The High Cost of Power: Why Jamaica’s Electricity Is So Expensive (In Layman’s Terms)

“Why is my light bill so high?” “Why am I paying so much for light?” These are not unfamiliar questions for Jamaicans at the end of each month when they receive their electricity bills. A common concern has been the very high cost of electricity in the country, which the Ministry of Science, Energy and Technology (MSET) says can go as high as US$0.42 per kWh.

The Jamaica Public Service Company Limited (JPS) is the country’s sole distributor of electricity, serving a population of 2.7 million. The company owns and operates four power stations, nine hydroelectric plants, 43 substations and approximately 14,000 kilometres of distribution and transmission lines. They are responsible for providing electricity to homes and businesses, as well as generating bills for these at the end of each month.

The average Jamaican probably believes that electricity usage alone determines their light bills. The reasoning, therefore, is that if they use less electricity in their homes and businesses, the amount on their light bills should be significantly less. This belief reflects a limited understanding of what factors contribute to the cost of producing electricity in Jamaica, and how this may affect an electricity bill. There are several aspects to electricity production that must be considered if we are to understand why energy costs in Jamaica run so high.

Fuel costs

According to the Ministry of Science, Energy and Technology (MSET), Jamaica’s energy system is “highly dependent on imported fossil fuels, [and] petroleum imports account for over 90 percent of electricity production.” Winston Haye, former JPS managing director, noted in an article that fuel costs alone represented approximately 61 per cent of the JPS’s overall expenses in 2009, and, conversely, about 50 per cent of the typical residential bill. These fuel costs vary based on oil prices, and the JPS does not make any profit on these costs. In other words, a percentage of the money customers pay on their bills goes directly to fuel providers, and the JPS does not gain from it at all.

Fixed costs

This covers the infrastructure required to generate, transmit and distribute electricity to the entire island. These can be seen as capital and maintenance costs – the money it takes to run the power plants, all the technical equipment, put up and repair light poles, wires, etc. Unlike fuel costs, fixed costs do not vary, and they do not depend on how much energy is consumed. According to energy consultant Winston Hay, “88 per cent of the [JPS’s] non-fuel costs are fixed (related to capacity) and only 12 per cent vary with changes in energy consumption”.

Dr Damien King, executive director of the Caribbean Policy Research Institute (CaPRI), gave us an explanation of how fixed costs work: “Fixed cost is the cost that the power company has to incur regardless of how many users are on the system or how much electricity they use. When you have a large number of users, it allows the power company to spread these fixed costs over many users. When users come off the grid, the cost now has to be shared over a smaller number of persons and therefore rises on a per-customer basis.”

This was why in March 2017, when the University of the West Indies announced that it would be leaving the JPS grid in 2018, many persons voiced concern over how this would affect the average Jamaican’s light bill. This is also why JPS CEO, Kelly Tomblin, warned that if some large entities came off the grid, remaining customers would still have to “pay for the grid”. Fixed costs do not change based on who is on or off the grid. Rather, they simply reflect the money it takes to keep the grid going to meet electricity demand in Jamaica.

Dr King explained: “There are two things that determine the cost of electricity:

  1. The cost of maintaining the grid – you need a grid going down the entire street, regardless of how many people are connected to it.
  2. Reserve capacity – it’s one thing if people come off the grid entirely, it’s another if they are off the grid but only intermittently use energy from it. This means the JPS has to maintain the capacity to supply those people just for the moments when they decide to draw power. So, for example, if we have a stormy week and so no solar panels can generate electricity, these persons will then have to pull from the grid. The JPS, therefore, has to have the reserve capacity to meet that peak demand. Who pays for that?”

Reserve capacity

Not many Jamaicans are familiar with the concept of reserve capacity. Fewer still understand how important this is to electricity production and their light bills. Reserve capacity is determined by the amount of energy that needs to be available to meet peak demand. Whether or not this energy is actually used is not the issue. It has to be available in case it is required.

Dan Theoc, JPS chief financial officer, noted: “Energy is produced (or supplied) to instantly meet the total demand on the system. So, we must have enough generation running to instantly match supply with the demand. If the supply is not sufficient, then some customers will experience power outages.”

Let’s say, for example, that for the month of September in your house, you use the light in the kitchen, living room and bathroom; the TV; the fan and your computer every day. All of that adds up to 7 units of electricity per day. But on the last Saturday of the month, you wash your hair and use the hair dryer and the curling iron, and you do all your month’s washing at once with your washing machine. These things increase your usage in a single day to as much as 14 units.

What the JPS has to consider is your peak demand, which reflects the highest amount of electricity used for the period. On any given day, they had to have more than 7 units of energy available to you so that if you had decided to wash, blow dry and curl your hair on Wednesday instead of Saturday, you would have enough energy available to do so. If they supplied you only with the regular 7 units, you would have a power outage when you tried to use any more energy than that.

Think about it: on any given day, you vary your energy usage. Maybe a project comes up that requires you to use the computer all night instead of the customary one hour. Maybe you throw a party on your birthday, and get high-powered music equipment on that day, pulling far more energy from the grid than you normally would. Reserve capacity is what allows you to get energy in these times. But who pays for this reserve capacity? Especially when some people use solar-powered generators and only pull from the grid in emergency situations?

According to Dr King, the solution is to either charge people who are permanently connected to the grid for this reserve capacity, or charge people for being connected to the grid, whether or not they are permanently on it. He notes: “The fact is, providing back-up has a cost and you should pay for it.”

Sharing reserve capacity

Jamaica is an island. The country does not share land space with any neighbours. This matters in electricity production because it means that the JPS has to meet all the demand for electricity on the island at any given time. This requires a greater reserve capacity.

Dr King explains: “In the United States, if you are in New York or New Hampshire, because they are connected together, they can share capacity between states. So they don’t need to have independent capacity because they can ‘borrow’ from each other. This allows each to have a smaller capacity because they can get backup from their neighbours. When you are on an island, you do not have contiguous neighbours who can perform that role. Therefore, you have to yourself invest in all the reserve capacity you may need.”

The JPS expounds further: “Consider that the average cost of energy (COE) today is US 24c/Kwh.  This is based on an average: (i) generation cost of 15c (inclusive of a 25% reserve margin which must be maintained given that we are an independent island with no other sources of back up generation capacity); and (ii) transmission and distribution cost of 9c (inclusive of system losses of 25%).   If we were interconnected to another grid and had no need for the reserve (or spare) generation capacity and were we able to bring system losses down to say 10% (comparable to other Caribbean territories) then the COE would fall to 18.7c (all other things remaining the same).”

Inefficient generating system, theft

Theft accounts for 15% of the system losses experienced by the JPS. Another factor to consider is the inefficiency of some of the JPS’ generating systems. To quote Winston Hay (in a 2012 article), “A high percentage of JPS electricity [is] being generated by old inefficient steam turbines burning heavy oil, and, to a lesser extent, by gas-turbine units fuelled by expensive automotive diesel oil”.

He also notes: “The independent power producers (IPPs) under contracts with JPS also burn heavy fuel oil, but the modern diesel engines which drive their generators convert the fuel into electricity more efficiently than JPS’s outmoded steam turbines.” Inefficient generating systems result in higher generating costs, which directly contribute to the fixed costs mentioned above.

On a bright note, since 2009, the JPS has been “on a mission to change out most of [the] old inefficient power plants”. They note that currently, 80% of their power is produced from oil, 10% is produced from natural gas, and 10% from renewable energy sources.  They anticipate that in upcoming years, with the completion of the new power plants, oil will only represent 45% of the contribution, with natural gas rising to 40% and renewable energy to 15%; as they continue to work with the Government of Jamaica to explore fuel diversification – and realise a corresponding decrease in fuel and energy costs.

 

Sources:
Interview with Dr Damien King, CAPRI co-executive director
Consultation with the Jamaica Public Service
http://mset.gov.jm/overview-jamaicas-electricity-sector
http://jamaica-gleaner.com/gleaner/20120129/focus/focus7.html
http://jamaica-gleaner.com/article/news/20150503/understanding-cost-energy-jamaica-part-2-%E2%80%98electricity-cost-poised-come-down%E2%80%99
http://jamaica-gleaner.com/article/news/20170308/uwi-leave-jps-grid-next-year
http://jamaica-gleaner.com/article/lead-stories/20170212/power-warning-increased-use-renewables-could-burn-pockets-some-jps

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