In our previous installment we highlighted that the magnitude of the electricity subsidy fluctuates primarily with changes in the following:
1. The price of alternative uses of gas e.g. petrochemicals
2. Consumption of electricity
3. Efficiency of the power generation sector
The effect of price movements on the subsidy can be clearly seen through the period 2014 to 2016 when commodity prices began to fall sharply beginning October 2014. By the start of 2016 commodity prices had fallen by almost 60%. This had a downward effect on the magnitude of the electricity subsidy as the gap between the price paid for gas for used in petrochemicals fell closer to the subsidized price paid for gas for used in electricity.
Consumption of electricity also had an effect on the downward movement of the subsidy. The steel plant Acelor Mittal which shut down in 2015 unfortunately, put quite a bit of our fellow citizens out of work. It also had the effect of reducing the overall demand for electricity in the country. Despite these two occurrences having a downward effect on the magnitude of the electricity subsidy, the fall in global commodity prices and the subsequent insolvency of Acelor Mittal were both beyond our control. The only component of this opportunity cost subsidy that fell as a result of action taken was the closure of the Powergen POS plant and the subsequent increase of the more efficient TGU power plant. TGU is a combined cycle power plant with an average efficiency that is higher than that of the other powerplants in the country. According to data from the MEEA the closure of Powergen and the ramp up of TGU resulted in a 3% reduction in gas demand for power. It is expected that when TGU reaches full capacity it will further reduce gas demand in the power generation sector by 7% or more. This projected 10% reduction in overall gas demand for power generation will reduce the opportunity cost of the subsidy by 10% once the increase takes effect. (See chart 1 & 2).
With this in mind it is clear that energy efficiency in the power generation sector has the ability to make the government quite a bit of money by switching gas sales to higher priced commodities. Upgrading enough of our power generation system to combined cycle (while leaving the necessary room for peaking units) will undoubtedly optimize our gas fired generation system. However, we must keep in mind that this cannot be done in a vacuum. The commercial structures that govern our power generation assets as well as incentives that improve the economics of combined cycle project upgrades will need to be given due consideration as well.
So how does achieving the target of 10% RE fit in to all of this? Trinidad and Tobago has a special context in which renewable energy should be viewed. In many other Caribbean countries renewables are seen as a means of reducing government expenditure by reducing imports of expensive hydrocarbon based fuels. In T&T renewables present an opportunity to increase government revenues by further reducing the power sector’s consumption of natural gas and increasing the export of gas based commodities. In 2015 Trinidad and Tobago’s electricity consumption was approximately 8.7 GWh with a peak generation of around 1350MW. Achieving any renewable energy target will be made difficult if the renewable energy installation is attempting to provide energy to a wasteful and inefficient society. It is unwise to put a solar panel on an inefficient home and it is also unwise to put a solar farm on an inefficient country. Therefore, it is essential that our renewable energy targets are supplemented by a campaign to reduce our energy consumption. Moreover, when electricity consumption decreases due to energy efficiency renewable energy targets become easier to achieve.
So far we have examined the mechanics of the electricity subsidy, determined the magnitude of the subsidy and examined how improvements on energy efficiency and the introduction of renewable energy on the supply side can improve government revenue and increase foreign exchange (and considering our current economic situation this is quite relevant). With that said in our next installment we will take a closer look how we consume electricity in Trinidad & Tobago.
This article is Part 3 of the series - Understanding the Electricity Subsidy by Christopher Narine Thomas, Chairman of Energy Efficiency and Alternative Energy Committee of the Energy Chamber