An important milestone in giving Caribbean Utilities Company a competitor in the electricity generation business in Grand Cayman was reached when the Electricity Regulatory Authority selected DECCO Ltd. to develop and operate 36 megawatts of new power generation capacity on the island.
The results of the competitive bid, which were formally announced on Monday, will mean that for the first time since CUC was established in 1966, it could have competition in the generation of electricity for resale.
The Electricity Regulatory Authority issued a statement on Tuesday announcing that on Saturday, 9 February, its board of directors unanimously accepted the recommendations of management to select DECCO, a subsidiary of Dart Management Ltd., to commence negotiations with CUC on a power purchase agreement in relation to the new electricity generation capacity. In its 2012 fourth quarter and 12-month report issued Friday, 8 February, CUC said the need for new generation was “driven primarily by the upcoming retirements of some of the company’s generating units”.
For the first 42 years of its existence in Grand Cayman, the utility provider never faced the possibility of competition. When, after lengthy negotiations, CUC renewed its operating licence in 2008, provisions were included for a competitive bid process for the installation of new generating capacity.
“This process, as required by law, affords consumers a price of electricity obtained on a competitive basis,” the Electricity Regulatory Authority’s statement read. “While this is one part of the two major costs, fuel being the other, it is imperative that this process be used to benefit the consumers.”
Although those competitive provisions were never used before, Electricity Regulatory Authority Managing Director Joey Ebanks said CUC’s need to retire some of its generators provided an opportunity.
“When CUC determined it needed to replace the generators in 2014, it afforded the country a once-in-a-decade opportunity to introduce competition in the electricity generation arena,” he said. “The ERA took this opportunity to test the market through the [request for proposals] issued last year and explore whether the conditions were right to facilitate competition to what is essentially a monopoly.”
In addition to CUC and DECCO, a third company called Navasota also submitted a bid for the new electricity generation capacity. DECCO ranked first in the bid process – which was protracted because of a number of board personnel changes – followed by CUC and then Navasota.
“While it is still early in the process, we were pleased to see two other potential new entrants responded to the [request for proposals] and that a local company, DECCO earned the first-place ranking,” Mr. Ebanks said. “The decision by the ERA to introduce competition in the generation of electricity is an important first step forward for the country.”
CUC’s President and CEO Richard Hew confirmed that his company would now enter into negotiations leading to a long-term power purchase agreement with DECCO Ltd.
“We look forward to reviewing the winning bid and entering into discussions with DECCO Ltd. leading to a power purchase agreement,” Mr. Hew said. “CUC remains committed to offering a safe, reliable and efficient service at least cost to our customers.”
The bid submitted by DECCO reflected a partnership between it and Finland-based Wärtsilä, a global power plant firm. DECCO said in a statement issued Monday that it will provide the land and financing and Wärtsilä will provide the expertise and equipment.
“Wärtsilä is one of the leading global providers of flexible power plants for utilities, [independent power producers], municipalities and industry, operating throughout the Caribbean, Latin America, Asia Pacific, Europe and Africa,” DECCO’s media release stated. “The power plants are designed for efficient, economical and environmentally sound power production coupled with uncompromising reliability.”
Assuming successful power purchase negotiations between CUC and DECCO, the 36 megawatts of generating capacity will be delivered by two 18-megawatt generation units, the first of which will be required to be operational by 2014. The second unit might not be required until as late as 2017, with the timing dependent on growth in demand for electricity, CUC stated.
DECCO stated that the generation units would consist of two Wärtsilä reciprocating diesel engines that burn ultra low sulphur diesel fuel and that the new electricity generation units would be operated on a yet-to-be-disclosed site in Grand Cayman’s industrial park, subject to planning approval and a permitting process that will be carried out during the period of its negotiations with CUC.
On its web site, CUC states that it has 151.230 megawatts of combined generating capacity. The 36 megawatts of total generating capacity awarded to DECCO represents almost a quarter of CUC’s existing generating capacity and with some of that scheduled for retirement, would represent an even higher percentage of Grand Cayman’s total electricity generation capacity.
Mr. Ebanks said that electricity consumers could expect to see more developments in the future.
“In addition to the traditional methods of fuel based electricity generation, the ERA is working on many fronts to facilitate alternative energy options for commercial and residential consumers,” he said.
“This historical event is the beginning of much more to come as capital costs for various forms of renewable energy continue to fall and with technological changes to the industry well on their way, I expect we will see even more changes to come that will benefit the consumer.”