Thursday, March 28, 2024

Progress at what cost?

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IT SHOULD BE CLEAR TO YOU by now that I am an advocate for 100 per cent renewable energy for Barbados. I see this as the only future for us. I believe that one of the critical paths for putting our economy back to sustainable growth is energy independence and, in spite of the possibility of finding oil offshore, we would never be in a position to produce enough oil to meet our energy needs.

Notwithstanding the tremendous environmental benefits of a 100 per cent renewable energy policy, however, I am opposed to accomplishing this with a heavy regime of subsidies. Currently, the Government has allowed renewable energy systems and some energy efficient items to be value added tax-free and duty free. I believe this should be maintained for an extended period to make the solutions affordable and we need to adopt a favourable approach to electric vehicles as well.

Obviously, there is a cost to providing these subsidies. the current subsidies are costing the tax-payers approximately 22 cents on every dollar spent on a renewable energy system, so if we consider that a three kilowatt system may cost around $25 000, it would cost Government approximately $5 500 for an asset that will last at least ten years. This will provide the country with approximate savings of $1 724.63 per year (at 35 cents per kilowatt hour for fuel) from not using oil to produce power. That means the subsidy will be repaid in less than four years and during its ten-year life it would save $17 246.30 without even considering an increase in oil prices, which would make it even more favourable.

Now, I am not an economist or a financial guru, this is just a simple layman’s analysis of these subsidies and I am sure we can all agree that this makes sense.

Unfortunately, it’s a little more complicated than that. When we look at it from a macroeconomic perspective, the renewable energy penetration must reach a certain point before the savings are significant enough to positively impact the economy and, of course, the impact is not immediate – it will take a few years.

This is why organisations like the Barbados Renewable Energy Association are treating this with such urgency. Achieving the penetration levels that would have that significant impact on the economy means creating the right environment for individuals and businesses to make the investment in renewable energy; hence the need for some form of subsidy.

Having said that, and acknowledging that the tremendous progress renewable energy has made to date would not have been possible without the introduction of this subsidy, it is still my belief that we must be very careful with introducting additional subsidies.

Some countries have opted for a heavily subsidised approach to ensure the growth of renewable energy and in many cases they have introduced unsustainable policies to drive that growth.

One needs only to look at Germany to see the result of an aggressive policy to promote renewable energy. Germany now pays one of the highest rates of electricity in Europe because of the level of subsidies they implemented.

Therefore, the challenge for us is to create the right enabling environment to facilitate the growth of the renewables and energy efficiency solutions without creating any financial burden on the Government, which will ultimately be a burden on us.

To other challenge is to determine the right growth pace we need and how much foreign investment we are prepared to accommodate without transferring our energy burden from oil to foreign investors seeking a greater return on their investment. Our market has been attractive enough for Emera to invest here.

Therefore, in very simple terms we need to chart a path that transitions from a favourable environment for one big provider, to an environment for multiple providers, much like the telecoms industry. The path also has to facilitate and accommodate self-generation for the residential and commercial customers.

How do we accomplish this without further government subsidies? I don’t have the answer, but I believe it can be accomplished and there are a number of non-profit organisations whose mandate is to help developing countries to adopt renewable energy.

Organisations like the Inter-American Development Bank and the European Commission provide grant funding specifically for renewable energy and energy efficiency projects. We also have many bright people in our country and I am sure we can develop a policy framework that makes sense for us.

As we strive to achieve this, it must be clear in all Barbadians’ minds that 100 per cent renewable energy for Barbados doesn’t mean everyone gets a zero bill, because that would be unsustainable and virtually impossible to achieve.

What it does mean is that we would no longer depend on fossil fuels as our source of energy, it means we would not be sending US$400 million out of the country for oil (money which can be used in many other ways in our country), it means we would be helping to sustain our environment a little longer for our children and our children’s children, and it would mean cheaper electricity and transportation for all Barbadians.

I dare say, these are all desirable, aspirational goals for this beautiful island we all call home.

Jerry Franklin is managing director of EnSmart inc. Franklin is an engineer, energy auditor, equipment tester, and energy solutions provider.

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