Country Report Sint Maarten 1st Quarter 2015

Update Country Report Sint Maarten 11 Feb 2015

Caribbean could see shift to renewable energy

Driven by improving technology, falling oil prices and a desire to shift away from the traditionally high cost of imported fuels, Caribbean governments are showing unprecedented interest in renewable energy projects. This interest is being cheered on by residents, businesses, non-profit groups and foreign actors such as the US government, many of which seek to profit from the region's abundance of solar and wind energy.

On many islands, state-owned electricity producers enjoy entrenched monopolies and have therefore not felt enough pressure to change. Although some islands still face obstacles to implementing projects, recent US pledges to help to finance renewable development could have a measurable impact in driving a shift from oil dependence.

Solar shift

Although the logic behind making the shift to solar and wind power-and geothermal in the case of islands rich in hot springs such as Dominica and Nevis-seems intuitive, economic forces have often prevented renewable projects from getting off the ground. Many island economies are relatively low income, and their small populations limit potential profits. In addition, foreign investors are sometimes dissuaded from financing projects owing to concerns that existing rules favour local firms or are changed capriciously for political reasons. At a January summit in Washington DC as part of the "Caribbean Energy Security Initiative," the US vice-president, Joe Biden, told the region's leaders that they ought to harmonise regulatory frameworks and ensure that dispute-resolution systems were "predictable." Furthermore, he pledged that the Overseas Private Investment Corporation (OPIC), a US development finance agency, and the government's foreign aid arm, the US Agency for International Development (USAID), would focus on facilitating financing for renewables. OPIC has created a US$700m fund to finance energy projects worldwide. These efforts coincide with a push from Carbon War Room, a non-profit group affiliated with a billionaire investor, Sir Richard Branson, which aims to help ten Caribbean islands to produce 20% of their electricity needs by 2020. Some islands such as Aruba and Barbados are already leaders within the region in deploying wind and solar energy. In 2012 Aruba began a US$300m project to halve its annual diesel fuel consumption and switch to 100% reliance on renewable energy by 2020. The project is ongoing.

Ongoing initiatives

Other islands are developing their own projects, some with public financing and others with private investment. But legal hurdles remain. In the British Virgin Islands, for example, legislators are planning to repeal a 1978 law, which reserves the exclusive right to generate power to the public utility. The move would make converting to solar legal but a scarcity of flat land could complicate large-scale use. Moreover, the funding on offer may not be enough to complete long-standing energy integration projects. Private firms have previously floated proposals to connect nuclear plants run by the heavily indebted Puerto Rico Electric Power Authority to consumers in the US Virgin Islands and the Eastern Caribbean via submarine cables. An initiative to connect natural gas-rich Trinidad and Tobago to its neighbours via an undersea gas pipeline has been talked about since 2002. Both projects have cited a lack of funding and political will as obstacles.

More than commercial considerations

In addition to commercial considerations, geopolitics is driving US interest in Caribbean energy. At the summit Mr Biden made a thinly veiled reference decrying Venezuela's PetroCaribe programme, which, in the name of diplomacy, doles out cheap oil financing throughout the region. No country should use "a natural resource as a form of coercion," Mr Biden said. The increased interest is also likely to be driven by China's increasing heft in Latin America as a funder of infrastructure projects. Caribbean countries seem to be finally acting on their promises to deploy renewable sources, but the current state of low oil prices may work to discourage efforts to take on entrenched interests in their energy sectors.

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