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By Andrew Holland on Apr 9, 2015 with no responses

A Suite of Options for how the U.S. Can Build Caribbean Energy Security

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In my last post, I showed that the highest levels of the American government have made engagement with the Caribbean a priority, and that they see energy security as one of the key ways to build that relationship.

But – what does that mean? Unlike the Venezuelan government, the US government is not about to provide subsidized oil directly to Caribbean governments: I’m sure that Congress would have something to say about that! When President Obama arrives in Jamaica on April 9, he will have a suite of options to present for how the US can help build energy security for the Caribbean, none of which will cost American taxpayers.

This is about U.S. government leadership and coordination. In a series of public-private partnerships, the US government will act more as a coordinator than a funder. There actually are many funders, whether its official development assistance from European, Canadian, or other governments, or whether it is non-profit foundations. However, there has been little coordination until recently. The unique convening power of the U.S. government can bring the right people to the table, who can then move projects from the planning stage to completion.

The energy revolution in the US – in both renewables and fossil fuels – also gives the US the market to provide the support for building energy security.

First, the Caribbean may be the world’s best natural environment for renewable energy. While the Caribbean islands may be short on natural resources in the traditional sense, they are rich in wind and sun. We know that the sun shine and the trade winds are consistent and predictable. When combined with the high prices for consumer electricity, the Caribbean is one of the few places in the world that renewable energy doesn’t need subsidies for operations.

However, what it does need is financing. Finding the start-up costs to replace existing power plants is a challenge. The Overseas Private Investment Corporation (OPIC) has helped to finance a number of power projects throughout the Caribbean, ranging from fossil plants to a series of clean energy investments. For example, projects like the Blue Mountain Renewables wind farm in Jamaica will provide an installed capacity of 34 Megawatts of electricity. Such a wind farm would only be a small percentage of the 5,177 MW installed in Iowa alone, but in Jamaica it will provide up to 5% of the country’s electricity and reduce imports of fuel by a commensurate amount.

In the long term, with sustained investment in renewable energy production, a more reliable grid, and regulatory reforms, countries could approach a point where they are independent of imported fuels. Even now, the Carbon War Room, a non-profit started by Virgin’s Richard Branson, has initiated the “Ten Island Challenge” that seeks to run islands entirely on renewable energy.

However, deployment of renewables not going to be fast enough in the region to wean the majority of countries off their dependence on Venezuelan imports immediately. That’s where the U.S. shale revolution can also provide an alternative to oil dependence. Generating electricity with modern natural gas turbines is significantly more efficient and less polluting than the fuel oil generators currently used in most islands. In addition, natural gas turbines work very well with renewables because they can “ramp” up or down their power generation in response to the variable power provided by solar or wind power. As the Department of Energy has finally accelerated the approval of Liquefied Natural Gas (LNG) export facilities, there soon will be a new supply of energy.

At first appraisal, it would seem that an appealing match-up would be to pair the growing LNG export capacity with Caribbean importers. Already, the Dominican Republic hosts one LNG import facility and is building another. Currently the Dominican Republic imports its gas from Trinidad and Tobago, but could also bring in imports from the US.

However, LNG import terminals require significant investment (though nothing like the billions of dollars required for an LNG liquefaction export facility) and the isolated nature of small islands means that the potential demand for LNG is often not large enough to warrant the investment. In addition, the scale needed for LNG facilities means that one terminal could fuel their entire power sector on many islands – an infrastructure dependence that creates an energy security vulnerability, particularly in a region prone to natural disasters. For these reasons, LNG imports are really only valuable for the largest islands, like the Dominican Republic and (perhaps one day) Cuba, until the technology and infrastructure develops to make smaller ships and facilities more economically viable.

Fortunately, there is another option, which is also growing thanks to the natural gas revolution in the US: propane. Often extracted as a byproduct from shale gas operations, in the U.S., we only think of propane as a source of heat or cooking fuel, but it can also serve as a source of power. In the summer of 2015, the US Virgin Islands Water and Power Authority (WAPA) expects to complete a conversion project that will allow the islands of St. Croix, St. Thomas, and St. John to generate their electricity from propane instead of fuel oil. WAPA estimates that the conversion will lower fuel costs by 30 percent and decrease greenhouse gas emissions by about 20 percent. Already, the savings are being felt as electricity rates have fallen from more than 51 cents per kilowatt-hour in September 2014 to 39.2 cents per kilowatt-hour.

Tropigas, a Puerto Rican company, has proposed a similar conversion project to PREPA, the Puerto Rican utility. No action has yet been taken, as PREPA remains close to bankruptcy and in negotiations with its creditors. Similar projects around the Caribbean could take hold, as there will be supplies of propane available from the US. Since 2009, the US has increased exports of Propane and Propylene from 85 thousand barrels per day to 423 thousand barrels per day, an astounding increase of almost 400%.

This suite of resources from the US: renewables, LNG, and Propane, accompanied by American political leadership and financing, can help to build real energy security for islands across the Caribbean, while underscoring American intentions to rebuild alliances and support economic development. There are few “win-wins” in politics: this is one of them.