Jamaica should decide on liberalising its electricity market

Tuesday, November 01, 2011

In his inauguration speech, Prime Minister Holness addressed the issue of the high cost of energy which, he said, was "a universal cry across all divides in Jamaica". Furthermore, he added that "it is also universally agreed that Jamaica must diversify its energy sources and create competitive markets for the provision of electricity".

At the risk of putting words in his mouth, Mr Holness seemed to be saying that energy costs (particularly electricity) were too high, Jamaica could no longer put off making a decision on its choice of generation fuel, and that he favoured increasing competition in the distribution of electricity.

As we await the calling of an election, which many of us believe will be held in December, the political parties should now be in the process of drafting their manifestos — five-year business plans on how the respective parties propose to run the country.

It is in the context of setting economic priorities that we have to agree with former Energy Minister Phillip Paulwell who, in his address at the National Economic Forum 'Pluggin into Downtown' put on by the Jamaica Chamber of Commerce (JCC) last week, stated that energy was the most critical issue currently facing Jamaica.

If we fail to get this issue right, then it becomes much less likely that public sector workers laid off to meet an IMF target will get a replacement job in a private sector that can't compete internationally because of overly high energy costs.

We also agree that energy is too expensive, making Jamaican industry, particularly manufacturing, unviable. Mr Paulwell stated that he had changed his mind on the issue of the Jamaica Public Service since his Government was voted out of office in 2007, and cited his successful deregulation of the telecoms sector as a model for the dismantling of the monopoly on electricity transmission and distribution.

We share Mr Paulwell's view that energy should not be a political issue, but an opportunity for consensus.

In any liberalisation process, there are good and bad models, and it must be within Jamaica's capabilities to achieve a good model with a strong, efficient regulator. It is therefore fortunate that the same JCC forum had a presentation by Ireland's former director general for energy, Mr Tom Reeves.

Mr Reeves argued that there should be "no monopolies" in energy, either public nor private, as they are all "bad news". In Ireland, the European Union drove the liberalisation of the energy sector over a decade ago, which is now fully deregulated. In addition to nine suppliers competing in a fully free market to generate electricity, there is also vibrant competition between three retail distribution companies.

Competition is effective as even ordinary customers have the ability to switch suppliers with little more than a phone call, "like going to a supermarket", with only the transmission lines regulated as a natural monopoly. There will be those who want to argue that Jamaica's energy production is too small to create a competitive market in energy, as despite its similar sized population, Ireland's energy consumption is approximately 10 times Jamaica's.

Mr Reeves himself believes that there have been such rapid advances in energy technology over the past decade that no one now knows the minimum efficient size of energy production, other than that it has fallen drastically.

He argues that an independent energy regulator needs to set clear performance targets, unbundle distribution networks and move the risk of energy prices to where it belongs and can be managed -- namely the utility and not the retail customer, who cannot manage the risk.

Finally, and most importantly, we agree with Mr Reeves that not taking a decision on this vital issue is, in itself, a decision.

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COMMENTS (3)

Cosford Roberts
11/2/2011

The idea of liberalizing Jamaica's electricity supply is a good one but it does not go far enough to address the problems. There needs to be fundamental changes in how we produce electricity for household use which forms the bulk of our consumption and hence fuel cost. WE NEED TO MOVE TO SOLAR ENERGY AND WIND ENERGY WITH HASTE. Divide the country into zones and have Solar and Wind energy companies compete via bids to supply based on clearly established standards. Use the TV Cable model; it worked.

Cosford Roberts
11/2/2011

Luv Quest
11/1/2011

This is because we are selling vital assets without carefully evaluating the repercussion. A good start would be to buy back the 80% that is owned by Marubeni. Energy is affecting investment according to the IMF no one wants to invest in a country where energy cost is high and unstable.

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Jamaica should decide on liberalising its electricity market