Fuel Diversification and Generation Modernization:

Specific to generation, the JNEP recommends a number of strategies and key actions as Jamaica’s generation approaches Year-2030. Selected strategies include;

 Implement least economic cost solutions for the supply of energy, including source, conversion and distribution options.

 Through a competitive basis, retire the old generation plants and replace them with modern plants to improve the conversion efficiency.

 Establish a system to identify and replace old and inefficient units/plants with more fuel-efficient and cost efficient technologies and plants.

 Establish a combined cycle capacity to replace old and inefficient units/plants with more fuel-efficient and cost efficient technologies and plants.

 Implement appropriate energy distribution and transmission systems.

 Unbundle generation and transmission & distribution creating an energy efficient electricity structure.

 Unbundle existing vertically integrated industry structures and establish and implement common carrier and common access principles, where demonstrated to be technically and economically feasible.

 Facilitate greater energy efficiency and lower energy costs in the bauxite and alumina industry and in the manufacturing sector.

 Review and complete rural electrification programme including use of alternative energy sources.

Diagnosis of Generation in Latin America & the Caribbean: Jamaica

Under Goal #2, the modernization of the electricity infrastructure is critical and seeks to incorporate effective protocols for replacing old and inefficient generating plants and a transition to cleaner and energy-efficient plants specifically from oil-fired to natural gas power plants. Vision 2030 suggests that in this regard, the range of fuel diversification options for the energy sector includes natural gas, coal, petcoke and renewable energy resources such as solar energy, biofuels and wind

.

improvement in the distribution system. These are to occur in a liberalized energy industry that promotes competition governed by appropriate regulations.

Since 2001 the GoJ has sought natural gas as an alternative fuel to lessen Jamaica’s high dependency on oil products and exposure to price volatility in the international oil markets. Fuel diversification is one of the main objectives of the National Energy Policy 2009 – 2030 which states that as part of the diversification strategy “In the short to medium term, natural gas would be the fuel of choice for generation of electricity and production of Alumina” and to meet the growing demand for power. The initial demand for LNG was approximately 0.8 million tonnes of LNG per year, with future demand projected at 2.5 million tonnes per year by the end of the decade. The first gas was intended to be used for firm generation capacity.

The first significant effort at the transition to natural gas was a Memorandum of Understanding (MOU) in 2004 between the GOJ and the Government of Trinidad and Tobago (GovTT) to cooperate on the development of an LNG project in Jamaica based on LNG supplied from Trinidad. However the negotiations were suspended in late 2006 as there was no consensus between the two island States on the applicability of the Treaty of Chaguaramas for the supply of gas (as LNG) at discounted prices to Jamaica, no agreement on the actual price offered for the sale of LNG and inadequate supplies as stated by the GovTT.

From this effort a Front End Engineering and Design (FEED) study was completed by Mustang Engineering in 2006 for an onshore LNG receiving, storage and regasification terminal located at Port Esquivel in St. Catherine, south central Jamaica. In 2009, the GOJ renewed its efforts to pursue LNG as the preferred primary fuel diversification option under the JNEP this time with a focus on the LNG Floating Storage Regasification Unit (FSRU) technology. The technology was considered to be adequately mature, lower in costs and would require a shorter implementation timeframe compared to an onshore terminal concept. On this basis a RFP was issued in November 2009 for FSRU infrastructure, gas pipeline network and natural gas supply. This initial tender process was aborted and a new tender was issued in 2011 but the process was again aborted in 2012 as a competitive final delivery price (especially for the bauxite sector) would not be obtained after all costs for infrastructure, supply and other costs were added. The successful bidder for the construction of the LNG FSRU at the time was Samsung C&T Corporation of Korea, and there were six submissions for the long-term supply of LNG for which there were no successful bidders.

This modernization by fuel diversification was also to facilitate a transformation in the generation sector including the conversion of old conventional oil fired plants to gas, the addition of new gas plants and generation systems conversion to achieve more efficient

Diagnosis of Generation in Latin America & the Caribbean: Jamaica

generation plants, and to increase generation to meet growing power demand28_{. In} 2010, the Office of Utilities Regulations (OUR) placed a Request for Proposals (RfP) for new generating capacity of up to 480 MW (net) base-loads to the national grid on a Build Own and Operate Basis (BOO). This new capacity was intended for the replacement of approximately 292 MW of aging JPS plants which were to be retired, with the remainder of the generation supply to provide for projected load growth29_{. Simultaneously, gas} would be introduced into the generation market. The plants would sign a 20-year PPA with Jamaica Public Service Company Limited (JPS), and be commissioned in two tranches: first stage plant (360 MW) was scheduled to start up in 2014 and the second stage plant (120 MW) was scheduled to start up in 201630_.

The bauxite industry was also seeking to convert from heavy fuel oil (HFO) to gas fired plants to achieve greater energy efficiencies and improved financial viability. At the same time a component of the upgrade programme at Petrojam Refinery was intended to apply coking technologies to produce petcoke for JPS as an alternative fuel to oil by 2012. JPS would use the petcoke as an alternative fuel at a new 220 MW power plant to be developed at its Hunts Bay location close to the upgraded refinery to cut transportation costs.

The first phase of the Jamaica LNG Project was therefore focused on three key power generators: Jamalco (bauxite/alumina producer in which Alcoa is the majority owner) Jamaica Public Service Company Ltd. (JPS) and Jamaica Energy Partners (JEP).

Table 11: Phase 1 Firm Demand for LNG.

END USER – LNG PHASE 1 DEMAND POTENTIAL LNG DEMAND (tpa) JAMALCO (Bauxite and Alumina

producers)

320,000

JAMAICA ENERGY PARTNERS (Operating 2 X IPP power barges of 125 MW)31_.

140,000

JPS (New 360 MW IPP to be started up in

2014) 370,000

TOTAL 830,000

28 _{Successive Governments have declared LNG as the preferred fuel.}

29 _{Office of Utilities Regulation - RFP Document for Supply of up to 480 MW Base-Load Generating Capacity}

Document No. ELE2010006_RFP001REV001. 2010.

30 _{Government of Jamaica RFP for a Liquefied Natural Gas (LNG) Floating Storage & Regasification Terminal,}

August 31, 2011 and Information Memorandum - Government of Jamaica - Procurement of Liquefied Natural Gas (LNG). August 31, 2011).

Diagnosis of Generation in Latin America & the Caribbean: Jamaica

Figure 9: Jamaica LNG-SPV Ownership Structure

As part of the GOJ’s fuel diversification strategy, the GOJ anticipates that the LNG fuel switching initiative will have the opportunity to generate substantial carbon credits under the Kyoto Protocol, or its successor agreements. It was anticipated that any bidder to the LNG tender would support the Clean Development Mechanism (CDM) compliance of the projects, support the feasibility of this initiative, and assure maximum benefit for the Jamaican economy as a whole, to be accounted in the evaluation of the bid submissions per Section III, Evaluation and Qualification Criteria32_{. This is in keeping with} the objectives of the National Carbon Trading Policy (draft) Goal #4 (“A diversified emission trading sector with established linkages across the economy”)33_{which states;}

Objective 1: Promote the development and commercialization of projects in the renewable energy sector.

Objective 2: Promote the development and commercialization of forestry-related projects.

Objective 3: Promote the development of Energy Efficiency projects. Objective 4: Promote the development of Waste Management project.

The generation projects of focus under the Carbon Trading Policy Goal #4 and which may have access to CDM opportunities include:

 Energy efficiency.

 Renewable energy (wind, solar, bagasse co-generation, landfill gas recovery, biofuels).

 Use of alternative fuels (e.g. LNG, LPG, CNG).  Waste-to-energy (biogas, methane etc.).

32 _{Bidding Documents Issued On: August 31, 2011 for Procurement of Liquefied Natural Gas (LNG) Floating Storage &} Regasification Terminal Icb: 2011/L002. Project: Jamaica LNG Project Procuring Entity: Government of Jamaica, On Behalf Of the Jamaica Gas Trust.

Diagnosis of Generation in Latin America & the Caribbean: Jamaica

The benefits of incorporating carbon trading into future generation projects include:  Transitioning towards a less carbon intensive economy (shift to a gas generation

with smaller organic molecules) which uses more renewable sources of energy.  Facilitating the renewal and operational improvements of important infrastructure

such as power stations.