The authors would like to thank Veronica Prado, Jordi Abadal and Rochelle Johnson for their inputs to prepare this blogpost.
The Caribbean is no stranger to external economic shocks and climate disasters. As small, open economies with limited economies of scale, weak institutions, high fiscal deficits, it hinders its ability to readily adapt and transform amid exogenous events. Therefore, resilience should be understood in its broader sense. Resilience is defined as the ability to anticipate, recover, adapt, and transform in the face of uncertainty.
Across Latin America and the Caribbean, the IDB is addressing these challenges and can draw important lessons from our projects particularly in The Bahamas, Suriname, and Nicaragua, where resilience factors the whole system. The benefits and lessons we are learning are paramount to achieve resiliency.
In September 2019, Hurricane Dorian decimated parts of The Bahamas with more than 50% of the energy infrastructure severely damaged costing US$200 million. Our assistance implemented a phased strategy of support, as the situation presented an opportunity to strategically address not only the reconstruction, but some of the structural barriers facing the power sector such as zero diversification in the energy mix, lack of user-friendly regulatory framework for renewable energy (RE), financial gap, and a limited local ecosystem.
What did we do and what are the lessons learned?
In the short term, keeping lights on was the priority. The IDB provided a contingent loan of US$100 million, of which US$16 million funded the energy needs such as emergency generators and immediate transmission and distribution (T&D) restoration to connect key facilities to the grid in The Bahamas. Additionally, we facilitated the first fuel hedge fund to secure an affordable crude oil coverage solution and protect the state utility’s finances against oil price movement and offer stable electricity tariffs over the next 18 months.
For the medium-long term, the focus was to tackle the diversification of the sector towards greater RE investments, including back-up systems that utilize solar PV panels and battery energy storage systems (BESS).
In collaboration with the Ministry of Finance, we established a US$170 million Conditional Credit Line for Investment Projects (CCLIP) to “build back better” across The Bahamas. The CCLIP involved the mass deployment of utility-scale and distributed solar generation (16.4MW), moving the needle on the RE target, hardening the T&D networks, and supporting the deployment of microgrids in Abaco and East Grand Bahama. Since resilience is more than just investments, we are also financing training and apprenticeships to support the ecosystem on RE, particularly defining roles for women and vulnerable communities in the rebuilding and diversification efforts.
As we began to identify RE projects, we immediately diagnosed that some of the projects were not bankable. The projects needed technical, procurement, environmental and climate risk, land acquisition, and legal interventions. These preparatory works were vital to the sustainability and survival of the projects but can be costly and lengthy.
Resiliency and renewable energy: IDB support
The Sustainable Energy Paths in the Caribbean publication states that investing in sustainable energy – RE, storage, energy efficiency (EE), natural gas, and resilient designs – could cost US$11 billion over the next 10 years but could yield US$16 billion in net benefits. Against this backdrop, we are in the process of establishing a Renewable Energy Facility in The Bahamas to leverage our concessional sovereign guaranteed financing to crowd in local and international private sector investors. For example, for the Hospital and Government complex in Marsh Harbour in Abaco, we are designing a 2.25MW solar PV microgrid with BESS of equal capacity and a 0.25MW solar PV microgrid with 2MW BESS at the Health Centre in Coppers Town. These battery systems can give up to 8 hours of independence from the grid for about 14,000 people in the area and keep lights on during natural disasters. The batteries will optimize the operation and economical dispatch existing diesel generators, which saves The Bahamas from importing expensive fuel and provide the grid with more flexibility and reliability for future integration of more variable renewable generation.
But, if we installed only the solar PV systems, it would cost US$ 3.7 million and the batteries have an additional cost of US$ 3.4 million, totalling US$7.1 million. For a country that recently battled with a Category 5 hurricane and now a pandemic, multilaterals like the IDB must support these resiliency interventions that bring multiple benefits and can also positively impact further RE integration in the near future.
Thus, we are partnering with donors like the European Union Caribbean Investment Facility (EUCIF) and working with stakeholders who are familiar with the terrain and electric systems like utility and non-governmental organizations such as Rocky Mountain Institute (RMI) to provide the necessary studies, coordination, and upfront analysis. The EUCIF would provide US$9 million (€8.2 million) in blending finance to support the rehabilitation and restoration of critical energy infrastructure and renewable-based electricity service in Abaco and New Providence.
But apart from Grant resources, what other financing instruments can help to lower costs?
We are currently considering a plethora of options in the Caribbean, such as (i) government guaranty in lieu of the private sector’ insurance package that allows the government to guarantee all or part of investment repair in the event of a major climate event; (ii) tax incentives to lessen operational expenditures and provide certainty to cashflows; (iii) reimbursement of interconnection costs; and (iv) incentivizing more advanced or extensive energy storage system that allows utilities to pay for electricity dispatched from the battery storage on a sliding scale basis. In theory, this would cause developers to increase the size and output capabilities of their battery energy storage systems solutions.
How can we solve resilience issues in remote areas?
Both Suriname and Nicaragua have resilience challenges related to remote communities. These remote areas are 100% dependent on expensive fossil fuels and have limited infrastructure to support stable access to electricity. In the Hinterland of Suriname, approximately 130 villages are intermittently served electricity via small diesel generators for 6 hours per day at an estimated generation cost of between US$0.63 to US1$ per kWh, which is relatively expensive compared to the main grid.
Our priority is to ensure that residents have access to more reliable, clean, and cheaper electricity. We are supporting the installation of 12 solar microgrids, including an energy storage and a diesel generator as a backup, to provide 24/7 electricity to serve 1,750 households and several services (schools, health facilities, small businesses) in isolated villages, with a total capacity of 2.8 MW costing US$9 million. Feasibility assessments were conducted to develop robust design and construction for the minigrids. The assessment considered the location and topology to safeguards against erosion and flooding, the possibility of operating remotely in case communication fails and protection systems against thunderstorms. In addition, we are also financing 2 solar minigrids connected to the distribution network in rural areas to improve reliability of the supply.
To further bolster the communications between the remote villages and the mainland, we provided two sovereign guaranteed loans (SU-L1009 & SU-L1039) that have a component for digitization of the energy system, which financed, among others, a centralized SCADA system.
What can we learn from Nicaragua’s experience against Hurricane Iota?
Similarly, in the Corn Island of Nicaragua, the Island suffered from thermal power outages up to 7 hours per day. The remote island had five old thermal generation units with a capacity of 2.5MW that served over 7,000 residents, consuming an average of 64,000 gallons of expensive fuel per month resulting in generation costs of US$300 per MWh.
In 2019, with the financial support from IDB under PNESER program, the government of Nicaragua installed a solar mini grid (2.1MW) for US$ 5.9 million to improve reliability and boost economic development in Corn Island. Due to the vulnerability of the site in Corn Island, we paid special attention to terrain selection, structural design, construction works, proper operation and maintenance of the systems, and technical specifications amid extreme events.
These interventions paid off in benefits to the economy, citizens, and resilience in the face of climate disaster. Since the implementation, generation costs and fuel consumption fell by 70% (US$300/MWh to US$92/MWh) and 60% (from 504K gallon to 202K gallon) respectively. These savings further led to the restructuring of the tariffs, transferring the benefit to the population, as the electricity tariff was reduced to US$0.19/kWh from US$0.26/kWh.
More importantly, in November 2020, the systems proved resilient against Hurricanes Eta and Iota. It was estimated that Hurricane Iota affected the electricity supply of more than 114,265 homes in all the Caribbean Coast of Nicaragua, but Corn Island’s electricity supply remained stable and reported no major damage. With the success of the project, the Government of Nicaragua plans to carry out 6 new mini-grids projects in the future with an estimated cost of US$ 29.1 million.
Therefore, we need to view resilience in its broader sense, take into account the whole system. First, interventions should improve and incorporate phased planning for microgrids with blended finance that can lower costs and embed upfront design and analysis to address operational vulnerabilities. Second, resilience measures should include skills programs, rural electrification planning, regulations, and financial protection, such as insurance and hedge funds, and new technologies to keep customers connected.
So perhaps there is a thing or two the Caribbean can teach us about resiliency!