The price of power: New deal could cut costs

It’s one of the biggest costs in every family’s monthly budget. But could your electricity bill be about to come down? A new deal to inject competition into the energy sector has been widely touted as a boon for consumers. The details are a touch more complex and there will be no immediate price reductions but experts believe that over time the move to liberalise energy production will bring relief to rate payers.  

 

Don’t start cranking up the air conditioning just yet, but the trend of steadily rising electricity prices may be about to change. 

A landmark deal to inject competition into the electricity sector is likely to stabilise prices in the long term, experts told the Journal. 

Describing the move as a “game changer”, Joey Ebanks, of the Electricity Regulatory Authority, said competition would inevitably lead to a better deal for consumers. 

The concept is capitalism 101: More competition equals a better deal for customers. 

Until now the Caribbean Utilities Company has held a virtual monopoly over all aspects of electricity production and supply in the Cayman Islands. 

The new arrangement stems from a need for new equipment to replace some of CUC’s older power generators. 

Instead of sanctioning the company to go ahead and build replacement generators the ERA put the work out to tender for other companies to get involved. 

The upshot of the bidding process is that there is a new player in the industry.  

Dart Enterprises Contracting Company, known as DECCO Ltd, won the bid and will build the new generators.  

The CUC still runs and operates the power grid and will purchase electricity from DECCO to help it meet demand from consumers across the Cayman Islands. A power purchasing agreement between the two companies is still to be negotiated, 

The details of the deal will enable regulators to hold DECCO to a specific price cap for the power it supplies, according to the ERA. 

That will then be factored in when the authority sets the ultimate price that the CUC is allowed to charge its customers. 

Ebanks explained that the involvement of several companies in a bidding process meant the deal it could strike over prices was potentially cheaper than if just one company had been involved. 

“This is really a game changer in terms of stabilising prices. 

“We want to drive prices down and ensure that those companies can still make money. The ERA likes them to be profitable but we want the best price we can get for consumers.” 

Ebanks stopped short of promising that prices were about to plummet. But he said: “It could at least stop them from going up.” 

In essence the move allows regulators a greater degree of control over costs in the first step of the electricity supply chain. 

What it does not mean is that there will be a new name on your bill. Electricity will still be supplied to the customer by CUC through its existing infrastructure of pylons and power lines and CUC will send out bills as normal. 

The ERA, which ultimately sets the prices on those bills, will, however, have more scope to control costs. 

“Competition brings the price down because everybody is fighting for the project,” added Ebanks. 

On this occasion there were three bidders – CUC, DECCO 
and Navasota.  

The contract is to supply an additional 36 megawatts of power generation on the island. DECCO will now look to begin building its plant with the aim of being up and running by 2014. 

With some of CUC’s generators likely to be “retired” and the island’s power requirements likely to continue rising, Ebanks believes there will be further upgrades required in future. 

He said competitive tendering for future power generation contracts would likely involve more businesses, including renewable energy firms. 

“The next time around when we get a certificate of need from the CUC saying we need, for example, 50 megawatts by this date, I am going to respond and say I need this to come from a mixture of sources – not just diesel.” 

A spokesman for DECCO, said the selection of the company to build the generators was the first step in a two-part process. The company will now negotiate the terms of a power purchase agreement with CUC to deliver the power to customers. 

He said the new generators would be more modern and efficient than the old equipment they were designed to replace. 

“The RFP was designed to put in place new generation capacity to replace some very old and inefficient equipment. 

“The new units proposed to be used by DECCO will be the most efficient on the island, in terms of superior heat rate, which produces a lower variable cost, and therefore, yes, there is a likelihood the average cost to the consumer will go down.  

“However, fuel remains a significant input cost and variations in fuel costs and taxes on fuel will impact costs to consumers.” 

He said the company hoped to remain involved in the energy sector and would keep its options open should further opportunities for the supply of additional power generation arise. 

He said research into renewable energy was already taking place at DECCO and the company was interested in providing power from renewable sources, subject to regulatory approval. 

 

Editor’s note: This article contains excerpts from an interview that took place with former Electricity Regulatory Authority Managing Director Joey Ebanks prior to his suspension from that position on Friday 1 March.
 

 

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