Everything you need to know about the Caribbean Energy Transition

The Caribbean region is facing significant energy challenges that hinder economic development such as high electricity costs, climate vulnerabilities, and dependence on imported fossil fuels. Enter the Caribbean Energy Transition…

To address these issues, a five-step roadmap is proposed to transform the energy systems and accelerate the transition to cleaner, more reliable energy sources. This is now known as the Caribbean Energy Transition.

These steps include energy modelling and analysis, grid modernisation, utility structure diversification, creating bankable projects, and scaling investments. Essentially, the region needs international support for this transformation, especially as it faces the impacts of climate change. 

Drivers of the Energy Transition

Climate Crisis

Rising temperatures, sea levels, and extreme weather events driven by climate change are forcing the Caribbean to transition to more resilient and sustainable energy sources. 

Economic Impacts

The region’s heavy dependence on imported petroleum products leads to high electricity costs, which affect businesses and citizens. This, in turn, affects the competitiveness of industries like tourism, a major contributor to the region’s GDP. 

The Role of the Caribbean Energy Working Group (CEWG)

In January 2023, the Atlantic Council’s Caribbean Initiative established the Caribbean Energy Working Group (CEWG). CEWG identifies energy security challenges and proposes actionable recommendations for a responsible energy transformation.  

The CEWG members stress that transforming the Caribbean’s energy systems is a prerequisite for a successful energy transition, especially as COP28 approaches later in the year.   

Caribbean Energy System Transformation Roadmap

The Atlantic Caribbean Council proposed a five-step roadmap approach to the Caribbean energy transition that is cost-effective. Each step will intertwine with one another, as some Caribbean nations would have initiated various stages on the roadmap. 

Estimated Initial Investment

The five-step roadmap anticipates an initial investment of US$3 billion to US$5 billion (adjusted for inflation to US$5 billion to US$7 billion) based on IMF projections from 2016. This investment encompasses building and upgrading power plants, energy efficiency initiatives, introducing natural gas facilities, and renewable energy investments. 

Step 1: Energy Modelling and Analysis

The first step involves conducting comprehensive energy modelling and analysis at national and regional levels. Software tools are used to evaluate each country’s energy system, considering supply, demand, storage, transport, and technologies.

The goal is to identify cost-effective and renewable energy plans tailored to each country, emphasising decarbonisation, cost-effectiveness, reliability, and resilience. 

Energy modelling also aids in improving energy efficiency, which can yield significant economic benefits. 

Step 2: Modernising the Grid

Step two focuses on transitioning from a monolithic grid to a modular and agile modernised grid, supporting distributed generation. The modernised grid should exhibit resilience, reliability, security, affordability, flexibility, and sustainability. 

Decentralised power generation is crucial for climate adaptation, as it prevents country-wide blackouts during severe weather events.  Battery storage plays a vital role in enhancing reliability with intermittent renewable sources. 

Step 3: Diversifying Utilities

The third step involves diversifying state-owned utilities and vertically integrated systems, which is a common challenge in the Caribbean. Strategies may include incorporating independent power producers (IPPs), moving towards corporate or self-generation power purchase agreements (PPAs), or implementing feed-in tariffs and net metering for small grids. 

Step 4: De-Risking and Creating Bankable Projects

Step four focuses on making projects “bankable.” This involves ensuring that projects are financially viable and attractive to investors. Key elements include feasibility studies, creditworthy off-takers, insurance coverage, long-term PPAs, environmental assessments, equity injection, and secure site access.  Multilateral development banks (MDBs) can provide financing, technical assistance, and grants to support project development. 

Step 5: Scaling to National Levels

The fifth step emphasises scaling up from a project-by-project approach to a national or subregional level. Smaller projects are often less appealing to developers and less cost-efficient for countries.  

Scaling to national levels allows for standardised investment models and regulatory frameworks, facilitating renewable energy adoption. Additionally, it promotes the sharing of best practices among Caribbean countries. 

Renewable Energy Potential in the Caribbean 

The Caribbean region boasts tremendous potential for renewable energy due to its diverse geography and equatorial location. Spanning from South America’s Guyana and Suriname to Central America’s Belize and The Bahamas near Florida, this region offers a unique opportunity for harnessing clean energy sources. 

Solar and Wind Energy Potential

Solar Photovoltaic (PV) and wind technologies are recognised as the most cost-effective clean-energy options globally. Remarkably, every Caribbean country has the potential to leverage these technologies.  

The proximity to the equator ensures high solar-power penetration, making solar energy a viable and abundant resource. Wind resources are also plentiful, with the region well-suited for wind power generation. 

Other Promising Renewable Energy Sources

Biomass gasification and biomass anaerobic digestion hold promise, although their commercial viability at the regional production scale is yet to be realised. 

The Eastern Caribbean, comprising Dominica, Grenada, St Kitts and Nevis, Saint Lucia, and Saint Vincent and the Grenadines, benefits from strong ocean currents and volcanic formations, offering potential for smaller-scale renewables.

Geothermal resources in these five Eastern Caribbean nations total an estimated 6,290 megawatts (MW), surpassing the region’s energy needs. Geothermal power can enhance grid stability, complemented by liquified natural gas (LNG) and battery-storage options. 

However, rigorous energy modelling and analysis are necessary to evaluate the feasibility and cost-effectiveness of these technologies. These are vital to the Caribbean Energy Transition.

Current Renewable Energy Capacity

As of 2019, the Caribbean’s installed renewable energy capacity remains limited, accounting for only 11 per cent of the total installed capacity in the region. Some countries have made better progress in adopting renewable energy, with Belize achieving 48 per cent renewable capacity and nearly 100 MW of installed capacity. Suriname also demonstrates commendable progress, with 46 percent of renewable capacity and 189 MW installed. 

Challenges to the Caribbean Energy Transition

The Caribbean Community (CARICOM) aims to generate 48 per cent of its electricity from renewables by 2027, but the region faces challenges in meeting this target.

The Climate Crisis

Rising temperatures, sea levels, and more frequent extreme weather events are driven by climate change, posing significant threats to the region’s governments and businesses. Blackouts resulting from these events can last for days or even weeks, underscoring the urgency of reliable power generation. 

Dependence on Imported Petroleum Products

Caribbean nations heavily rely on energy imports, with an average of 87 per cent of oil imported, compared to the global average of 21 per cent. Subsequently, this dependence leaves the region vulnerable to global energy-price fluctuations, resulting in high electricity costs, which negatively impact both businesses and consumers. 

Economic Implications of High Energy Costs

High electricity costs have far-reaching economic implications, particularly for tourism-dependent economies in the Caribbean.  Inefficiency in power sectors and high electricity costs have eroded the region’s economic competitiveness over the years, impacting purchasing power and business growth. 

The tourism industry, a significant contributor to the gross domestic product (GDP) in many countries, is heavily reliant on energy and becomes less competitive due to increased energy costs.  

High electricity prices, inefficiencies in the power sector, and generation challenges have eroded the region’s economic competitiveness over the past two decades. Ultimately, citizens also bear the brunt of these high costs, affecting their purchasing power and overall economic well-being. 

Small-Scale Projects and High Costs

Caribbean countries have primarily approached renewable-energy development on a project-by-project basis.  However, the region’s small energy grids limit the scale of utility-scale solar and onshore wind farms, which typically benefit from economies of scale.  

The variation in total installed energy capacity across the Caribbean, ranging from 27 MW in Dominica to over 2000 MW in Trinidad and Tobago, illustrates the challenge. Smaller projects are inherently more expensive due to a lack of local supply chains and vulnerability to climate-induced disasters. 

Technical Capacity Limitations

Many Caribbean nations face a significant obstacle in the form of weak administrative capacity. Limited regulators and policymakers with experience in tariff setting and procurement result in slow decision-making and delays in obtaining permits.  

Technical capacity constraints hinder governments’ ability to choose between project proposals, set tariffs, or design auctions. 

Project Development and Financing Gap

A gap exists between initial project development and financing, leading to delays lasting several years. Feasibility studies, environmental assessments, and design work incur initial costs that deter investors. 

Creating a viable project pipeline is crucial, and donor coordination or flexible project-development mechanisms could expedite this process. 

Project Finance Challenges

Most commercial renewable-energy projects rely on project finance, requiring careful consideration of various aspects and risk mitigation. The development of “bankable” projects is essential to secure financing and attract investors. 

Existing Utility Constraints

Many Caribbean utilities follow a top-down, vertically integrated structure, owning and operating all aspects of the electric power system.  These utilities often have long-term contracts for electricity supply, limiting the introduction of renewables.  

High electricity costs, except in Trinidad and Tobago, affect consumers and businesses. 

The transition necessitates a new business model for utilities, addressing cost and risk concerns. 

Caribbean Energy Transition – A Realistic Energy Transition

Hybrid Approach with Natural Gas 

A transition to 100 per cent renewable energy is not yet feasible due to the variable nature of solar and wind power.  A modernised grid system reliant on battery storage is necessary. However, incorporating low-carbon fossil fuels like natural gas alongside renewables is essential for grid reliability.  

Jamaica’s example of sourcing LNG from Trinidad and Tobago and the United States illustrates a potential solution for other Caribbean countries. 

US Role in Providing LNG

In the short term, the United States can play a significant role by supplying LNG to the Caribbean, as it is the largest LNG supplier to the region. Potential options include reexports from the United States Gulf Coast and the development of small-scale LNG (ssLNG) infrastructure for regional demand.  

Natural gas is a cleaner energy source compared to kerosene and bunker fuel and can complement renewables. 

Transitional Power Model

Transitional power models, combining gas turbines with renewable sources, offer reliability and cost management benefits. California and Mexico’s use of gas turbines alongside renewables to address extreme weather conditions and peak demand can serve as a resilient solution for Caribbean countries. 

Strengthening Energy Partnerships

Partner nations, such as the United States, the United Kingdom, Canada, the United Arab Emirates, and others, can play a vital role in supporting the Caribbean’s energy transition.  

Two proposed programmes include: 

Caribbean Programme for Energy System Transformation (CPET): This programme leverages expertise from organisations like USAID, USTDA, and DOE to conduct energy modelling, promote decentralised power generation, and provide technical assistance for utility diversification. 

Caribbean Project Financing, Equity, and Development Support Programme (CFED Programme): Partner nations collaborate with Caribbean countries, MDBs, and donors to create a two-tiered financing and equity support programme for developers.  

This programme helps projects move through the development pipeline and receive affordable financing after reaching financial investment decisions (FID). 

International support, collaboration among donor countries, MDBs, and regional institutions like the Caribbean Development Bank (CDB) is essential to provide the necessary resources to support the energy system transformation across the Caribbean. 

Leading the way

Dominica has taken a multifaceted approach to ensure climate resilience and aims to be the world’s first climate-resilient nation. This includes a strong focus on ecotourism and investment in eco-resorts. In addition to funding conservation programmes – Dominica has also banned single-use plastic. The conservation programmes include the Mountain Chicken Recovery Programme and the Dominica Sperm Whale Project. Another goal is to be reliant on renewable energy by 2030.

One of the key measures to mainstream resilience is Dominica’s early warning system. This means to warn residents about approaching dangerous weather events, allows them to make life-saving preparations. Dominica’s unique system includes a grassroots approach of communication and support using traditional conch shells.

Three things Dominica is doing to ensure a climate-resilient future:
  1. Introducing eco-luxury resorts and sustainable practices
  2. The Climate Resilience Execution Agency for Dominica (CREAD)
  3. Dominica’s CBI and its contribution to their Sustainable Development Goals

Subsequently, Dominica’s actions are proving that they are serious about creating a climate-resilient future. It’s the perfect country for any discerning individual who is looking to invest in a climate-conscious country.