Recommendations for a Draft Energy Conservation Policy and an Implementation Strategy

This section contains recommendations for a draft Energy Conservation Policy (‗the Policy‘, section 6.1) and an Implementation Strategy (‗the Strategy‘, section 6.2). We look forward to discussing the Policy and the Strategy with the Government and other stakeholders at public consultations during the week of 7 March 2011 in the TCI.

6.1

Recommended Draft Energy Conservation Policy

The Energy Conservation Policy of the TCI should pursue clear objectives; be based on solid core policy principles; comprise concrete, feasible actions to achieve the objectives while respecting the core policy principles; and recognize the resources needed to carry out the actions. The sections below discuss each of these matters.

6.1.1 Objectives of an Energy Conservation Policy

The Government of the TCI may wish to adopt the following objectives for its Energy Conservation Policy:

To promote viable renewable energy and energy efficiency and conservation projects that will reduce the TCI’s dependency on imported fossil fuels, and therefore:

- Reduce electricity costs and prices, as absolute priority, while also - Improving energy security, and

- Increasing local and global environmental sustainability.

The objectives as formulated above give priority to reducing electricity costs and prices. This has the following three implications:

 Greater use of RE and EE technologies should not be an objective in itself— these technologies should be promoted only if, compared to fossil fuel-based and standard-efficiency technologies, they are ‗economically viable‘ (that is, if they reduce electricity costs for the TCI as a whole)

 The objectives of improving energy security and increasing environmental sustainability should be pursued only to the extent that this may be done while reducing electricity costs. In particular, the objective of reducing emissions of carbon dioxide (CO2) should only be pursued through those technologies that

have a negative ‗carbon abatement cost‘,91 meaning that they abate CO

2 emissions

while also saving money

 Only renewable energy technologies that are mature (that is, in commercial operation somewhere in the world) and whose primary energy resource is available in the TCI should be assessed for their economic viability. Given its limited natural resources and already high energy costs, the TCI is not the appropriate setting for pursuing technologies that are still at a pilot or pre- commercial stage. This said, the TCI should remain open to developing any technology that becomes mature and is economically viable for the country.

These objectives—and its implications—were endorsed by the Government,92 represented

by the DECR and the Electricity Commissioner‘s Office. These objectives and implications guide the analysis and recommendations contained in this Report.

Binding Renewable Energy Targets would not be a good option

We do not recommended establishing binding renewable energy targets for the power utilities in the TCI; binding targets would be contrary to the objectives of the Energy Conservation Policy. As discussed in section 3.1.3, the main risk of binding targets is implementing projects that increase costs (and prices) of electricity for the sake of complying with the targets. In addition, setting binding renewable energy targets would not be practical in the short or medium term in the TCI, given the high excess capacity in the PPC and TCU systems.93 The recent accident in TCU‘s plants does not suggest setting targets either—base

load capacity needs to be reestablished before intermittent renewable capacity can be considered. Imposing obligations on the power utilities to develop new renewable capacity would create stranded assets whose costs would ultimately have to be paid by customers. A much preferable way to obtain the maximum possible amount of economically viable renewable energy generation is to create binding mechanisms to assess and develop promising opportunities. At utility scale, this could be done by creating an obligation to include renewable energy options in least-cost planning by power utilities. Binding mechanisms would have to be accompanied by other mechanisms that allow power utilities to safely recover their investments in renewable generation. Action 1 below (section 6.1.3) discusses these mechanisms in detail.

At distributed scale, we recommend using incentives rather than obligations since residential and non-residential customers would be the ones expected to develop distributed renewable generation systems. Action 2 presents in detail how this could be done.

6.1.2 Core policy principles for an Energy Conservation Policy

The Government of the TCI may wish to build its Energy Conservation Policy around the following five core policy principles.

1. Win-win approach—Give top priority to measures that reduce the cost of energy to the economy while increasing sustainability. The Government should pursue its Energy Conservation Policy by promoting above all others those measures that are economically viable, because these measures reduce energy costs to the country and at the same time reduce oil dependency and emissions of greenhouse gases

2. Cost-benefit analysis—Where a measure could increase sustainability but would also increase energy costs, promote it only if the benefits of enhanced sustainability exceed the economic costs. There are a number of technologies (such as smaller wind and solar PV systems, or LED streetlights) that could reduce oil imports and CO₂ emissions, but would, if deployed, increase the cost of energy to the country. As a general policy, the Government should not

92 _{The Government endorsed these objectives and its implications in its comments to our Inception Report (Government}

of the Turks and Caicos Islands, TCIG Energy Conservation Policy and Implementation Strategy—Inception Report Comments, 6 December 2010), and further in its comments to our Progress Report (Government of the Turks and Caicos Islands,

TCIG Energy Conservation Policy and Implementation Strategy—Progress Report Comments, 4 February 2011).

promote those sustainable energy options that increase the cost of energy to the country. Government should consider specific measures on a case-by-case basis, but would promote them only if it is convinced that the sustainability benefits to the TCI offset the additional costs imposed on taxpayers and energy users

3. International support—Ensure that the TCI has full access to international support for sustainable energy measures, in the form of concessional finance, grants, and carbon credits. International sources of funding that are accessible to the TCI are the UK Government (in particular the Environment Fund for the Overseas Territories), the Caribbean Development Bank, and— possibly, in the future—the Caribbean Hotel Energy Efficiency Action Program (CHENACT). In particular, the UK Government has carbon abatement targets,94

and pays money to comply with them—the Government of the TCI should work with the UK Government to identify measures through which the TCI can reduce carbon emissions at a cheaper cost than its other options (using tools such as a carbon abatement cost curve), and obtain funding for those measures. Other entities such as the Global Environment Facility (GEF) and the United Nations Environment Programme (UNEP) also provide grants and concessional loans for implementing renewable energy and energy efficiency projects that reduce CO₂ emissions

4. Technology neutrality—Promote all measures that increase sustainability and reduce costs, rather than favoring particular technologies and excluding others.There is no need to pick winners upfront. Rather, the Energy Conservation Policy should create a framework where market participants have the incentive and ability to develop renewable energy and energy efficiency projects that benefit the country, regardless of technology. For example, rather than prohibiting specific technologies because they might be too expensive (such as CSP), the Government should put in place a framework that allows any economically viable technology to sell power to the grid below avoided cost—this framework could apply to any technology that, in time, becomes economically viable

5. Build on existing strengths—Support entities of TCI’s energy sector that serve the country well, and develop them to promote sustainable energy, rather than undermine them. Although the TCI‘s energy sector faces various challenges, it is served by two relatively efficient and well-functioning power utilities that provide reliable service under an effective regulator. Making the energy sector more sustainable should not put these achievements at risk—for example, by considering potentially harmful measures such as sector unbundling, or imposing the purchase of high-cost renewable electricity while not guaranteeing an adequate rate of return for utilities. Rather, the policy changes should be designed to build on existing strengths. In particular, the Government should be mindful of the need to ensure that PPC and TCU can continue to operate as profitable power utilities, and respect their planning and operating independence. Government should also ensure that regulatory decisions are made

by the Electricity Commissioner in accordance with its statutory mandates, and respect its independence.

6.1.3 Recommended actions for achieving an Energy Conservation Policy

We recommend the following 14 actions for achieving the proposed objectives of the Energy Conservation Policy within the Policy‘s five core policy principles:

 Action 1: Change the regulation of the power sector to promote economically viable renewable energy at utility scale

 Action 2: Change the regulation of the power sector to promote economically viable renewable energy at distributed scale

 Action 3: PPC and TCU to establish a Grid Code

 Action 4: Change the regulation of the power sector to allow PPC and TCU to recover investments in energy efficiency

 Action 5: Identify the best waste management solution for the TCI, and establish a clear procurement process for implementing it

 Action 6: Favor the assessment and development of wind energy

 Action 7: Mandate Solar Water Heaters in new buildings, and promote them in existing ones

 Action 8: Promote efficient and renewable air conditioning in hotels

 Action 9: Promote widespread adoption of Compact Fluorescent Lights (CFLs)

 Action 10: Leave customs incentives largely as they are, but eliminate discriminations and loops for sub-standard equipment

 Action 11: Mandate Energy Efficiency in the Building Code and Development Manual

 Action 12: Procure an ESCO for retrofitting public buildings and marketing to large consumers

 Action 13: Negotiate an arrangement for retrofitting street lights

 Action 14: Outsource water operations in Grand Turk, South Caicos, and Salt Cay.

Each action represents an initiative (general, or technology-specific) that may be implemented in various ways. Below we describe each of these actions and key options on how to carry them out.

Action 1: Change the regulation of the power sector to promote economically viable