ) to MMBtu, using a conversion factor of 0.9478 MMBtu per GJ, and then multiplying this number (110,393,747 MMBtu) by the difference between the current price of gas (US$1.18 per MMBtu) and opportunity cost of gas (US$3 per MMBtu).

applications are limited to a few small-scale pilot projects with an installed capacity ranging from 300W to 2kW, and boat-mounted off-grid systems no larger than 1kW. 2.1.2 Transformation of energy In 2010 total (net) electricity produced from the gas turbines, and combined cycle and medium speed diesel plants, amounted to about 8,485 GWh. Lacking information on gross generation, we assume that gross generation in 2010 was three percent higher than net generation. This is equivalent to 8,739 GWh of gross generation, and 254 GWh of generation losses. 2.1.3 Final use of electricity Figure 2.2 shows the final use of electricity provided in T&T in 2010. During that year, residential, commercial, and industrial customers consumed 29 percent, 10 percent and 60 percent of the 8,485 GWh supplied to the grid, respectively. Electricity losses accounted for about 7 percent of the electricity provided, and about 1 percent of the electricity was used for street lighting. Figure 2.2: Final Use of Electricity, 2010
1% 7% 29%

Residential
Commercial Industrial Street lighting 10% 60% Losses

Source: RIC.

2.2

Institutional Outlines of the Energy Sector

This section provides an overview of the main institutions involved in energy policy, the electricity sector, and the oil and gas sector. Energy Policy The Ministry of Energy and Energy Affairs (MEEA) is responsible for formulating energy policy. The MEEA includes a Sustainable Energy Department. The MEEA is currently preparing a National Energy and Minerals Policysection 2.7.1 provides more information on this document, which is currently at the stage of draft Green Paper. In 2008, the MEEA also created a Renewable Energy Committee (REC) to develop a Framework

for the Development of a RE Policy for T&T, and to assess current RE applications and research activities; identify viable RE technologies; and set targets and timeframes for introducing RE in T&Ts energy mix. The REC released a report in January 2011section 2.7.2 provides more information on this report. The REC is chaired by a member of the MEEA (currently the Director of the Energy Research and Planning Division), and includes eight other members from various government departments, sector stakeholders, and academics.13 Electricity Sector The Trinidad and Tobago Electricity Commission (T&TEC) is the state-owned utility responsible for the design, construction, operation, and maintenance of T&Ts transmission and distribution network. T&TEC is also in charge of power system planning for the entire country. Finally, T&TEC also generates all of the electricity on the island of Tobago. T&TEC was once a vertically integrated utility, with a monopoly on generation, transmission, distribution of electricity in the country. In 1998, T&TEC divested its generation assets to the Power Generation Company (PowerGen), an Independent Power Producer (IPP) owned by Marubeni TAQA Caribbean (39 percent of shares) and Amoco Trinidad Power Resources Corporation (10 percent of the shares), with T&TEC retaining 51 percent of the shares. T&TEC buys all electricity generated by PowerGen, as well as all electricity generated by another IPP, Trinity Power Limited (Trinity). A third IPP company, Trinidad Generation Unlimited (a joint venture between AES Corporation and Union Estate Electricity Generation Company Limited (UEEGCL)), is completing the installation of a 720MW combined cycle plant. This plant was intended to provide power for T&TEC and an aluminum smelter project (Alutrint), which has now been cancelled. The Regulated Industries Commission (RIC) is responsible for regulating T&TECs electricity tariffs and cost recovery. Section 2.5 provides information on electricity sector regulation and the role of the RIC. Oil and gas sectors The MEEA is responsible for the overall management and regulation of oil and gas, as well as electricity generation, and the mineral sector in T&T. Petrotrin is a state oil company, and the main producer of oil in T&T. It produces jet fuel, kerosene, diesel, liquefied petroleum gas, gasoline, and fuel oil at its refinery in Pointe-aPierre, which has a capacity of 150,000 barrels per day (this is more than the countrys crude oil productionPetrotrin imports and refines crude oil from other countries too). Other major oil companies in Trinidad include BHP, Repsol, and bpTT; there are ten other smaller oil companies. The National Gas Company (NGC), a state-owned company, is the owner of the natural gas transmission systems in T&T. It is responsible for operating and maintaining the transmission systems, as well as for pricing natural gas. NGC purchases all of the gas produced in T&T that is not exported, under take-or-pay contracts with the different producers. NGC sells the natural gas to T&TEC, the petrochemical industries, and other users under different pricing methodologies; from product-related pricing to base price with fixed annual escalators. The National Energy Corporation (NEC) is a subsidiary of the
13

Renewable Energy Committee (January 2011). Framework for Development of a Renewable Energy Policy for Trinidad and Tobago.

NGC, with responsibility for developing and managing industrial estates and port and marine facilities for the gas-based energy sector.14 The NEC is also responsible for encouraging and supporting large gas-based and other industries. T&TEC purchases all gas required for power generation from the NGC, and supplies it to generators for conversion into electricity.15

2.3

Electricity Demand

In this section, we provide an overview of current and projected electricity demand in T&T. 2.3.1 Peak demand Figure 2.3 below shows peak demand between 1994 and 2010, and projected peak demand from 2011 to 2020. Figure 2.3: Peak Demand Growth in Trinidad and Tobago
2,000 1,800 1817

1,600
1,400 1,200 1,034 1287 1222

MW

1,000 800

607

600
400 200 -

Actual

Projected (average growth rate 4%)

Note: The 2009 data point represents peak demand as recorded during September 2009. Peak demand between 2004 and 2009 is derived by calculating the average increase in capacity between 2004 and 2009 (21.75 MW), and adding this capacity every year between 2004 and 2009. Source: Regulated Industries Commission (2010-2020 data points); Energy Consulting Team (2010). Draft Final Report on Energy Pricing in CARICOM States Submitted to Caricom Secretariat and Inter-American Development Bank (2009 data point). Meister Consultants Group (March 2011). Technical Assistance to Support the Government of Trinidad and Tobago in the Energy Policy Public Consultation (1994-2004, 2008 data points)

14 15

National Energy Corporation website (last accessed 20 May 2011). http://www.nec.co.tt/html/NECprofile.htm. Communication with the Regulated Industries Commission (2011).

1994 1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018 2019 2020
8

The peak demand shown between 2004 and 2009 is estimated, due to unavailability of data. Peak demand grew steadily between 1994 and 2004 at around 5 percent per year. Peak demand in 2010 was 1,222MW. T&TEC has projected peak demand to grow from 1,287MW in 2011 to about 1,817 MW in 2020, at an average growth rate of 4 percent per year. 2.3.2 Consumption of electricity Figure 2.4 shows the trends in electricity consumption between 1998 and 2010, broken down between residential, commercial, and industrial customers; and street lighting. Figure 2.4: Electricity Consumption by Customer Type
9,000 8,000
Average growth rate: 5% per year

7,000
6,000
GWh

5,000 4,000 3,000 2,000 1,000

1988 1989 1990 1991 1992 1993 1994 1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010
Residential Street Lighting Commercial Industrial
Source: Figures from T&TEC provided in: Meister Consultants Group (March 2011). Technical Assistance to Support the Government of Trinidad and Tobago in the Energy Policy Public Consultation. 2009 and 2010 figures provided by RIC.

Total electricity consumption grew steadily at a rate of 5 percent per year from 1988 to 2010 (from 2,967 GWh to 7,905 GWh), and industrial and residential customers accounted for most of this growth. Table 2.1 below shows customer numbers, total consumption, and average consumption for each customer category in 2010.

Table 2.1: Customer Numbers and Average Consumption by Customer Class (2010)
Customer Class Residential Commercial (B and B1) Industrial Street lighting Total Number of Customers 373,451 38,177 3,119 49 414,796 Total Consumption (kWh) 2,263,010,176 766,235,027 4,765,272,280 110,495,243 7,905,012,726 Average Monthly Consumption per Customer (kWh) 505 1,673 127,318 187,917 -

Source: Regulated Industries Commission (2011) Note: Customer numbers represent numbers as of September 2010.

2.4

Electricity Supply

This section presents information on electricity supply in T&T. The section first examines generation capacity, dispatch, and generation costs. It then presents information on current fuel consumption levels for electricity generation, system losses, and CO2 emissions from electricity generation. 2.4.1 Generation Capacity Table 2.2 below shows T&Ts current generation capacity operated by the different IPPs and T&TEC. The table indicates the installed capacity, fuel type used, and heat rate of each plant. The total capacity is 1,761MW. It consists of 1,503MW of gas turbines (1,439 MW running on natural gas; plus a 64MW gas turbine that was running on diesel until 2011); 236MW of combined cycle turbines; and a 22.1 medium speed diesel plant. In addition, a new combined cycle plant of 720MW is currently being constructed, as mentioned in section 2.2. This plant is expected to be commissioned in three phases: 225MW of simple cycle gas turbines by September 2011, another 225MW of simple cycle gas turbines by December 2011, and two steam turbines (135MW each, for combined cycle) by mid-2012. Powergen is expected to decommission 77MW of its existing capacity located at Point Lisas, once all of TGUs new units are operational in mid-2012. Powergen is also expected to decommission further 118MW in 2014. No other plans for decommissioning power plants were reported.16 Reserve margin Generation capacity is built to meet peak demand and to ensure that sufficient electricity can be generated to meet electricity consumption needs over a given period. A standard measure of the ability of generation capacity to meet peak demand is the reserve capacity margin. The reserve capacity margin is calculated as the generation capacity less peak demand, and then divided by peak demand. Most electricity systems target a reserve capacity margin of at least 15 percent to ensure that the system can withstand unplanned outages during periods of
16

T&TEC (2011).

10

peak demand. T&TEC has stated that it targets a minimum reserve capacity margin of 25 percent (based on loss of load probability model17). Table 2.2: Generation Plant in Trinidad and Tobago (2011)
Name of company T&TEC Type of plant Medium speed diesel Gas turbines Gas turbines PowerGen Gas turbines Gas and steam Combined cycle Trinity Power Ltd Total current capacity TGU (not commissioned) Total (with new plant) Combined cycle Union Estate Gas turbine Location Tobago Tobago (Cove) Point Lisas Point Lisas Port of Spain Penal Couva Installed capacity, MW 22.1 64 629 210 300 236 300 1,761.1 720 2,481.1 NG 7,500*** Fuel type ADO ADO/NG** NG NG NG NG NG Heat rate* (kJ/kWh) 10,832 8,707 16,944 12,711 14,377 11,416 13,194

Note: NG = Natural Gas; ADO=Automotive Diesel Oil; *Figures from 2011; **This plant was running on diesel oil, but was switched to use natural gas in 2011; ***Estimate provided in the Regulated Industries Commission (2006) Final Determination (Rates and Miscellaneous Charges). June 2006-May 2011 Source: Regulated Industries Commission

As of July 2011, the estimated reserve capacity margin in T&T was around 37 percent (assuming a peak demand of 1,287 MW and a total capacity of 1,761 MW). In 2012, once all of TGUs new combined cycle plant is operational and Powergen has decommissioned 77MW of its existing plant, the reserve capacity margin will increase to 75 percent, assuming a peak demand of 1,317 MW in 2012. The reserve margin is expected to decrease to 53 percent in 2014, once Powergen decommissions another 118MW of its existing plant (assuming a peak demand of 1,497MW). While T&T has traditionally aimed at maintaining a high reserve capacity margin, the addition of TGUs combined cycle plant to the system will mean that there will be excess capacity on the system (rather than just a high reserve margin), because the expected electricity demand from the aluminum smelter project will not occur. Assuming that peak demand grows at an average annual rate of 4 percent, T&Ts existing and planned capacity (given the new combined cycle plant and the retirement of some of Powergens units) should be sufficient to maintain a reserve margin above 25 percent until 2020. Therefore, assuming that T&TEC wants to maintain a reserve margin of 25 percent, there would be no need to add new generation capacity to the system until 2020.

17

Insular countries typically use targets for firm capacity. Firm capacity is the remaining capacity available when the largest unit fails while the second largest unit is unavailable for scheduled maintenance. This is commonly referred to as N2given N generating units with the unavailability of two units through failure or maintenance, the remaining capacity constitutes firm capacity.

11

Renewable energy capacity T&T has no utility scale RE generation capacity. RE generation in T&T is limited to a few small solar PV and wind systems installed by households, some small businesses, and experimental systems located at Government facilities. None of these systems are connected to the grid. Table 2.3 below shows the types of RE applications currently installed in T&T, their approximate number, and their approximate size. Table 2.3: Number, Size, and Application of Small RE Systems in T&T
Type of application Residential (rural) PV Telecommunications PV Oil and gas platforms PV Telemetry/SCADA PV Navigational aids PV Residential solar water heater Commercial solar water heater Solar water distillation Solar pool heating Residential wind systems Wind/PV systems on yachts Commercial wind/PV systems
Source: MEEA (2011)

Approx. number of systems 150 40 >50 300 100s 100 15 30 25 5 100s 5

Size/capacity range 60W 5.1kW 500W 2kW 60W 3kW 10W 2kW 5W 250W 30 120 Gal 120 1600 Gal 2 45 litres/day 96 650 square feet 300W 1kW 300W 1kW 0.6 2kW

Using these figures, we estimate that the total capacity of small RE systems installed in T&T is about 1MW. To estimate the total installed capacity of small PV and wind energy systems, we multiply the number of each type of application by the median system size. We assume that there are about 70 oil and gas platforms PV systems, and 200 navigational aids PV systems. We estimate that there is also about 1MW of solar water heaters installed in T&T, in total. To derive this estimate, we assume that the average capacity of systems installed in the residential sector is 2kW, and the average size of systems installed in the commercial sector is 50kW, and multiply these by the number of systems in each sector. We do not estimate the total capacity of solar water distillation and solar pool heating. 2.4.2 Plant Dispatch and Generation In 2010, the combined cycle plant in Penal generated close to 16 percent of total electricity, the simple cycle gas turbines generated about 84 percent of total electricity, and the medium

12

speed diesel plant located in Tobago contributed to less than 1 percent of total electricity generation.18 2.4.3 Costs of Power Generation In this section we estimate the long-run marginal cost (LRMC, also referred to as all-in cost of generation) for the different types of plant installed in T&T. All-in generation costs include: capital costs; fixed operation and maintenance (O&M) costs; variable O&M costs; fuel costs; and major maintenance. We then estimate the operating (short-run) cost of generation in T&T. Operating costs include fuel costs, and variable O&M costs. Operating costs are typically used for making day-to-day decisions for plant dispatch. We base our calculations on 2010 data provided by the RIC on the heat rates of existing plants, and the following assumptions: Capital costs equal to US$1.1 million per MW for large combined cycle gas turbine plants; and US$0.855 million per MW for simple cycle gas turbine plants19 Pre-tax Weighted Average Cost of Capital (WACC) of 15 percent20 Inflation in T&T of 10.5 percent21 Tax rate of 25 percent22 Price of natural gas sold to T&TEC of US$1.18 per MMBtu, and an estimated opportunity cost of about US$3 per MMBtu. All-in costs of generation (current price of natural gas) Figure 2.5 below shows the all-in generation cost of existing simple cycle and combined cycle plants in T&T, as well as the cost of a new combined cycle plant (such as the one that TGU is currently installing), at the price of gas paid by T&TEC of US$1.18 per MMBtu. The figure does not show the cost of the medium speed diesel plant, because the role of this plant is negligibleless than one percent of T&Ts electricity, for stand-by; for reference, we estimate the all-in generation cost of the medium speed diesel plant at around US$0.07 per kWh, given the current retail diesel price (US$0.06 per liter).
18 19

Regulated Industries Commission (2011). Based on figures for simple cycle and combined cycle plants in Barbados. Note: we assume that the capital, fixed and variable O&M costs of the existing combined cycle plant are the same as the costs of a new combined cycle plant, given unavailability of data on the specific costs of the existing combined cycle plant in T&T. Assuming a 30 percent equity proportion with a cost of equity of 15 percent, and a 70 percent debt proportion with a cost of debt of 15.6 percent (assuming a risk-free rate of about 8 percent, country debt premium of 2.25 percent, and corporate debt premium of 5.4 percent), and rounding down to 15 percent. Source: Damodaran (2011) Country Default Spreads and Risk Premiums http://pages.stern.nyu.edu/~adamodar/New_Home_Page/datafile/ctryprem.html; Central Bank of T&T (2011) Economic Bulleting January 2011 http://www.centralbank.org.tt/pdf/Public%20Education%20Pamphlets/The%20government%20Securities%20market%20in%20Trinidad %20&%20Tobago.pdf; Trading Economics (2011) Risk Premium on Lending in T&T http://www.tradingeconomics.com/trinidad-and-tobago/risk-premium-on-lending-prime-rate-minus-treasury-bill-ratepercent-wb-data.html. This corresponds to the average annual inflation rate in 2010. Source: Central Bank of T&T (2010) Annual Economic Survey. Corporation Tax on Chargeable Profits Source: Government of Trinidad and Tobago - Ministry of Finance, Inland Revenue Division; http://www.ird.gov.tt/load_page.asp?ID=78 (Last accessed 27 May 2010).

20

21

22

13

Figure 2.5: All-in Cost of Generation of Plants (Current Price of Natural Gas)
6 5
4.64 4.91 4.45 1.28 1.62

US/kWh

4 3

0.82

2
3.07 3.07

1 0

2.35

Simple cycle Capital Costs Fixed O&M Costs

Combined cycle Variable O&M Costs Fuel costs

New combined cycle Major maintenance

Note: Figures based on fuel cost of US$1.18 per MMBtu for natural gas, and US$0.06 per liter for diesel Source: RIC (2011); Consulting Firm

Figure 2.5 shows that the cheapest form of generation capacity are currently the simple cycle gas turbines. Given the current price of natural gas to T&TEC of US$1.18 per MMBtu, the average LRMC of these plants is US$0.046 per kWh (weighted average based on 2010 actual generation by plant). Using the assumptions presented above, the current low gas prices paid by T&TEC appear to distort the comparative LRMCs of simple and combined cycle plants. Existing combined cycle plants show a slightly higher LRMC than simple cycle onesaround US$0.049 per kWh. Combined cycle plants are more efficient than simple cycle ones, and therefore have a lower fuel costUS$0.0128 as opposed to US$0.0162, respectively. However, combined cycle plants have a higher capital cost. Because the current price of gas to T&TEC is very low, the higher efficiency of combined cycle plants marginally affects their total fuel cost, and the difference may not be enough to compensate their higher capital cost. All-in costs of generation (opportunity cost of natural gas) Figure 2.6 below shows the LRMC of existing simple cycle and combined cycle plants, as well as that of a new combined cycle plant in T&T, given an opportunity cost of natural gas of about US$3 per MMBtu (estimated opportunity cost). As noted above, to derive this preliminary estimate to be used within this study, we use the 2010 average netback price of natural gas at the wellhead (US$2.66 per MMBtu)23, and add an estimated cost of transporting natural gas in T&T (based on a preliminary estimate of US$0.30 per MMBtu). The figure shows that, when accounting for the price of natural gas at opportunity cost, the all-in cost of combined cycle plants is lower than the average cost of existing simple cycle gas turbines. Simple cycle gas turbines would have an all-in cost of about US$0.071 per kWh; existing combined cycle, US$0.068 per kWh; and new combined cycle, US$ 0.057 per kWh.
23

Ministry of Energy and Energy Affairs (2011)

14

Figure 2.6: All-in Cost of Generation of Plants (Opportunity Cost of Natural Gas)
8
7.06

6.83
5.68

7 6

US/kWh

5
4 3 2 1

4.05

3.20 2.05

2.35

3.07

3.07

0
Simple cycle gas turbine (average) Capital Costs Fixed O&M Costs Combined cycle Variable O&M Costs Fuel costs New combined cycle Major maintenance

Note: Figures based on natural gas price of US$2.96 per MMBtu Source: RIC (2011); Consulting Firm.

Operating cost of generation The different types of generation capacity installed in T&T have different cost and operating characteristics. In the previous section, we find that when examining all-in costs of generation under the stated assumptions, the simple-cycle gas turbines seem to represent the cheapest form of generation (given current low gas prices paid by T&TEC). However, dayto-day decisions for plant dispatch are typically based on short-run costs, which include fuel costs, and other variable O&M costs incurred when each plant is operated. To minimize costs, plants with the lowest short-run cost should be dispatched first, and plants with higher short-run costs should be dispatched as demand increases. Combined cycle plants have the lowest short-run costs in T&T. Based on a price for natural gas of US$1.18 per MMBtu, we estimate a short-run marginal cost of around US$0.018 per kWh for the existing combined cycle plant and US$0.013 per kWh for a new combined cycle plant, compared to an average short-run marginal cost of US$0.022 per kWh for simple cycle gas turbines. Using these figures, we estimate the operating cost of generation in T&T. We estimate it as a weighted average based on the operating cost of generation of each type of plant, multiplied by its contribution to total electricity generation in 2010 (as shown in section 2.4.2). Adding all of these costs gives an operating cost of generation for the system of US$0.02 per kWh. The operating cost of generation in T&T is considerably lower than that in other Caribbean countries. For example, operating costs in Barbados were about US$0.15 per kWh in 2008; the 2011 operating cost in Jamaica is around US$0.18 per kWh.24 This is because T&T uses mostly natural gas for electricity generation (whereas oil constitutes the main fuel for

24

The onsulting firm estimates based on data provided by Barbados Light and Power, and Jamaica Public Service Company.

15

electricity generation in other countries), and because the price of natural gas paid by T&TEC for electricity generation is low. We estimate that, with gas prices estimated at opportunity cost, short-run costs would rise to US$0.05 per kWh for simple cycle gas turbines, US$0.04 per kWh for existing combined cycle turbines, and US$0.03 per kWh for new combined cycle turbines. The operating cost of generation for the entire system would be about US$0.05 per kWh. As explained above, we estimate the operating cost of generation for the system as a weighted average based on the operating cost of generation of each type of plant (with opportunity cost of gas prices), multiplied by its contribution to total electricity generation in 2010. 2.4.4 System losses System losses represent the difference between net electricity generated, and electricity billed to customers. In 2009, the Regulated Industries Commission reported that system losses in T&T were 6.14 percent.25 System losses increased to 6.8 percent in 2010.26 2.4.5 Growth in CO2 emissions T&Ts emissions have increased steadily over the past few years, from 18.17 million metric tons of carbon dioxide (CO2) in 2003 to 23.40 million metric tons in 2007. In 2007, the power generation sector accounted for 28 percent of total emissionsthe second largest source of emissions after the petrochemicals industry (56 percent of total emissions).27 Carbon dioxide emissions from the energy sector were reported to increase by 278 percent over the period 1990 and 2006, including an increase in emissions from electricity generation of 43.4 percent.28 Figure 2.7: Comparison between Electricity Consumption and CO2 Emissions
30 25 20 15 10 5 0 2003 2004 2005 Year 2006 2007 2008 8,000

Electricity Consumption (GWh)

7,000 6,000

Metric Tons

5,000 4,000
GWh

CO2 Emissions (Metric Tons)

3,000
2,000

1,000
-

Source: Meister Consultants Group (March 2011). Technical Assistance to Support the Government of Trinidad and Tobago in the Energy Policy Public Consultation; Boodlal, D.; Furlonge, H.I.; Williams, R. (University of Trinidad and

25

Regulated Industries Commission (2008). Quality of Service Standards Annual Performance Report 2008 Electricity Transmission and Distribution Sector. p.16. Figure derived from data on net electricity generation and total electricity sales in 2010, provided by RIC. Boodlal, D.; Furlonege, H.I.; Williams, R. (University of Trinidad and Tobago, 2008). Trinidad and Tobagos CO Inventory and Techno-Economic Evaluation of Carbon Capture Options for Emission Mitigation. Government of the Republic of Trinidad and Tobago (2009). Draft National Climate Change Policy for Trinidad and Tobago. p.7 and 8.

26 27

28

16

Tobago, 2008). Trinidad and Tobagos CO Inventory and Techno-Economic Evaluation of Carbon Capture Options for Emission Mitigation.

Figure 2.7 above compares total CO2 emissions with electricity consumption between 2003 and 2008. Emission levels tracked electricity consumption over the periodwith an average annual growth rate of total emission levels of 7 percent over the period, compared to 6 percent per year for electricity consumption.

2.5

Regulatory Framework for Electricity

The RIC is responsible for regulating the supply of electricity in T&T. The RIC is a statutory body established under the Regulated Industries Commission Act, No. 26 of 1998 to replace the Public Utilities Commission, its predecessor. The first Board of the RIC was appointed in 2001. The RIC Act specifies that the RIC is to: Review the principles for determining rates and charges for services every five years or, where the licence issued to the service provider prescribes otherwise, at such shorter interval as it may determine29 Every five years the RIC sets the maximum tariffs, and sets a methodology for determining the maximum prices that T&TEC can charge for its services. The RIC is also responsible for carrying out studies of efficiency of operation and performance by service providers, and taking these studies into account when setting the maximum tariffs. 30 Section 67 of the RIC Act requires that, when setting out the methodology for determining maximum prices, the RIC also take into account the funding and ability of the service provider to perform its functions, and the ability of consumers to pay rates. The RIC issued its last tariff determination in 2006 for the period from June 01, 2006 to May 31, 2011. It is currently working on another determination, which should be issued around October 2011, and for which T&TEC filed a submission in July 2011, asking for a 21 percent increase in tariffs across the board. T&TEC has reportedly been unable to cover its costs over the past decade. The companys annual return decreased from 16 percent in 2003 to -2.2 percent in 2007. This performance is mostly due to rates being set below cost recovery levels (only 90 percent of fuel costs are passed on to customers through tariffs, as explained below), and non-generating expenses growing faster than electricity sales. Licensing and third party provision Section 37 of the RIC Act provides that: No entity shall render a service to or for the use of any other person or service provider except with the authority of a licence31 The RIC Act also specifies that:

29 30 31

Regulated Industries Commission Act; Chapter 54:73. Section 48, Part V Rates and Tariffs Regulated Industries Commission Act; Chapter 54:73. Section 67 Regulated Industries Commission Act; Chapter 54:73. Section 37, Part IV Licences

17

The Minister [of Public Utilities] may [] grant to the applicant, a licence in the prescribed form for the provision of a service. and that: The [Regulated Industries] Commission may have and exercise such functions, powers and duties as are imposed on it by this Act, and in particular (a) Advise the Minister on matters relating to the operation of this Act including the granting of licences; (b) Administer such matters as are required consequent upon the granting of licenses; [] (m) Impose and collect fees for licences. There are currently no specific provisions for RE generation by third parties, or selfgeneration by individual households or businesses, in the T&TEC Act (which establishes T&TEC and enables it to generate and supply electricity) or the RIC Act. However, the Electricity (Inspection) Act provides for the appointment of a Chief Electrical Inspector within the public service, responsible for inspecting installations and electrical plant, apparatus and works. Section 4 of the Electricity (Inspection) Act states that: On the completion of a new installation, the owner thereof shall give notice in writing to the Chief Electrical Inspector, who shall cause inspection and tests to be made within the prescribed period and, if the installation satisfies the requirements of this Act and the rules made hereunder, certify or cause to be certified accordingly in the prescribed form. No installation shall be operated until such certificate has been obtained.32 Regulation of efficiency in electricity generation In its last tariff determination, the RIC reviewed the average system heat rate, and found that it could be improved in a number of ways, including: improving the availability of the existing combined cycle plant (as this is the most efficient large-scale plant); retrofitting older simple cycle gas turbines; and changing the dispatch of plants to a more energy efficient arrangement. Based on these findings, in 2006 the RIC decided the following: In order to provide the right incentives and save on fuel costs, the RICs decision is that there should be only 90% pass-through of fuel costs and the costs for failing to introduce combined cycle plant should not be borne by the consumer and, accordingly, have not been considered in the revenue requirement.33 In addition, the RIC requested that: In the future, all additional capacity sourced should be through the installation of combined cycle units.34
32 33

Electricity (Inspection) Act; Chapter 54:72. Section 4 - Inspection of installation on completion. Regulated Industries Commission (2006). Regulation of Electricity Transmission and Distribution Final Determination (Rates and Miscellaneous Charges) p.114 Ibid.

34

18

Since the RIC has issued this decision in 2006, no capital investments have been made for improving the efficiency of existing system capacity (aside from the development of the 720MW combined cycle plant).

2.6

Electricity Tariffs

This section presents T&TECs current tariff schedule and its components, and the monthly electricity bills for different types of customers. 2.6.1 Schedule and components Table 2.4 displays T&TECs current tariff schedule. Table 2.4: Current Tariff Schedule
Category Residential Commercial Industrial Tariff A B B1 D1 (small) D2 (medium) D3 (large) D4 (large) D5 (large - standby) E1 (very large load) E2 (very large load) E3 (very large load) E4 (very large load) E5 (very large industrial) Frequency of Billing Every 2 months Every 2 months Monthly Monthly Monthly Monthly Monthly Monthly Monthly Monthly Monthly Monthly Monthly Customer (fixed) Charge, US$/customer $0.9 $3.9 US$/Street Light S1 - 1 S1 - 2 S1 - 3 S1 - 4 S2 - 2 S2 - 3 S2 - 4 Annually Annually Annually Annually Annually Annually Annually 134 89 65 59 71 55 45 Energy Rate, US$/kWh 1 to 400 401 to 1,000 Over 1,000 kWh kWh kWh $0.041 $0.050 $0.065 $0.096 $0.031 $0.034 $0.029 $0.026 $0.025 $0.023 $0.023 $0.023 $0.023 $0.023 Energy Rate $0.058 Maximum Demand Charge, US$/kVA/month $7.87 $7.87 $6.69 $6.30 $5.83 $7.01 $6.93 $6.77 $6.61 $6.46 Max. Demand Charge -

Heavy Industrial

Street Lighting

Source: T&TEC (2009)

As shown in the table, the tariffs are categorized according to five types of customers: Residential: Residential customers Commercial: Non-residential customers with a maximum demand up to 350kVA Industrial: Small and medium industrial customers with a maximum demand between 350kVA and 4,000kVA Heavy industrial: Large industrial customers with a maximum demand above 4,000kVA Street lighting: for street lights.

19

The commercial, industrial, and heavy industrial tariffs include different categories, depending on electricity demand, maximum demand, or voltage required. T&TEC also offers two types of street lighting tariffs (under the S1 tariff T&TEC furnishes, installs, and owns the street lighting poles, overhead wiring and circuits and fittings, while the customer pays an installation cost and a rate per kWh; under the S2 tariff T&TEC does not take care of any installation or furnishings, and the customer simply pays a rate per kWh). T&TECs tariffs consist of three components, not all of which are applicable to all five tariff categories. The three components are: 1. A customer (fixed) charge (applicable to residential and small commercial customers only) 2. An energy rate per kWh (applicable to all tariff categories, with three levels for residential customers) 3. A maximum demand charge (applicable to industrial and heavy industrial tariffs only). T&TECs average tariff charged to customers in December 2010 was around US$0.05 per kWh.35 2.6.2 Monthly electricity bills Based on T&TECs current tariff schedule, we estimate the monthly electricity bill for three types of customer categories: Residential customers (category A)US$30, assuming a monthly consumption of 505 kWh per month (the 2010 average for residential customerssee section 2.3.2), including a customer charge of US$0.9 every two months, an energy rate of US$0.05 per kWh for the 401 to 1,000 kWh per month block, and a 15 percent Value Added Tax (VAT) Commercial customers (category B)US$128 per month, assuming a monthly consumption of 1,673 kWh per month, a fixed customer charge of US$3.9 every two months, an energy rate of US$0.06 per kWh, and a 15 percent VAT Industrial customers (category D1)US$6,400 per month, assuming a monthly consumption of 127,318 kWh per month and maximum demand of 200kVA per month, an energy rate of US$0.031 per kWh, a maximum demand charge of US$7.87 per kVA, and a 15 percent VAT.

35

We estimated this by taking the average of tariffs per kWh charged to domestic, commercial and industrial consumer categories shown in: CARILEC (2011). Tariff Survey Among Member Electric Utilities End of Year (December) 2010. This tariff is slightly higher than the average tariff estimated in the Renewable Energy Committee (REC) study released in January 2011. However, the REC started contracting for the research and drafting study in October 2009, therefore we assume that the average tariff used in this study may represent the tariff in early 2010, rather than December 2010.

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2.7

Government Initiatives for Promoting Sustainable Energy

Government initiatives to promote a more sustainable energy sector in T&T include the following: The Draft Green Paper on a National Energy & Minerals Policy Report on a Framework for Development of a Renewable Energy Policy Report on a Framework for Energy Efficiency Policy and Program Tax and custom incentives for RE, EE, and Compressed Natural Gas (CNG) vehicles The Green Fund Energy Efficiency Policy and Energy Management Program Other incentives being considered for RE generation. Each of these initiatives is briefly described below. 2.7.1 Draft Green Paper on a National Energy and Minerals Policy The MEEA has prepared a draft Green Paper on a National Energy and Minerals Policy (the Green Paper).36 The Green Paper represents the latest complete formulation (although in draft form) of the Governments policy for the sustainable development of T&Ts energy and mining sector. Once issued, the Green Paper will be discussed, and then revised; it will then become a White Paper, before it is officially adopted as T&Ts policy for energy and minerals. Among other things, the Green Paper summarizes the key policies, objectives, and strategies for RE, EE, and energy conservation. The Green Paper indicates that the Government intends to maximize the use of RE sources and encourage a culture of EE and conservation through fiscal incentives; legal, regulatory, and institutional changes; R&D; and public education. It also indicates that the Government intends to promote the use of alternative, clean fuels in transportation. Further, it summarizes the Governments policy and objectives for the power generation sector, which include a requirement that all expansion in generation be combined cycle, that energy demand be reduced through increased conservation, and that more efficient equipment and operations be promoted to reduce fuel consumption. As requested by the Government, in section 4 we provide a few comments on the Green Paper, focusing on the aspects related to sustainable energy. 2.7.2 Report on a Framework for Development of a Renewable Energy Policy In January 2011, the REC released a report on a Framework for Development of a Renewable Energy Policy for T&T. The report reviews various RE technologies, identifies drivers and barriers to RE development in T&T, and recommends strategies for addressing these barriers, such as: Capacity building and awareness creationincluding advertising campaigns, studies, curricula development

36

Ministry of Energy and Energy Affairs, National Energy & Minerals Policy, Draft Green Paper, July 2011.

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 Creating an enabling environmentthrough the implementation of incentives (grants, tax deductions) and support mechanisms; review of the legal and regulatory environment to provide open access to providers, a feed-in tariff, netmetering, and a renewable portfolio standard; and international cooperation Promoting EE and conservation Institutional arrangementsthe REC recommends creating a RE and EE Agency with responsibility for the development and implementation of RE and EE policies and programs, as well as other changes, such as developing a register of local RE and EE businesses. The report identifies wind power as the technology of choice for bulk electricity generation for the national grid and suggests a target of 5 percent of current peak demand (or 60MW) by 2020. The report also identifies solar water heaters, small scale solar PV systems and energy efficient lighting as other technologies that can be readily incorporated in T&T. 2.7.3 Report on a Framework for Energy Efficiency Policy and Program MEEA gave the mandate to the NEC to establish guidelines and action items for the design, implementation and evaluation of an EE program. NEC released a final report in July 2011. The report presents the results of an audit of the energy performance of 19 electricity generation units in T&T, as well as facilities in other sectors including ammonia, methanol, iron and steel. Based on these audits, the NEC estimates that if all the technically feasible best practices for EE were implemented, the estimated energy use for these sectors could be reduced by 15 percent by 2023. In the report, the NEC recommends a number of policy measures for improving EE in these sectors, such as budgetary commitment to support the adoption of energy management opportunities; legislative, tax, and regulatory changes to improve the business environment for electrical EE; and generation of power from third parties in T&T. 2.7.4 Tax and custom incentives The Government introduced the following incentives for sustainable energy equipment, taking effect from January 1st, 2011: Solar water heaters: Removal of import duty for solar water heating systems and equipment Zero-rating for VAT purposes of solar water heating equipment Tax credit to individuals for the purchase of solar water heating equipment for household use equal to 25 percent of the cost, up to a maximum of TT$10,000 Wear and tear allowance of 150 percent for the acquisition of plant, machinery, parts and materials for use in the manufacture of solar water heaters, and for the acquisition of solar water heaters. Solar PV systems: Zero-rating for VAT purposes on solar PV systems Wear and tear allowance of 150 percent of the expenditure incurred in acquiring solar PV system.

22

 Wind energy systems: Zero-rating for VAT purposes on wind turbines Wear and tear allowance of 150 percent of the expenditure incurred in acquiring wind turbines. Energy audits: Tax allowance of 150 percent of the expenditure actually incurred in engaging a company certified as an Energy Service Company by the Minister of Energy to conduct an audit of the design and installation of energy saving systems Wear and tear allowance of 75 percent for the acquisition of plant and machinery by a certified Energy Service Company for the purpose of conducting energy audits.37 Compressed Natural Gas: Wear and tear allowance of 130 percent of the expenditure incurred in acquiring plant and machinery for providing a CNG kit and cylinder installation service Wear and tear allowance of 130 percent for the acquisition and installation in a motor vehicle of a CNG kit and cylinder Tax credit to individuals for the purchase and installation of a CNG kit and cylinder in a motor vehicle equal to 25% of the cost up to a maximum of TT$10,000 Removal of import duty on the importation of CNG systems Zero rating for VAT purposes until 31 December 2015 with respect to new (less than two years old) private or commercial vehicles that are manufactured to use CNG Exemption from Motor Vehicles Tax until 31 December 2015 with respect to new (less than two years old) private or commercial vehicles that are manufactured to use CNG. 2.7.5 Green Fund In 2004, the Government established the Green Fund, a national fund focused on the environment available to community-based and non-governmental organizations that conduct activities related to environmental remediation, reforestation, and conservation. In 2010, the Government amended the Green Fund Legislation to also allow non-profit companies incorporated under the Companies Act to apply for the funds financial assistance.38 The Green Fund is capitalized by a tax on the gross sales and receipts of corporate companies operating in T&T. By 2008, it had accumulated TT$1.4 billion (US$220 million).
37

Government of the Republic of Trinidad and Tobago (September 2010). Budget Statement 2011. p.28, 29; Government of the Republic of Trinidad and Tobago (December 2010). Act No. 13 of 2010 Ministry of Housing and the Environment GFEU Green Fund Legislation Amended. Daily Express, April 8th, 2011.

38

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The Fund is governed by the Green Fund Advisory Committee (GFAC), established in 2007,39 and the Green Fund Executing Unit (GFEU), which was established in September 2008.40 To date, no projects have been developed with support from the Green Fund. As noted in the study commissioned by the MEEA and IDB in early 2011, possible reasons may be: High transaction costs involved in the preparation and submission of applications to the Green Fund Lack of clarity regarding governance of the Fund (however, the Government has now clarified that the Green Fund resides in the Ministry of Housing and the Environment). 2.7.6 Energy Efficiency Policy and Energy Management Program In 2011, the MEEA has asked the National Energy Corporation to develop an EE policy, and to establish a framework for the development of an Energy Management Program. The program would involve: establishing baseline data; developing an energy audit manual and mechanisms for industry compliance; designing training programs for developing local expertise; identifying areas for improvement in EE; and developing a benchmarking program.41 2.7.7 Other incentives being considered for RE generation The Government is currently considering other incentives for increasing RE generation. However, as of July 2011 the Government has not conducted or commissioned any analysis to validate the viability of these other possible incentives. Possible incentives that the Government is considering include the following, on whichas requested by the Governmentwe comment in section 4: Open access networkto guarantee non-discriminatory access for IPPs to the transmission and distribution network A feed-in tarifffor purchasing electricity from eligible grid-connected RE systems at a pre-established price and for a pre-established period Net meteringto allow households and businesses to set up small RE systems on their premises, connect them to the grid, and be paid for any excess power they sell. This possible initiative is being labeled the Home Energy Self-Sufficient Programme.42 Under net metering, households and businesses would sell their excess power at the retail electricity rate, and not at avoided cost A renewable portfolio standardsetting national targets for RE generation.43

39 40 41

Trinidad and Tobagos Newsday (August 17, 2007). http://www.newsday.co.tt/letters/0,62557.html Ministry of Housing and the Environment GFEU Green Fund Legislation Amended. Daily Express, April 8th, 2011. National Energy Policy Consultations Report, 26th January 2011. Opening Remarks from the Honourable Carolyn SeepersadBachan. Ibid. Renewable Energy Committee (January 2011). Framework for Development of a Renewable Energy Policy for Trinidad and Tobago.

42 43

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Potential for Sustainable Energy in Trinidad and Tobago

This section assesses the potential for sustainable energy in T&T. Given the scope of this assignment, the assessment is a preliminary one, based on the costs and performance of a few of the main technologies observed in similar island countries in the Caribbean. The purpose of this assessment is not to recommend which technologies to promote, and which not to promotebut just to understand, for policy purposes, which may be the key viable options for producing and consuming energy more efficiently in T&T. Detailed information on the cost and performance of EE, RE, and efficient generation in T&T would be required to assess the viability of specific projects. We begin by presenting a preliminary carbon abatement cost curve, summarizing the viable EE, RE, and efficient generation technologies in T&T (3.1). We then examine separately the viability of technologies for EE (3.2), RE (3.3), and efficient generation (3.4). We do this by estimating the Long-Run Marginal Costs (LRMCs, expressed in US$ per kilowatt hour) of the different technologies, and comparing these to relevant benchmarks for T&Ts electricity sector. The LRMC represents the cost of generating one unit of electricity for RE and efficient generation technologies; and the cost saving one unit of electricity for EE technologies.

3.1

Summary of Viable Technologies

The figure below displays a preliminary CO2 abatement cost curve for EE, RE, and efficient generation. The CO2 abatement cost curve shows the cost that each technology requires for abating one additional ton of CO2. The figure identifies viable and non-viable technologies (by viable we mean economically viable since, as explained below, benchmarks against which EE, RE, and efficient generationeven when the benchmark is a retail tariffare compared are all adjusted to reflect economic cost). In particular: Technologies that have a negative abatement cost are viablethey can abate one ton of CO2 emissions while saving money compared to the conventional technologies they displace. EE technologies can save electricity at a cost that is lower than the cost of buying electricity generated with conventional generation technologies. RE and efficient generation technologies can generate electricity at a cost that is competitive with that of conventional generation technologies Technologies that have a positive abatement cost are not viablealthough they can reduce CO2 emissions, they require an additional cost to do so. A few technologies have a positive abatement cost that, however, is lower than the global price of CO2.44 These technologies are viable, but only from a global perspectivethey can avoid emissions at a cost that is competitive with other GHG abatement projects implemented globally. They are not a viable option from a country perspective. Technologies that have an abatement cost higher than the global reference price of CO2 are not viable from a global perspective, because they can only avoid emitting a ton of CO2 at a cost that is higher than that required by more efficient technologies and projects implemented globally.
44

The figure shows a price of US$16 per tCO2, which is the rounded price of a December 2010 CER (Certified Emission Reduction) as of June 27, 2011 (source: Point Carbon).

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Figure 3.1: CO2 Abatement Cost Curve with RE, EE and Efficient Generation
600 900 1,662 481 308 330 362 392

Abatement Cost, US$/tCO

500 400 300 200 100 2 5 9 81 38

416

Global price of CO: US$16/ton

109 110
134 139

248 212 220 230

278 283

40

0 -100
-200 (2) (38) (23) (70) (50) (97) (80)

26

As noted, the abatement costs of the different technologies shown above are based on a number of simplified assumptions regarding the costs and performance of technologies they may not represent the precise, specific abatement costs of technologies in T&T. Detailed feasibility studies would be required to confirm the viability of each technology. Nevertheless, the abatement cost curve is helpful for identifying the key technologies that may be viable in T&T when assessed at the opportunity cost of gas of US$3 per MMBtu: There are several viable EE technologiesCompact Fluorescent Lamps (CFLs), power monitors, magnetic induction street lights, premium efficiency motors, efficient window air conditioning (AC) systems, and variable frequency drives can save electricity at a lower cost than the benchmark electricity tariff adjusted for full recovery of electric utility costs, and for opportunity cost of gas (see below). Efficient split AC systems are marginally viableor viable from a global perspective, as their savings cost is lower than the global price of CO2 Combined cycle turbines are viablethese turbines can reduce a ton of CO2 emissions at a lower cost (US$50 per ton of CO2 less) than the combined cycle plant that is currently being used for electricity generation in T&T Solar water heaters are the only RE technology that is viabletheir abatement cost is just slightly positive, and in any case lower than the global price of CO2. All other RE technologies have a generation cost that is not competitive with the technologies currently being used in T&T (given the opportunity cost of gas). We estimate the values of the abatement cost curve using the following formula:

Where: (in US$ per kWh) is the LRMC of electricity generation for RE and efficient generation technologies (that is, the cost of generating one kWh of electricity), or the cost of saving one kWh of electricity for EE is the cost (in US$ per kWh) of the relevant conventional benchmark for each type of technology. For RE and efficient generation technologies, the benchmark is the avoided cost of electricity generation using conventional technologies (the full generation cost for technologies that provide firm power; and the variable component of generation costs for non-firm technologies). For EE, the benchmark is an electricity tariff that would enable T&TEC to recover its costs, and that would take into account the cost of generating electricity given the opportunity cost of gas. We provide more detail on how we estimate these benchmarks in sections 3.2, 3.3, and 3.4 is the emission factor (in tons of CO2 per kWh) of the conventional technology that an EE, RE, or efficient generation project displaces.

The difference between and is negative for technologies that can generate (for RE, and efficient generation) or save (for EE) electricity at a lower cost than the conventional alternatives, and that are, therefore, viable. This difference is
27

positive for technologies that cost more than the conventional alternatives, and that therefore are not viable. The following sections explain the assumptions we used for calculating the costs and viability of EE, RE, and efficient generation technologies, as well as the costs and emission factors of conventional technologies.

3.2

Potential for Energy Efficiency

The figure below compares the LRMC of a range of EE technologies (by LRMC, we mean the cost of saving one kWh of electricity, in US$ per kWh), with our estimate of an average tariff of US$0.09 per kWhan average tariff adjusted to ensure full cost-recovery, and to consider the opportunity cost of gas for power generation. The figure shows that there are seven EE technologies that are viablethat is, technologies with a savings cost that is lower or equal to the adjusted tariff. These technologies are: CFLs Power monitors Magnetic induction street lighting Premium efficiency motors Efficient window AC systems Variable frequency drives Efficient split AC systems (these are actually almost viable with a savings cost just above US$0.09but for purposes of this analysis, given the cost and performance assumptions are simplifications, they may be considered viable). Figure 3.2: Viability of EE Technologies in Trinidad and Tobago
Compact Fluorescent Lamps (CFLs)
Power Monitors Magnetic Induction Street Lighting Premium Efficiency Motors Efficient Window A/C Systems Variable Frequency Drives Efficient Split A/C Systems T8 Fluorescent Lamps w/Occupancy Sensor Efficient Chillers T5 High Output Fluorescent Lamps LCD Computer Monitors

0.01
0.03 0.04

Avg. tariff (subsidized): US$0.05/kWh Avg. tariff (adjusted): US$0.09/kWh

0.06 0.07 0.09 0.09

0.12 0.15 0.17 0.19

Efficient Residential Refrigerators Efficient Retail Refrigerators (Condensing Unit)

LED Street Lighting Solar LED Street Lighting 0.00 0.10 0.20

0.25 0.25
0.53 0.65 0.30 0.40 0.50 0.60 0.70

US$/kWh

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The figure also shows the non-adjusted average tariff of US$0.05 per kWh (that is, the average tariff given the low natural gas price currently being paid by T&TEC). This is the tariff that, on average, customers in T&T actually face. When the non-adjusted tariff is considered, efficient motors, air conditioners, and variable frequency drive are not commercially viablethat is, customers do not save money on their bill by implementing these technologies. CFLs, power monitors, and magnetic induction street lights are commercially viable, but with a lower incentive. This means that while there is an economically viable potential for EE in T&T, current tariffs that do not reflect economic costs limit end up limiting or distorting this potentialand the incentive for customers to invest in EE. Assumptions used for evaluating the viability of EE technologies To estimate the savings costs of EE technologies, we use the following assumptions: Assumptions regarding the typical capacity of a system (kW), cost of the system (US$), O&M costs (US$ per year), lifetime (years), and typical baseline technologies that they replace or improve. These assumptions are based on data gathered for EE technologies in Barbados, in a study we conducted for the IDB in 2010. Table 3.1 below shows these assumptions A real discount rate of 6 percent. We use this rate assuming that subsidized loans (that is, loans at a cost that is lower than the one available of the market) could be provided to support the increased uptake of EE technologies in T&T. The formula we use to calculate each measures savings cost is the following:
Cost of each measure to achieve a 1kWh saving (US$ per kWh saved) = Annualized capital cost per kWh (discounted at 6 percent over lifetime) + Annual O&M costs per kWh

To estimate the benchmark electricity tariff at US$0.09 per kWh, we adjust the average tariff of US$0.05 per kWh to: Account for the opportunity cost of natural gas used for electricity generation, and the resulting increase in the cost of electricity generation. We estimate the impact of an increase in electricity generation costs on the cost of electricity to customers as follows:

Where increase in generation costs is the annual increase in the cost of generating electricity resulting from increased gas prices (from current prices, to the estimated opportunity cost of US$3 per MMBtu), in US$. To calculate the increase in generation costs, we take the difference between the average variable cost of generation with the opportunity cost of gas, and the average variable cost of generation with the current (lower) price, and multiply this difference by total electricity sold in 2010 (7,909 GWh). We find that the average increase in electricity tariffs would be US$0.03 per kWh. We add this result to the average tariff

29

 Ensure that tariffs are sufficiently high to recover the full cost of electricity service. In its latest tariff determination submission (July 2011), T&TEC requested a 21 percent increase in tariffs to achieve full cost recovery.45 As a conservative assumption (and also considering that in 2006 the RIC only approved recovering 90 percent of fuel costs through tariffs), we assume that tariffs would need to increase by 10 percent in order to achieve full cost recovery. To calculate the abatement cost of EE technologies, we use an emission factor for T&Ts electricity system of 0.75tCO2 per MWh. To derive this estimate, we: 1. Calculate the emission factor for each type of plant by: a. Calculating the emission factor for each type of fuel used for electricity generation, based on the carbon content of Automotive Diesel Oil (ADO) and Natural Gas,46 according to the guidelines of the Intergovernmental Panel on Climate Change (IPCC) b. Estimating thermal efficiency factors (the percentage of the fuels energy content that is transformed in electricity), using data on plant heat rates in 2010.47 We assume an average thermal efficiency factor of 25 percent for simple cycle plants, 32 percent for the existing combined cycle plant, and 33 percent for the medium speed diesel plant c. Accounting for 6.8 percent system losses in 2010 2. Calculate a weighted average of plant emission factors between the existing combined cycle, simple cycle and medium speed diesel plants operating in T&T, based on generation per plant in 2010.48 The result (0.75 tons of carbon dioxide equivalent (tCO2e)49 per MWh generated), based on 2010 data, is close to the estimate of the Climate Registry for T&Ts emissions factor in 2008 (0.68 tons of CO2 per MWh).50

45 46

T&TEC (July 2011). 13.8 kg of carbon per GJ for dry natural gas, and 19.2 kg of carbon per GJ for diesel. We convert carbon into CO2 by a factor of 3.67 to account for the higher molecular weight of CO2 after oxidation of carbon (44/12 is the ratio between the molecular weights of carbon and oxygen) Source: RIC (2011) Assumed 16% of generation from combined cycle, 64% of generation from gas turbines, and 0.03% of generation from medium speed diesel. The word equivalent refers to the fact that, based on IPCC guidelines, greenhouse gases other than carbon dioxide may be expressed in carbon dioxide terms using their global warming potential. The Climate Registry (2009). Non-North American Emission Factors for Electricity and Heat Generation. http://www.theclimateregistry.org/downloads/2011/03/2011-Climate-Registry-Default-Emissions-Factors-Updated-321-11.pdf

47 48

49

50

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Table 3.1: Assumptions on Costs and Performance of EE Technologies

EE Technology Installed capacity (kW) 0.02 0.05 0.35 0.04 0.00 0.03 0.04 1.00 1.85 0.11 0.53 9.85 7.18 14.06 NA Installed cost of O&M costs Lifetime system (US$/year) (Years) (US$) 5 0 5 150 0 19 550 0 16 1,000 35 20 2,500 26 20 450 35 20 300 0 15 500 0 15 2,000 0 15 1,000 0 12 2,000 0 15 1,500 0 20 7,000 -60 10 40,000 0 20 100 0 20 Baseline technology Incandescent lightbulbs, 60W T12 fluorescent lamps with electronic ballast, 2x48W Metal halide lamps with electronic ballast, 458W High-pressure sodium lamp, 50W High-pressure sodium lamp, 50W High-pressure sodium lamp, 50W Cathode Ray Tube (CRT) monitors, 120W Conventional A/C systems, 1.5kW Conventional A/C systems, 3kW Conventional refrigerators, 0.3 kW Conventional condensing units, 0.7kW Conventional motors (87% efficiency), 10.3kW Motors without variable frequency drives (91% efficiency), 9.8kW Chillers w/traditional compressors, constant speed, 270kW No power monitor Savings Savings Abatement compared Benchmark cost cost to baseline (US$/kWh) (US$/kWh) (US$/tCO ) (%) 75% 0.01 0.088 -97 51% 0.12 0.088 38 23% 0.17 0.088 110 39% 0.53 0.088 586 100% 0.76 0.088 895 48% 0.04 0.088 -70 67% 0.19 0.088 139 33% 0.07 0.088 -23 38% 0.09 0.088 2 34% 0.25 0.088 212 15% 0.25 0.088 220 5% 0.06 0.088 -38 27% 0.09 0.088 -2 40% 0.15 0.088 81 10% 0.03 0.088 -80

Compact Fluorescent Lamps (CFLs) T8 Fluorescent Lamps w/Occupancy Sensor T5 High Output Fluorescent Lamps LED Street Lighting Solar LED Street Lighting Magnetic Induction Street Lighting LCD Computer Monitors Efficient Window A/C Systems Efficient Split A/C Systems Efficient Residential Refrigerators Efficient Retail Refrigerators (Condensing Unit) Premium Efficiency Motors Variable Frequency Drives Efficient Chillers Power Monitors

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3.3

Potential for Renewable Energy

As described in section 2, there is currently no utility scale or grid connected distributed RE generation in T&T. RE generation is limited to small, isolated systems installed in households, small businesses, and at Government facilities, and represents about 2MW in total (about 1MW of solar PV and wind; and about 1MWthermal of solar water heaters). Figure 3.3 below compares the LRMC of a range of RE technologies (in US$ per kWh), with the avoided cost of conventional generation in T&T, adjusted for the opportunity cost of gas. The figure shows that small scale and commercial scale solar water heaters are the only RE technologies that are viable in T&T. They can generate electricity at a cost that is just about equal to the avoided economic cost of power in T&T. However, the figure also shows that solar water heaters are not commercially viable in T&Ttheir LRMC is higher than the current average tariff of US$0.05 per kWh, meaning that customers installing solar water heaters do not save money on their electricity bill. Customers would save on their bill thanks to solar water heaters if tariffs accounted for the opportunity cost of gas, and covered full cost of service. Figure 3.3: Cost of RE Technologies Compared to Avoided Cost of Conventional Generation (US$ per kWh)
Solar Water Heater (flat plate, small)
Solar Water Heater (flat plate, commercial) Landfill Gas to Energy (Gas Turbine) Wind (On-shore) Wind (Off-shore) Solar PV (Thin Film, fixed, commercial) Wind (10kW Distributed scale turbines) Solar PV (Thin Film, fixed, small) Municipal Solid Waste to Energy Solar PV (High-Efficiency, fixed, commercial) Seawater Air Conditioning Solar PV (High-Efficiency, fixed, small) CSP (Parabolic Trough, w/storage) 0.08 0.08 Avg. system variable cost + capital cost of new combined cycle (firm): US$0.08/kWh Avg. system variable cost (non-firm): US$0.05/kWh

0.11
0.13 Avg. tariff (subsidized): US$0.05/kWh 0.15 0.20 0.24 0.26 0.26 0.27 0.29 0.33 0.35 0.37 0.38 0.10 0.20 0.30 0.40

Avg. tariff (adjusted): US$0.09/kWh

CSP (Solar Tower, w/storage)

Wind (1kW Distributed scale turbines)

US$/kWh

Note:

We treat solar water heaters as comparable to firm supply, because these systems can store heat.

The benchmark is different depending on whether a RE technology provides or not firm power: The cost of non-firm RE technologies is compared to the average variable cost of electricity generation of the system, given the opportunity cost of gas

32

.51 Technologies that provide non-firm power (such as wind, or solar) cannot be depended on to generate electricity at any time of the day. This means that there needs to be a firm generator on standby that can be used as firming supply whenever the RE system does not supply sufficient electricity. Therefore, every unit of energy generated by these technologies will save fuel and variable O&M costs, but it will not save the fixed costs of capacity (because the firming technology capacity would also be needed) The cost of firm technologies is compared to the average variable cost of electricity generation of the system, plus the fixed cost of a combined cycle plant, assuming gas is priced at opportunity cost. Firm technologies (such as waste-based technologies) can be depended on to generate electricity at any time, just like a conventional generation unit. Therefore, implementing such technologies would defer conventional capacity, in addition to saving fuel costs. Combined cycle gas plants represent the cheapest base load, conventional capacity when considering the opportunity cost of gas (as shown in section 2.4.3). Any firm RE system implemented would defer combined cycle capacity, and therefore save the fixed costs of combined cycle capacity We adjust the LRMC of distributed technologiesexcept for solar water heatersto account for the fact that using these technologies would avoid system losses (about 7 percent), as distributed technologies are installed close to the load that they serve, and therefore generate energy that is not subject to losses on the grid. We do not adjust the cost of solar water heaters for system losses, to compensate for the fact that such systems cannot store all the heat they produce. Assumptions used for evaluating the viability of RE technologies To estimate the LRMC of the different RE technologies, we use the following assumptions: Assumptions for the installed capacity or plant size (in kW), capital costs (in US$ per kW), annual O&M costs (US$ per year), lifetime (years) and capacity factor (percentage), as shown in Table 3.2. These assumptions are based on information gathered in Barbados and other countries in the Caribbean that have similar characteristics to T&T. We stress that these estimates cannot replace detailed ones that would come from any feasibility study done for T&Tfor example, we assumed aggressive capacity factors for wind just to see how this technology might fare if T&T enjoyed a very good wind resource, but there actually is no information on the wind resource for power generation in T&T. Real discount rate of 6 percent for distributed scale options, and 15 percent for utility scale technologies. To assume this discount rate, we assume that distributed scale equipment would be financed with subsidized loans, while large scale equipment would need to be commercially financed (we use the same discount rate as for conventional generation).

51

Technologies that provide non-firm power cannot be depended on to generate electricity at any time of the day, meaning that there needs to be a firm generator on standby that can be used whenever the RE system does not supply sufficient electricity. Therefore, every unit of energy generated by these technologies will save fuel and variable O&M costs, but it will not save the fixed costs of capacity (because the firming technology capacity would also be needed).

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Table 3.2: Assumptions on Costs and Performance of RE Technologies

Installed capacity (kW) 50 2 70 2 50 3 50,000 50,000 10,000 30,000 10 1 13,500 3,000 2,000 Unit Total Total Capacity Abatement capital O&M cost O&M Lifetime LRMC Benchmark system cost factor cost cost (US$/kW/yr) costs (years) (US$/kWh) (US$/kWh) (US$) (%) (US$/tCO ) (US$/kW) (US$/year) 4,000 200,000 5,000 10,000 1,300 91,000 1,100 2,200 5,000 250,000 6,000 18,000 8,000 400,000,000 12,000 600,000,000 1,860 18,600,000 2,850 85,488,000 5,500 55,000 9,400 9,400 11,111 149,998,500 2,300 6,900,000 4,139 8,278,200 42 2,100 60 120 24 1,680 20 40 42 2,100 60 180 100 5,000,000 200 10,000,000 37 372,000 58 1,728,000 110 1,100 110 110 300 4,050,000 100 300,000 166 331,200 20 20 20 20 20 20 20 20 20 20 20 20 20 20 20 20% 20% 19% 17% 19% 19% 45% 65% 30% 40% 26% 26% 90% 50% 33% 0.22 0.28 0.08 0.08 0.29 0.36 0.33 0.35 0.13 0.15 0.26 0.41 0.25 0.11 0.27 0.05 0.05 0.08 0.08 0.05 0.05 0.08 0.08 0.05 0.05 0.05 0.05 0.08 0.08 0.08 230 308 9 5 330 416 362 392 109 134 283 481 248 40 278

RE technology

Solar PV (Thin Film, fixed, commercial), 50kW Solar PV (Thin Film, fixed, small), 2kW Solar Water Heater (flat plate, commercial), 70kW Solar Water Heater (flat plate, small), 2kW Solar PV (High-Efficiency, fixed, commercial), 50kW Solar PV (High-Efficiency, fixed, small), 3kW CSP (Parabolic Trough, w/storage), 50000kW CSP (Solar Tower, w/storage), 50000kW Wind (On-shore), 10000kW Wind (Off-shore), 30000kW Wind (10kW Distributed scale turbines), 10kW Wind (1kW Distributed scale turbines), 1kW Municipal Solid Waste to Energy, 13500kW Landfill Gas to Energy (Gas Turbine), 3000kW Seawater Air Conditioning, 2000kW

Note:

All figuresexcept for solar water heatersare based on consulting firms estimates for RE technologies in Barbados and other countries in the Caribbean. Detailed assessments of RE resources will be necessary to assess the feasibility of each technology. We assume that the capital costs of solar water heaters might be lower than in Barbados (US$1,100 per kW, compared to US$1,250 for small scale systems, and US$1,300 per kWh, compared to US$1,600 for commercial scale systems). This is based on the assumption that the high customs and tax incentives that the Government is providing for solar water heaters (as described in section 2.7.4), coupled with a program for increasing the uptake of solar water heaters in T&T, and incipient manufacturing of this technology in T&T, might reduce the installed cost of solar water heaters further than the cost of systems in Barbados. Barbados also has a full waiver on customs duties, and a tax credit, like T&T; but T&Ts incentives also include a zero-rating for VAT purposes of solar water heaters; and a wear and tear allowance of 150 percent.

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For the benchmarks, we use the following assumptions: System average variable cost of US$0.05 per kWh, calculated by multiplying the estimated fuel and variable O&M costs of simple cycle gas turbines and existing combined cycle plants on the system, by their contribution to total generation in 2010.52 Fuel costs are based on our estimate of the opportunity cost of gas, US$3 per MMBtu. Our estimates of fuel and variable O&M costs of simple cycle gas turbines and existing combined cycle plants are shown in section 2.4.3. We note that this is, accidentally, equal to the current average tariff Fixed costs (including capital costs and fixed O&M costs) for combined cycle capacity of US$0.03 per kWh. We calculate this by adding our estimate of capital costs of US$0.03 per kWh (using a pre-tax weighted average cost of capital of 15 percent), and fixed O&M costs of US$0.006 per kWh for new combined cycle plants, as shown in section 2.4.3. A total all-in cost of US$0.08 per kWh, which is the sum of the two costs listed above. To estimate the abatement cost of RE technologies, we use an emission factor for T&Ts electricity system of 0.75tCO2 per MWh, which we calculate as shown in section 3.2.

3.4

Potential for Efficient Generation

In this section we examine the potential for efficient generation in T&T, focusing on combined cycle plants. As discussed in section 2.4.1, combined cycle plants are already being used and considered for electricity generation in T&T. A 236MW combined cycle plant has been operating since 1984; in 2010, it generated 16 percent of the countrys electricity. A new combined cycle plant of 720MW is being installed. As requested by the RIC, any new gasfired plants installed will be combined cycle. In this section, we compare the costs of new combined cycle capacity with existing combined cycle capacity. Figure 3.4 below compares our estimate of the LRMC of the combined cycle turbines that are currently operating in T&Ts sector, with the LRMC of a new combined cycle turbine, such as the one that is being installed. The figure shows that a new combined cycle plant would generate electricity at a cost of about US$0.06 per kWh, about US$0.01 per kWh less than the combined cycle plant that is already operating. We assume that the capital, fixed, and variable O&M costs are the same for the existing combined cycle plant and the new combined cycle plant, thereby isolating the effect of higher plant efficiency on total LRMC. Therefore, the lower LRMC of a new combined cycle plant is attributed to its higher efficiency compared to the existing plant.

52

In 2010, generation from the medium speed diesel plant in Tobago was close to zero, and generation from the gas turbine that is fueled with diesel in Tobago was only about 3 percent; however the RIC has reported that this plant will be switched to use gas (instead of diesel fuel) during 2011. We therefore approximate diesel generation to zero.

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Figure 3.4: Long-Run Marginal Cost of Existing Combined Cycle Plants Compared to New Combined Cycle Turbines
8 7 6
6.83 5.68
3.20 2.05

US/kWh

5 4 3 2

0.50

0.50

3.07

3.07

1 0

Combined cycle
Capital Costs Fixed O&M Costs Variable O&M Costs

New combined cycle

Fuel costs Major maintenance

Source: Consulting Firm estimates, using information on fixed and operating costs of combined cycle plants in Barbados, and 2010 data on plant heat rates in T&T from RIC.

The abatement cost of a new combined cycle plant, compared to the existing combined cycle plant, is US$50 per tCO. Assumptions used for efficient generation technologies We calculate the LRMC of the new and combined cycle plant based on the following assumptions: Capital cost of US$1.1 million per MW, fixed O&M costs of US$5 per kW per year, variable O&M costs of US$5 per kWh per year, and a lifetime of 20 years, for both existing and new combined cycle plants53 Heat rate of 13,194 kilojoules per kWh for the combined cycle plant installed at Penal,54 and about 7,300 kilojoules per kWh for a new combined cycle plant55 Pre-tax Weighted Average Cost of Capital (WACC) of 15 percent56 Inflation in T&T of 10.5 percent57 Tax rate in T&T of 25 percent58
53

Based on figures for simple cycle and combined cycle plants in Barbados. Note: we assume that the capital, fixed and variable O&M costs of the existing combined cycle plant are the same as the costs of a new combined cycle plant, given unavailability of data on the specific costs of the existing combined cycle plant in T&T This represents the average heat rate of the plant in 2010, based on data provided by the RIC Based on data for a 60MW combined cycle plant in Barbados Assuming a 30 percent equity proportion with a cost of equity of 15 percent, and a 70 percent debt proportion with a cost of debt of 15.6 percent (assuming a risk-free rate of about 8 percent, country debt premium of 2.25 percent, and corporate debt premium of 5.4 percent), and rounding down to 15 percent. This corresponds to the average annual inflation rate in 2010. Source: Central Bank of T&T (2010) Annual Economic Survey

54 55 56

57

36

 Opportunity cost of natural gas of US$3 per MMBtu. To estimate the abatement cost of the new combined cycle plant, we use the difference between the emissions factor of existing combined cycle capacity, and the emissions factor of a new combined cycle plant. We estimate an emission factor of 0.63 tCO per MWh for the existing combined cycle plant, and 0.41 tCO per MWh for the new combined cycle plant, based on: A carbon content of natural gas 13.8 kg of carbon per GJ59 A thermal efficiency factor of 32 percent for the existing combined cycle plant, and 49 percent of the new combined cycle plant (estimated using the heat rates shown above) System losses of 6.8 percent.

58

Corporation Tax on Chargeable Profits Source: Ministry of http://www.ird.gov.tt/load_page.asp?ID=78 (Last accessed 27 May 2010)

Finance,

Inland

Revenue

Division;

59

We convert carbon into CO2 by a factor of 3.67 to account for the higher molecular weight of CO 2 after oxidation of carbon (44/12 is the ratio between the molecular weights of carbon and oxygen)

37

Preliminary Recommendations and Comments

In this section, we make some preliminary recommendations on priorities for sustainable energy in T&T (4.1); provide a few comments on the Draft Green Paper on a National Energy and Minerals Policy (4.2); and comment on the Framework for the Development of a Renewable Energy Policy prepared by the REC (4.3), in particular regarding potential legal and regulatory measures being considered for renewables.

4.1

Recommended Priorities for Sustainable Energy in T&T

Based on our analysis of the potential for EE, RE, and efficient generation, we think the Government should: Give top priority to promoting energy efficiency, focusing on the largest consumption centers and key end-uses, as well as on efficient generation Promote solar water heating for residential and non-residential uses Limit the promotion of other RE technologies to pilot projects and assessments of potential key options, when justified by preliminary analysis, and to those projects that are cost-benefit justified from a national perspective. Below we present these three preliminary recommendations in detail. They are consistent with what we discussed with the Government in July 2011. They are also consistent with the results agreed between the IDB and the Government for the PBL, as summarized in the Results Framework Matrix (Appendix D) and other matrices presented in the Appendices of this report. A thorough analysis of barriers would allow further refining these recommendations. The scope of our assignment does not include fieldwork to assess barriers to viable sustainable energy options. For example, we did not assess institutional capabilities for implementing a National Energy and Minerals Policy; or review T&Ts building code to see the extent to which it may cover EE; or check whether there is adequate access to capital to implement viable EE projects; or assess whether there is sufficient availability of EE equipment and solar water heaters at a reasonable cost in the local market. The rationale for these three recommendations is an understanding of barriers as something that prevents from happening those projects that, according to economic viability, should be happening. Something that does not allow implementing a project that makes no economic sense is not a barrier. For example, low costs of electricity generation in T&T are not a barrier to implementing solar PV systems, because the cost of generation of solar PV is currently much more expensive than gas-fired generation (even when considering the opportunity cost of gas). The lack of regulations to sell excess power to the grid from distributed RE projects is not a barrier to installing small wind systems, because it would make no economic (or commercial) sense to install a small wind system in T&T given current market conditions. On the other hand, costs and prices of electricity that are too low because they do not reflect actual economic costs are a barrier to adopting solar water heaters and those EE technologies that would otherwise be viable. 4.1.1 Give top priority to promoting energy efficiency Promoting EE can be the quickest and most effective way to save electricity in T&T. A few common EE technologies are commercially viable even at current tariff levels; others are
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economically viable when eliminating the distortions and using an opportunity cost of gas; others may well prove viable based on detailed audits of buildings and facilities in T&T. The Government would be well advised to carry out the following seven actions: Focus on the largest consumption centers Focus on key end-uses Procure an ESCO for auditing and retrofitting public facilities Revise the building code so that it mandates EE for new buildings Reduce fuel subsidies and the tariff distortions they create Support the financing of EE measures Establish tariffs that allow recovery of investments in EE. Below we describe in detail these seven actions. Focus on the largest consumption centers The industrial sector, which consumes 55 percent of T&Ts electricity, should be the priority for assessing and identifying opportunities for energy savings. The EE study for the Point Lisas Industrial Estate commissioned by the Government (dated July 2011)60 is already a great tool in the best possible direction; other targeted audits in the industrial sector would be a useful follow-on. The residential sector (which accounts for 26 percent of electricity consumption) is the next biggest consumeridentifying the best options for savings in that sector should be the next priority. Street lights may enjoy a good potential for quick retrofits, but they only represent 2 percent of electricity consumptionthey are a lower priority. Focus on key end-uses The savings cost of EE technologies is important, but so is the relative size of the end-uses that these technologies are operated for. CFLs may have the lowest unit cost for achieving savings, but efficient motors or air conditioners are likely to represent a bigger potential in terms of amount of savings. Procure an ESCO for auditing and retrofitting public facilities If the Government wants to lead by example, it may start identifying and implementing savings in the facilities it owns. If these are numerous and large enough, an Energy Services Company (ESCO) could be engaged to audit and retrofit a bundle of facilities. An ESCO is a specialized business that (i) develops, finances, and implements EE projects on a turnkey basis; (ii) guarantees a contracted amount of savings to clients, assuming the risk for these savings actual realization; and (iii) earns returns over time from the financial savings the projects create. Procuring the services of an ESCO would not entail costs for the Government (apart from the administrative costs of doing so). The Government should be careful in commissioning audits that do not include the potential follow-on for implementationit may risk paying for reports that would likely have to be redone by any ESCO that would implement any project. (An ESCO would not guarantee savings estimated by an audit it has not carried out itself.)
60

NEC, CBCL, ICF Marbek, Consultancy Services for the Establishment of Frameworks for the Energy Efficiency Policy and Programme, July 2011.

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Revise the building code so that it mandates EE for new buildings Ensuring that new facilities are constructed according to best EE practices is just as important as retrofitting existing onesperhaps even more so, since a new facility will have a long life, and building it according to an appropriate EE standard in the first place will be far cheaper and easier than retrofitting it. The REC informed us in July 2011 that T&Ts building code does not mandate EE. Given the limited incentives provided by tariffs, it is highly likely that agency problems may prevent good solutions from being implemented. There is an agency problem when the person making the decision to invest, and pays the capital cost (constructors) is not the same person who pays the operating costs of the equipment (owners); or when the person paying operating costs (owner) is not the same person using the equipment (lessees, in some cases). The result of an agency problem in new construction could be choosing cheaper equipment that has higher operating costs, instead of more expensive but also more efficient equipment that could be paid back by savings in operating costs. Reduce fuel subsidies and the tariff distortions they create We understand that low costs and prices of electricity are also the result of long-term gas contracts, and of royalties that allow diluting T&TECs cost of gasand that realigning tariffs to costs may be a lengthy and controversial matter. However, the Government should prefer supporting measures that save energy (for example, providing cheap finance for implementing EE, or grants for auditssee below) rather than subsidizing an inefficient consumption of that energy. Removing existing distortions seems preferable to creating new ones, such as a mandatory surcharge (tax) on the fuel gas portion of the industrial supply of natural gas61 as suggested in the study for Point Lisas. Support the financing of EE measures If there proved to be barriers to access credit for EE projects in T&T (for example, if interest rates for EE projects were higher than what a well-informed risk-return analysis would justify), the Government could establish financial instruments to help implement projects. The Green Fund has abundant money available, and has supported almost no projectsif necessary and consistent with the Governments objectives for the Green Fund, eligibility criteria and application procedures could be streamlined for EE projects. Or, a separate dedicated financial instrument could be considered. Establish tariffs that allow recovery of investments in EE T&TEC and IPPs could be given an incentive to invest in EE (implementing EE projects for customers, or implementing efficient generation projects at power plants) by being allowed to recover the costs of any such projects, and earn a reasonable return on them too. This way, power companies could save fuel and earn some additional return although sales of electricity may decrease (lower revenues does not necessarily mean lower returns); and customers could save money on their bills. 4.1.2 Promote solar water heating Solar water heaters could save the country fuel and money. However, they are not commercially viable under current tariffs. The Governments existing customs and fiscal
61

NEC, CBCL, ICF Marbek, Consultancy Services for the Establishment of Frameworks for the Energy Efficiency Policy and Programme, July 2011, page 5.

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incentives address this situation by lowering the capital cost of solar water heaters, and are a good measure from a national perspective. The experience of Barbados62 shows that similar incentives are a very effective tool to increase the uptake of solar water heaters. Financial instruments could help implement solar water heating projects. The Government could also consider including mandatory provisions on installation of solar water heaters in the building code. Again, helping implement projects that save energy is preferable to subsidizing inefficient consumption of that energy. 4.1.3 Limit the promotion of other RE technologies As shown in section 2, T&T needs no additional capacity in the next ten years to meet demand for electricityand even less does it need additional capacity that (as shown in section 3) is not least-cost, such as RE. No utility scale RE is currently viable in T&T, even considering gas at its opportunity cost. Other distributed RE technologies are even more expensive, and therefore less viable. Unless dramatic price reductions take place, solar PV is unlikely to cost less than US$0.20 per kWh for the foreseeable future. However, if the Government decides that diversifying T&Ts generation portfolio using RE is a policy objective in the short to medium term (as we understand from the Draft Green Paper and the Draft Renewable Energy Policy), we think it would be well advised to understand the cost implications of this objective, be clear about its rationale, and proceed with caution. Understanding the cost implications of RE Implementing renewables in T&T will increase the cost of service, because no RE technology is commercially or economically competitive, and because no additional capacity is needed in the short to medium term. Electricity tariffs should be designed to recover fixed costs of existing and approved infrastructure, and the variable costs of operating it. Any additional capacity would require an increase in tariffs to cover additional costs if the sector is to remain financially viableand would not avoid having to recover costs of already existing capacity. Being clear about the rationale of RE Diversifying T&Ts generation portfolio to increase energy security may be a reasonable rationale for exploring RE in the medium to long term, since the countrys oil and gas reserves are assumed to be declining. However, T&T should also consider, in parallel, other strategies that may achieve the same purposelike the Draft Green Paper indeed does, such as with enhanced oil recovery, or further exploration. Reducing greenhouse gas emissions would not be a well-grounded rationale for doing RE in T&T. As shown in the preliminary carbon abatement cost curve (section 3.1), if the Government cares about reducing global emissions of greenhouse gases, it should start by supporting EE, efficient generation, and solar water heaters; or sponsor carbon abatement projects elsewhere in the world that reduce one ton of CO2 at a lower cost than T&Ts other RE options. T&T is a small country (and a relatively small emitter of CO2)63, and greenhouse
62

See Perlack, B. and Hind, W. Evaluation of the Barbados Solar Water Heating Experience, 2003. Annual installations went from zero in 1974, to over 2,800 in 1989. Cumulative installed solar water heating capacity increased from zero gallons in 1974, to over 2.6 million gallons in 2002. T&T is the 72nd largest CO2-emitting country, according to 2003 International Energy Agency data quoted in the Draft Green Paper (page 26).

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gas emissions are, according to the view endorsed by the United Nations Framework Convention on Climate Change, a global problem. Therefore, the Government should carefully assess the cost to the country of abating global emissions of CO2 against the actual benefits that T&T would reap. Proceed with caution on RE Since putting in place RE projects would increase costs to T&T (and since the draft Renewable Energy Policy states that RE should enhance the countrys socio-economic wellbeing64), if the Government wishes to develop RE it should be careful in doing so, and proceed one step at a time. For example, it may wish to proceed as follows: Screen RE options for (i) availability of the primary energy resource within

the country, and (ii) existence of a commercially proven technology to exploit it. If there is not enough quantity of the primary resource that a certain

RE technology uses, and/or if the quality of it is not adequate (such as water for hydropower) no time should be wasted in considering it. If it is likely that a primary energy resource may be available in sufficient quantity and sufficiently good quality, but the technology to exploit it is not commercially proven yet (such as wave energy), that technology should not be given priority. This does not mean that it should be discarded foreverit could be reconsidered once it is a commercially proven option Assess in greater detail the quality and quantity of key primary renewable energy resources before committing to any project. Solid waste, wind, and solar energy are apparently T&Ts best options: Preliminary information suggests that T&T would have sufficient amounts of municipal solid waste, and with a good enough composition, to implement waste-based power projects. A study on the quantities and composition of T&Ts waste stock and projected stream would be useful, especially within a broader plan for managing waste in the country Meteorological information suggests that a good wind resource may be available in T&T. However, considering setting a target of 60MW of wind (as suggested in the draft Renewable Energy Policy65) looks like a prematureand very largestep without having conducted a proper wind assessment for power generation T&Ts geographical position and preliminary meteorological data suggest a good solar resource. However, producing a solar map may be a lower priority if the Government wants to assess RE, given (i) the cost of solar power compared to waste-based technologies; and (ii) existing information on solar irradiation for other countries in the region that may be applicable to T&T. Assuming a positive outcome of assessments, consider projects or

programs of a limited size to gain experience; or do projects that are cost-

64

Renewable Energy Committee, Framework for Development of a Renewable Energy Policy for Trinidad and Tobago, January 2011, page 5. Renewable Energy Committee, Framework for Development of a Renewable Energy Policy for Trinidad and Tobago, January 2011, page 37.

65

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benefit justified for the country. Avoided economic and social costs of landfills

might justify a waste management project that also includes a power generation component. For wind and solar PV, it may be best to limit their development to the pilot stage, to gain some experience in integrating intermittent or non-firm technologies in the system. In particular, any feed-in tariff program for solar PV (or small wind, for that matter) should limit the size of individual installations that can sell excess power to the grid; and limit the overall amount of systems eligible (their number, or overall installed capacity). In section 4.3 we provide more comments on a proposed feed-in tariff program.

4.2

Comments on the Draft Green Paper

The MEEA asked us to comment on the latest version of the Draft Green Paper on a National Energy and Minerals Policy (dated July 2011), focusing on those aspects that are related to the scope of our assignment. We hope that the preliminary recommendations provided in the previous section may be useful as the Draft Green Paper is developed further. We think that: The Draft Green Paper is a great first step towards an energy and minerals policy The next step should condense the Green Paper into a more agile and focused White Paper for guiding T&Ts energy and minerals sector. Below we explain in detail these two comments. The Draft Green Paper is a great first step towards an energy and minerals policy The Draft Green Paper is the latest result of a thorough and thoughtful effort undertaken by the Government. It is a compilation of many different contributions that have been provided by various stakeholders over the past few months, and that have undergone an exhaustive consultative process. As such, the Green Paper has ensured: Comprehensiveness in policy development, thanks to covering all key subsectors (oil and gas; power; minerals) and aspects related to the energy sector in T&T (local and global environmental considerations; broader economic implications; governance; and others) in an exhaustive way Ownership and participation in policy development, thanks to the many different stakeholders involved in the process, particularly during national public consultations66 that were held in January 2011. The next step should condense the Green Paper into a more agile and focused White Paper for guiding T&Ts energy sector Before becoming T&Ts official policy, the Green Paper (in its final version) would transition to a White Paper. Building on the comprehensive compilation carried out for the Green Paper, this next exercise should turn the National Energy and Minerals Policy into a more agile document, structured and focused on stating: (i) overall policy objectives; (ii) priorities among various objectives; (iii) actions to achieve priorities; and (iv) resources required (human, and financial) for doing so.
66

MEEA, National Energy Policy Consultations, National Academy For Performing Arts, Port of Spain, 26th January 2011.

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The Government could do this by: Making the Policy much more concise. In order to guide T&Ts energy and minerals sector in a clear and effective way, the Policy should be shorter. This may be achieved by: (i) combining policies or objectives that make similar or closely related statements into more general statements (such as overarching policies numbers 1, 2, and 3; 4 and 5; 9 and 10; 6 and 16); (ii) putting in appendices detailed information that develops or underpins key statements (such as the Introduction to Natural Gas on pages 16-18); (iii) keeping overarching policies and objectives (pages 7-10) to a more general level, leaving detailed statements for specific sections; and (iv) eliminating repetitions (such as having energy security both as a policy and as an objective for sustainable energy on pages 22-23; or a few repetitions that may be picked up by further editing, such as RE policies numbers 8 and 9 on page 23) Clarifying priorities and tradeoffs between competing policies and objectives. The policy should provide clear guidance as to what objectives would prevail over others in cases where they compete. For example, the policy of diversifying the T&T fuel mix to significantly increase the use of Renewable Energy (overarching policy number 12) may at some point be inconsistent with the objective of providing energy security by ensuring easy access to () affordable electric power (overarching objective number 1). The objective of reducing greenhouse gases and the potential of climate change (overarching objective number 5) correctly focuses on EE and providing natural gasbut promotion of renewable energy seems to be a subsection of Carbon Reduction (page 22) Focusing on creating the right framework for promoting what makes sense, without committing to specific actions that are not supported by analysis. Statements such as continuously assessing the nature and commercial availability of renewable energy resources (overarching objective number 2), or support Research & Development in indigenous and renewable and alternative energy sources (strategy number 4 for sustainable energy, page 24) are very appropriate for policy. However, we think that Implementation of suitable carbon sequestration techniques and encourage R&D in Carbon Capture and Storage (CCS) (strategies numbers 19 and 20, page 24) are not appropriate CCS is not a commercially viable technology,67 and recommending its implementation or encouragement is not supported by any analysis Avoiding misrepresenting the competitiveness of RE. It is incorrect to state that subsidies significantly lower final energy prices, putting RE at a competitive disadvantage; and misleading to state that an enabling tax incentive would be required to make the market viable for renewables. As shown by our preliminary analysis, RE is far from being competitive in T&T even if the opportunity cost of
67

For example, see Global CCS Institute, The Global Status of CCS: 2010: Governments and industry are still in the early stages of implementing large scale international programs to shorten the timeframe for the commercial deployment of CCS. These programs remain focused on the demonstration phase for developing and improving capture technologies in new industrial applications and proving the safe and secure long-term storage of CO2. This demonstration phase is likely to last for over a decade.

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gas were considered. Any incentives aiming at making RE commercially viable would ultimately subsidize with taxpayer money power generation options that are not economically viablein any case, the population would be the one that ends up paying more Clarifying global and local costs and benefits when discussing carbon reduction strategies. As noted above, T&T would be well advised to be clear on local costs and benefits of reducing greenhouses gases. Identifying the win-win options to reduce CO2 while also saving money to the country (as the Carbon Reduction Task Force has well started doing, by developing a preliminary carbon abatement cost curve thatunlike ourseven estimates the size of potential CO2 abatement for a few key options)68 should be a higher priority than giving the task force a mandate () to develop a regulatory & policy environment for carbon capture, storage, utilization, and credit trading, or even define and incorporate a CCS project (page 27) into a National Carbon Reduction Strategy. CCS is presented as an available opportunity (page 29), but this technology is not in commercial operation anywhere in the world.69 T&T should consider the likelihood of CCS creating more economic benefits than costs before developing a business model that includes the determination of relevant legislative and fiscal support, if required (page 30). Local and global perspectives should be clearly distinguished when discussing pollution (a local phenomenon) and greenhouse gas emissions (a global phenomenon, but not pollution)for example in the objective to reduce the levels of greenhouse gas emissions and other harmful discharges from the energy sector into the environment and maintain them at acceptable levels (page 34).

4.3

Comments on the Framework for the Development of a Renewable Energy Policy

During our meetings in T&T in July 2011, the MEEA asked us to comment on the four measures that the Framework for the Development of a Renewable Energy Policy suggests should be incorporated in T&Ts legal and regulatory framework for the power sector: (i) open access; (ii) feed-in tariffs; (iii) net metering; and (iv) a renewable portfolio standard.70 Regarding these potential four measures, we think that: Open access network is not a priority or even necessary for promoting RE. There is excess generating capacity in T&T, and no additional capacity is needed to meet demand in the short to medium term. IPPs already exist in T&Ts electricity sector, generate electricity using least-cost technologies, and sell that electricity through the transmission and distribution network at a very competitive price (also considering the opportunity cost of gas). It would be impossible for existing or new IPPs to be competitive with RE generation technologies for the foreseeable future, even if the opportunity cost of gas were considered. It would
A hard copy of this curve was provided to us during our trip to T&T in July 2011, but no electronic copy. See footnote number 65. Renewable Energy Committee (January 2011). Framework for the Development of a Renewable Energy Policy for Trinidad and Tobago. Pages 30-31.

68 69 70

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also be unlikely for any customer to be interested in buying more expensive electricity when there is a choice for cheaper electricity thanks to natural gas Feed-in tariffs for RE should be limited to pilot projects for small-size systems with capped eligibility, and set at avoided fuel cost. As noted, there is no need for additional capacity in T&T, and even less for additional capacity that is not least-cost. If the Government really wants to allow the sale of excess power to the grid, it should limit the eligibility of RE systems that may do so, minimizing the impact on cost of service; and pay no more than avoided cost of fuel. Otherwise, customers who do not have a system eligible for feed-in tariffs would end up subsidizing those who do. Setting the right price to drive renewable energy deployment, as the REC report states, is not difficultbut it risks creating very costly commitments that ultimately are borne by consumers Bidirectional metering should be preferred to net metering for any limited feed-in tariff program. Net metering spins a meter backwards, and does not measure separately quantities of electricity consumed and sold: therefore, under such an arrangement the feed-in tariff for distributed RE generation would be the same as the tariff that T&TEC charges to customers eligible for net metering. Bidirectional meters, on the other hand, allow measuring separately electricity consumed (for applying to that the retail tariff) and sold (for applying to that a feed-in tariff at avoided cost) A renewable portfolio standard would be a premature and unwise measure. Setting national targets for RE generation would make no economic sense given that no additional capacity is needed in the short-medium term; RE technologies are not cost-competitive in T&T; and no RE resource has actually been assessed in T&T. A renewable portfolio standard would certainly (and easily) promote RE, but certainly not in the interest of the country, since it would increase costs with unnecessary infrastructure built for the sake of meeting obligatory targets.

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Appendix A: Policy Matrix

See separate file.

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Appendix B: Results Framework Matrix

See separate file.

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Appendix C: Means of Verification Matrix

See separate file.

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Appendix D: Monitoring and Evaluation Methodology

See separate file.

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Appendix E: Cost-Benefit Analysis

See separate file.

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