Business Monday: The Evolution of the Renewable Energy Rider

FTC Column

Since its introduction by the Barbados Light and Power Company Limited (BL&P) in 2010, the Renewable Energy Rider (RER) programme has matured and made a valuable contribution to the development of alternative energy generation in Barbados.

Today, the RER programme, with its 12MW of installed capacity, has served as an impetus for discussion on grid stability impacts, pricing of intermittent Renewable Energy (RE), intermittent capacity, smart grid prospects and electrical storage. While the complexities of developing and sustaining this relatively new industry could not have been envisioned, neither could they have been overcome without first taking the bold step to implement such a programme, while cautiously addressing challenges as they arose.

The programme was borne out of the realisation that RE was the new frontier of energy generation, and that Barbados was blessed with an abundant, readily available supply in the form of solar and wind energy. During the pilot, the programme’s maximum capacity was set at 1600kW. Individual capacity for residential customers was capped at 5kW, while that for commercial customers was 50kW.

With the necessary legal framework in place, the rate that the BL&P paid for the electricity it bought was set by the Fair Trading Commission at 1.8 times the Fuel Clause Adjustment (FCA), or 31.5c/kWh, whichever was greater. By the end of the pilot period in December 2012, the programme had attracted a total of 60 participants.

With the conclusion of the two year pilot phase, the BL&P submitted an application to implement the permanent RER programme. This led to a consultation paper being issued by the Commission to stimulate discussion by public and private stakeholders. Approval was granted to BL&P for a permanent RER in August 2013.

At the end of 2012, RE generation capacity was about 1MW. Two years later, intermittent generation had surged to almost seven times that figure. In September 2014, the Fair Trading Commission approved the rate change for the RER credit factor from 1.8 to 1.6 times the FCA. This was to account for the change in the avoided cost, as participation in the programme grew and RE started to displace base load, which is cheaper.

As a result of the impact that increasing intermittent capacity would have on the national grid, the BL&P contracted General Electric (GE) Energy Consulting to conduct a study; this was to determine the level of intermittent RE generation that could be accommodated without the need for mitigation measures, and also to identify what mitigation measures would be necessary beyond this point.   

In the interim, during September 2014, the Commission permitted a capacity increase, with the new limit set at 9MW. This was to accommodate the rising number of RE candidates, until the study was complete.  The results of the study indicated that 20MW of Distributed Photovoltaic (PV), 20MW Centralised PV and 15MW of Wind intermittent generation could be accommodated on the national grid without the application of mitigation measures. Distributed RE installations reached the capacity limit which was imposed, and given the interest and Government’s promotion of sustainable energy sources, the capacity limit was extended to 20MW in 2015.

While the results of the study opened the way for greater participation in the RE market, increasing the variable capacity would have implications. Additionally, since the permanent implementation of the RER, market conditions have changed rapidly and global oil prices sunk to their lowest in 2015, as the market was glutted. With the RER credit linked directly to the FCA, this created a major concern for RER programme participants, who experienced reduced financial returns when fuel prices fell. This prompted RE installers and RER customers to seek a review of the RER programme, specifically as it related to the credit.

In light of the prevailing economic conditions, the Commission issued a consultation paper on the Motion to Review the RER with the objective of alleviating the volatility of the RER credit and offering some level of certainty to the RE sector. Having examined all the relevant information submitted, the Commission also undertook a market study to ascertain the relevant inputs in determining an appropriate credit.

The Commission considered the continuation of the “avoided cost approach”, but with the inclusion of a floor credit, “the resource cost approach” and “the social value approach”. The “resource cost approach” was considered the most appropriate, given the stated objectives.  It is also in keeping with the current general thinking of the RE industry and breaks the unnecessary linkage of RE costs to fuel costs.

From the findings of the Commission’s market study, it was determined that the temporary RER credit should be fixed at $0.416/kWh for PV and $0.315/kWh for Wind, for all units sold, until such time that a permanent tariff is instituted.

It should be noted that the RER has played a significant role in encouraging RE generation in Barbados. Today, the RER has taken on a much greater role, in determining how best the BL&P, investors and RE enthusiasts will participate in sustaining the RE market. It has fostered greater communication and information sharing among stakeholders, and serves as a means of educating the general public on RE developments and economics.

The RER can be viewed as a catalyst in moving the industry forward; it is important, however, to note that the viability of the RE sector in Barbados will depend on the minimisation of risk and the creation of a stable investor climate, complete with guiding policy and regulatory certainty.

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