Regulators are reviewing the draft of an agreement that would for the first time confer a license on an overseas company for commercial generation of electricity in the Cayman Islands.
The tentative “power purchase agreement” between Pittsburgh, Pennsylvania-based International Electric Power and the Caribbean Utilities Company stipulates that the U.S. company will generate 5 megawatts of energy at its Bodden Town solar farm, selling it to CUC for general distribution to consumers through the national grid.
The agreement, according to Electricity Regulatory Authority Managing Director Charles Farrington, was signed in early December, and now awaits review and potential approval.
“It’s a long document, between 50 and 100 pages,” he said, dealing with the price at which IEP will generate power, CUC will purchase it and, potentially, charge consumers.
CUC President and CEO Richard Hew explained the power purchase agreement “is a contract between two parties, one who generates electricity … and one who is looking to purchase electricity. All commercial and technical terms such as locations, costs, capacity, energy, interconnection requirements, safety, etc., are covered in the PPA as with any other utility contract.”
Neither Mr. Hew nor Mr. Farrington would discuss the prices named in the document pending a consultant’s review, but the ERA executive cautioned that the agreement did not necessarily mean consumers would pay less for their power.
“That is what we look at, the price, the costs,” Mr. Farrington said.
He explained that the “fuel factor” CUC charges on every bill, passing to consumers the government’s per-gallon tax on diesel plus the raw price of refined gasoline – totaling about 23 cents per kilowatt hour – would no longer apply to solar-generated power. However, he said, at least some of that 23 cents would be replaced by recovery of the price CUC pays IEP for their solar electricity.
“When CUC buys renewable energy at, say, ‘X’ price,” Mr. Farrington said, “there are no fuel charges, so they eliminate certain costs, but they are replaced by whatever they pay to IEP.
“The CUC charge to consumers doesn’t change,” unless the new costs are so low as to reduce KwH prices.
Mr. Hew, meanwhile, would say only that “contracts for renewable energy are similar to those contracts for fuel as they displace fuel costs, and all associated costs are typically passed through to consumers.”
Speaking from Pittsburgh, IEP President Enzo Zoratto declined to comment, saying his investors preferred to play their cards close to the chest. “They just don’t want to be mentioned” at this point, he said, promising details at a later date.
The CUC-IEP contract is for 20 years, making elusive any certainties involving projections of volatile oil prices, which, Mr. Farrington acknowledged are “virtually impossible to know,” but which “we need to make sure is a sound figure.”
A supplier, he says, will “know how much he’s going to spend and how much profit he’s going to make.
“The unknown is for the consumer. What happens if oil prices remain low?” he asks, making the cost of diesel-fired generation cheaper than solar and, if “renewables put so much pressure on oil prices that they never recover?”
Mr. Hew acknowledged that CUC was unlikely to have sent the ERA a draft agreement the company did not believe was substantial, but he declined to speculate when the authority might render a decision.
Mr. Farrington would say only that “we’ll soon know,” although he did not give an exact date, citing unexpected delays around last year’s CUC bid to supply 36MW of diesel-fired energy at its North Sound Road headquarters.
“It took longer than anticipated,” he said.” We were trying for June or July, but it was in October” that the decision was finally announced.
Pending approval of the power purchase agreement, he said, the ERA will grant a generation license to IEP, triggering construction of a $1.4 million, 20,000 panel solar farm on part of a 113-acre site near Bodden Town’s Pease Bay Pond.
Construction is expected to take a year, with commissioning immediately afterward.
“Pending ERA approval, it is anticipated that the 5MW solar project will be on line by mid-2016,” Mr. Hew said.