Cayman, CUC: 25 more years of diesel power

Love ’em or loathe ’em, Caribbean Utilities Company and diesel fuel–generated electricity are here to stay, at least for the next quarter-century.

On Friday, the Cayman Islands Electricity Regulatory Authority announced that CUC had won a competitive bidding process with its proposal to build a new 39.7-megawatt diesel plant, ensuring the continuation of the company’s monopoly over Grand Cayman’s energy market.

Many residents of the island, we imagine, reacted to that news with a protracted sigh of resignation typically reserved for the monthly ritual of cracking open the electric bill, with the full and painful awareness that no matter how many hundreds of dollars it is this time around, there’s no escape from paying the piper what he’s rightfully owed. The only recourse, of course, is to quit listening to so much music — or in CUC’s case, quit using so much air-conditioning, electronics and refrigeration.

That’s on a household-by-household basis. From a broader perspective, the primary lesson we draw from CUC’s new 25-year contract is that alternative methods of energy generation — wind, solar, etc. — have not yet developed to the point of large-scale commercial viability in Cayman. It’s worth mentioning that the competition drew bids from three firms — CUC, DECCO Ltd. and U.S.-based Lewis Berger Group — submitting plans involving diesel, heavy fuel oil, liquefied natural gas and propane as fuel sources, with CUC’s diesel proposal ultimately prevailing.

It’s also worth noting that ERA was assisted in its selection by large consulting firm ICF International (a NASDAQ-listed company reporting gross revenues of close to US$1 billion last year). That hopefully should defuse any doubts about the objectivity of the bidding process, following the debacle involving the since-disgraced, and currently jailed, ex-ERA Managing Director Joey Ebanks, whose allegations of impropriety in the previous bidding process (won by DECCO, then canceled by ERA) were found by Cayman’s Anti-Corruption Commission to be “completely without merit.”

Many people may rail against CUC remaining the monopoly provider out of ideological opposition to private monopolies. That’s understandable. But anyone with more than a passing familiarity with economics knows that in some instances, having a monopoly provider is actually the optimal scenario for consumers. We suspect that may very well be the case in this instance, given the relative smallness of Cayman’s energy market and the capital-intensive nature of electricity generation. (For perspective, CUC’s winning proposal will cost in the region of $85 million.)

For better or for worse, what we have now is a renewal of vows, of sorts, between Cayman and CUC. In order to make this contractual relationship run more smoothly, however, we pose the following modest proposal:

Eliminate — entirely — the government’s duty on diesel fuel, currently at 75 cents per imperial gallon, and set to be reduced to 50 cents next year.

According to the government’s calculations, a 75 cent reduction should lead to a 12.9 percent decrease in monthly power bills, with that money going directly into the pockets of consumers.

While we’re at it, eliminate duties on all fuel sources — gasoline, propane, natural gas, etc. — and all equipment used to generate power — solar, wind, etc. From a tax revenue standpoint, Cayman’s government should be technologically neutral when it comes to decisions that individual households, and businesses, are making when it comes to grappling with energy costs.

Zeroing out the duty on diesel fuel will do more to reduce ordinary people’s cost of living than any competitive bidding process. Eliminating artificial and arbitrary barriers and restrictions will allow for experimentation and real consumer choice.

Who knows — perhaps in time, perhaps long before CUC’s 25 years are up, technology will have progressed, and the economics will have evolved, to where “clean” energy such as wind and solar will make “green” (i.e. financial) sense for Cayman.

Until then, diesel it is.

CUC, full steam ahead!

6 COMMENTS

  1. I’d take issue with your assertion that alternative methods of energy generation wind, solar, etc. have not yet developed to the point of large-scale commercial viability in Cayman.

    More accurately they haven’t been allowed to develop to the point of being commercially viable because CUC have consistently obstructed the installation of solar panels and wind turbines by individual property owners.

    Their arguments have ranged from employee safety to the lack of properly certified equipment but the bottom line has always been that CUC do not want their monopoly on diesel generated power interfered with by people installing clean alternatives like solar panels on their properties.

    If CUC had co-operated with moves being made back in 2006/7 to encourage the widespread installation of solar panels it is very likely that during the daytime 15 per cent or more of the power now being consumed could have come from net metered sources selling surplus solar energy back into the grid.

    I have no idea what that represents in hard cash but it doesn’t take a genius to figure out that if it had happened CUC’s shareholders would taken a pretty big hit.

    The problem with the use of alternative energy in the Cayman Islands is not that it isn’t viable but that its viability has always been compromised by vested interests whose profits take precedence over all other considerations.

    You don’t believe me? Try this – measure up the roof of the Compass Centre then work out how many solar panels you could install on it and what their output would be.

  2. Fuel cost for said expansion will be close to US 1 Billion over the lifetime of the equipment using current fuel figures supplied by CUC. 100 percent of that cost will be passed on to the 27000 customers. Also close to 1 mill tons of CO2 will be released from the combustion.

    Government will collect approx 20 percent of that in duty or 200 million.

    Atleast some of that burden could be eliminated by replacing some of the capacity with solar or wind. But no. All they say is that is isnt viable.

    The truth is that CUC has no concern over the fuel cost, only their bottom line and government needs to collect it to stay afloat so they are vested as well.

    Also, I agree 200 percent with Davids claim. Best practices are not in place to create incentive for solar or alternative energy. Some of these practices are net metering, no limit to installed generation capacity and the perpetual rolling of credits.

  3. In response to Mr. David Williams

    Why should CUC’s shareholders and other customers take a big hit from a net metering programme that would reward renewable producers at the full retail rate of electricity, without a deduction for the firm capacity costs to back it up?

    It would be useful to see a comparison of the levelized cost per kWh for electricity generated on the roof of the Compass Building and compare it to the levelized variable cost of the CUC proposed generation of CI0.165 found on table on page 14 of the ERA consultants bid evaluation report.

    If you wish to include the fixed costs of the CUC generation, include the cost of batteries or other storage for the Compass Building to stand alone. I think you will find that the cost of the solar energy is much greater than CUC’s costs.

    The use of alternative energy, which is growing as prices and technologies improve, no doubt has a role to play in Grand Cayman’s electricity system. Who knows this may be last diesel generators installed!

    However, those with vested interests in profits from the renewable sector also cloud the true costs of renewables and push for early adoption at the expense of other stakeholders.

  4. Pat, you’ve clearly been reading too much CUC propaganda.

    Solar/wind energy isn’t a stand alone option – it’s complimentary to conventional generation and I would guess from the tone of your comments you already know that.

    Please don’t try to muddy the waters with irrelevant comments.

  5. Mr. Williams, I am not trying to muddy the waters and my comments are relevant. No where in your original post did you say that the solar and wind energy is not stand alone and that conventional generation is still required.
    I am in agreement with this and therefore wonder why you seem to oppose the replacement of older less efficient conventional technology with the latest most efficient technology to support the addition of renewables going forward?
    Secondly why should CUC’s shareholders and customers accept a net metering system in which renewable energy producers do not pay one cent for that conventional generation required to back them up?

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