“Ben Franklin may have discovered electricity, but it is the man who invented the meter who made the money.”
– Earl Warren, 20th-century American judge
Electricity prices vary from country to country. Within a country, they may vary from utility to utility and community to community. But in Jamaica, we have only one utility that serves all communities.
The electricity price is generally calculated based on a number of factors such as cost of generation (the type of generation plant and age), subsidies (direct or cross), local weather patterns (hurricanes and flooding, etc), terrain (hills versus flat lands), transmission and distribution, infrastructure (length, voltage, and age), fuel and fuel price fluctuations (coal, natural gas, diesel, hydro or nuclear), and regulatory regimes or oversights.
The Electricity Licence 2001 (amended 2016) grants the Jamaica Public Service Company (JPS), the sole utility in Jamaica, a licence to generate, transmit, distribute, and supply electricity for public and private purposes within Jamaica.
The JPS is an integrated electric utility that owns and operates four power stations, nine hydroelectric plants, one wind farm, 53 substations, and approximately 14,000 kilometres of distribution and transmission lines.
As a sole distributor, it buys electricity from all independent generation plants (both thermal and renewables) under long-term power-purchase agreements (PPAs). It dispatches self-generated and purchased electricity over its transmission and distribution network to over 634,000 customers throughout the island.
The generation of electricity in Jamaica is based on imported petroleum that accounts for over 80 per cent of electricity production costs.
The Government is actively pursuing a strategy of diversifying Jamaica’s energy supply mix to generate electricity with renewable sources (hydropower, wind, and solar farms), and alternate fuels such as liquefied natural gas (LNG).
For the period 2013 to 2017, the electricity cost in Jamaica averaged at about US¢32.2/kWh. The fuel component of this charge was about US¢16.8/kWh, accounting for about 52 per cent of our electricity bill. The fuel cost, depending on the type of fuel and technology, is the single largest element that affects the cost of electricity in a country.
High efficiency of generation plants and increased supply of electricity from renewable sources (hydroelectric plants or wind farms) will generally lower the cost of the fuel component in an electricity bill.
It is noteworthy that the Government has established the Office of Utilities Regulation (OUR), which only regulates the non-fuel component of the electricity bill, which is less than 50 per cent of our electricity cost. There is no regulatory oversight or scrutiny of the fuel part of electricity bills.
In the series on Petrojam, we alluded to anomalies that prevail with respect to the fuel supply and prices, which need serious government or regulatory attention.
AMONG HIGHEST IN THE WORLD
Jamaica’s electricity price (also referred to as electricity tariff or rate) is one of the highest in the world. As a matter of interest, we rank among the top 10 countries that have high electricity costs.
According to the WorldAtlas.com, in 2014, Jamaica ranked number six after four small-island countries in the Pacific and one in the Caribbean, where electricity prices ranged from US¢44 to US¢29 per kWh. By comparison, the average price of electricity in the USA is about US¢12/kWh; in Canada US¢10/kWh, Mexico, US¢8/kWh; India, US¢8/kWh; Thailand, US¢11/kWh; and China, US¢8/kWh.
In The Sunday Gleaner April 7, 2019 article on electricity system losses, we noted that in 2017, the average electricity losses accounted for about 26.6 per cent of the total electricity generated. Since about 79 per cent of these losses were directly passed on to the consumers in their electricity bills, they are partially responsible for the high cost of electricity in Jamaica.
The fuel cost and the efficiency of the generation plants is the second-largest element that results in high electricity prices.
Jamaica has a total installed generation capacity of 823.8MW (2017). Of this, 249.5MW (30.3 per cent) is base load steam generation. The JPS’ gas turbines capacity (normally intended for peak generation) is about 244MW (29.6 per cent) and has been frequently used to meet base load demand.
Most generation plants are old and inefficient. Generation heat rates are high, or system efficiency to convert petroleum fuels (diesel oil and heavy fuel oil) into electricity is relatively low.
In the OUR’s latest determination, the approved system heat rate was set at 11,450kJ/kWh (or 10,852Btu/kWh). This translates into an average system efficiency of 31.4 per cent.
INCREASED USE OF GAS TURBINES
The analysis of JPS’ system heat rates over the past 10 years shows that the system efficiency has declined by 0.5 per cent per annum. In 2008, the heat rate was 10,215kJ/kWh. In 2017, it increased to 11,331kJ/kWh. As a result, the system efficiency declined from 35.3 per cent in 2008 to 31.8 per cent in 2017.
The average efficiency over the past 14 years is estimated at about 34.3 per cent. Reducing allowable efficiency from an average of 34.3 per cent to 31.4 per cent not only adversely impacts the cost of electricity, but also the cost of manufacturing in Jamaica.
One cause for this low system efficiency is the increased use of gas turbines to compensate for base load generation deficiency. Not only do those gas turbines have high heat rates, they also use very expensive diesel oil that adversely impacts the fuel charge in our electricity bills.
With the conversion of the 120MW Bogue plant to natural gas-based combined cycle generation units, hopefully, our fuel charge will improve a little bit.
In addition, the JPS plans to retire four steam plants at two generating stations (three units at Old Harbour and one unit at Hunts Bay). All of the Old Harbour units and one unit at Hunts Bay are over 40 years old and highly inefficient. The JPS schedules to replace these old generation units with 190MW-combined cycle LNG-based power generation plant.
Fuel diversification can reduce the fuel pass through cost by about 3¢/kWh (assuming current fuel prices). Introduction of natural gas to provide fuel for Combined Cycle Gas Turbines units is a step in the right direction, provided that the negotiated price of gas is equivalent in heating value (US$/million Btu) with coal or fuel oil and is not a proxy for diesel oil.
These initiatives, along with continued integration of renewables into the system, should improve system heat rates and help somewhat lower the cost of electricity.