BL&P rate review

Late last year the Barbadian public was made aware of the Barbados Light & Power Company’s (BL&P) request for a rate review.

Given the current economic circumstances in which Barbados finds itself, most Barbadians would naturally be concerned about such a development. One could well understand some of the causes for the rate review. The price of crude oil has moved from US $30.00 in March 2015 to US $63.68 at March 05, 2019. All of us should have seen the upward movement of the Fuel Clause over the past few years. The BL&P is also reacting to the changing energy market in Barbados.

This energy market I refer to is the increasing awareness that consumers have alternative renewable energy supply sources, in particular, photovoltaic systems. Many Barbadians have installed photovoltaic systems on their roofs, generating electricity for their homes and, once grid tied, are selling any excess to the BL&P. A grid-tied system is one which is interconnected with the BL&P electricity distribution network.

Investing in photo-voltaic systems is not as prohibitive as it used to be, as a grid-tied system can be installed for about $20,000-$30,000. These are costs most middle-class persons can afford. Photo-voltaic systems are being utilized increasingly by businesses, Massy Supermarket in Sunset Crest being the latest example.

The question that needs to be asked now is this: ‘how does this affect the business model of the Barbados Light and Power Company (BL&P) in the medium- to long-term?’ The business model of most electricity power-generation companies is to supply vast amounts of electricity at a low cost, to its customer base. A large customer base is necessary as electricity generation and distribution is a capital intensive business. A large customer base also facilitates the spread of the fixed costs over its customer base.

As renewable energy sources become more reliable and cost-effective, the BL&P customer base, particularly its large electricity consumers from businesses and Government, may choose to invest in the renewable sources of energy. Some Government entities such as the Barbados Water Authority have already done so; Williams Industries also invested significantly in renewable energy.

These changes in customer behaviour may have forced BL&P to invest in renewable energy sources. Over time, as customers see the decreased cost and increased reliability of renewable energy sources, more of them may opt to disconnect from the BL&P distribution grid. This can result in decreased electricity demand, resulting in a reduction in revenue for the company, and maybe impairment of revenue-generating assets such as its large, diesel electricity generators.

Furthermore, it has been realized that most of the more easily accessible oil reserves are almost totally exhausted. Most of the world’s oil reserves are to be found in more inaccessible and hostile environments. Most people may not remember the disaster in the Gulf of Mexico in 2010, which decimated the Gulf coast of the USA. Petroleum was being pumped to the surface in 5,000 foot deep water. It took months to resolve as humans could not safely operate at such depths.

Even one of the most recent discoveries of petroleum within Brazil’s exclusive economic zone (EEZ) was in very deep water. Significant petroleum reserves were also discovered to the east of Barbados, also within its EEZ. However, these oil deposits are in waters that are approximately a mile deep before the ocean floor is reached. As a result, based on today’s technology, petroleum extracted from such depths is more risky and costly.

Therefore, it can be said that the long term price of petroleum will remain high. In addition, man can no longer ignore the negative consequences of negative externalities of the use of petroleum and its derivatives. These externalities include the increase in greenhouse gases which climate science has suggested, is playing a significant role in the gradual rise of the earth’s temperature over the past century. Evidence appears to be growing that global warming has resulted in the increased power of hurricanes, the movement of tropical diseases into temperate zones and the increased virulence of said diseases.

As a consequence, the long term future of electricity generation via carbon-based fuels is questionable. This may, in some part, assist in explaining the need for an electricity utility to increase its investment in renewable energy sources. These investments are not cheap. Therefore, to aid in renewable investment, increased revenues are required to defray such costly and new forms of power generation. This may explain the BL&P desire to pursue this rate review at this time.

Edward Hunte is a Attorney-at law with experience in business and economics.  edlett@hotmail.com