COMMENTARY: Some suggestions for lowering skyrocketing electricity cost
Edgar Leonard - Thursday, December 15th, 2011 at 6:42 AM
A perfect storm is walloping BVI consumers; they are experiencing the fury of economic storm and groaning under the pain of a stagnated economy, flat or declining income/wages, and skyrocketing cost of living.
The main driver fueling the spiraling cost of living is electricity cost, particularly the fuel variation surcharge (FVS). All Virgin Islanders and residents are suffering from the adverse impact of rising electricity cost on the stretch of their disposable income; but the spiraling upward costs put a heavier strain on the poor. What is driving the soaring electric bills? FVS.
A typical British Virgin Islands Electricity Corporation (BVIEC) bill summary consists of (1) a fix charges, (2) Block(s) energy charges, and (3) FVS charges. The FVS as I understand it is the additional fuel cost incurred to generate a KWh of electricity above the standard average cost; it’s the delta between the average and fluctuating fuel cost. Nevertheless, the soaring costs are adversely impacting Virgin Islanders and residents’ quality of life and standard of living.
Moreover, in addition to the impact on residential and business communities, the high electricity costs also impact the tourism and financial services industries, the twin pillars of the BVI economy. Clearly, the high electricity cost touches and impacts the whole community so urgent action both short- and longer-term is needed to lower electrical power generation, transmission, and distribution cost, as well as address consumption. Both the BVIEC and the consumer play critical roles in lowering the overall price and cost.
As such in this short commentary, I will suggest some options on lowering the generation, transmission, and distribution costs, as well as some tips on reducing consumption. But, first let me state that I’m by no means an expert on either generation, transmission, or distribution of electricity; I’m just a layman who has dabbled a wee bit, albeit in the past, in installing, maintaining, and repairing electrical systems. Therefore, this commentary is just adding to the many discussions floating around about the high cost of electricity. With that said, the first task is discussing power generation and suggestions for lowering cost.
The availability and access to high quality, reliable, adequate supply, and cost efficient electricity is vital and strategic to territorial economic growth, sustainability, and social development. Currently, the BVIEC, a vertically-integrated, self-regulated monopoly, and a statutory corporation, is the sole provider of electrical power within the BVI. It is a government sanctioned (government is the sole shareholder; falls under the portfolio of the Ministry of Communication and Works) monopoly with no regulatory agency and no competitors. Therefore, in my view, there is little to no incentives to minimize costs; all costs are passed on to customers. It is basically a cost of service plus operation.
Moreover, it serves approximately 15,000 customers meeting a peak demand of 32 MW from 11 diesel-driven generators with a capacity of 44 MW. The BVIEC is a business and as such should recovery its generation, transmission, and distribution cost, along with a profit to increase capacity as needed, to improve the level and quality of service, and to upgrade and modernized equipment. But though the BVIEC should recover its cost and make a profit, its profit margin should be reasonable and business operations cost should be consistent with what a competitive market would provide. What are the rate charges for recovering its cost?
The following is a summary of unit price information gleaned from the BVIEC website (www.bvielectricity.com):
1. 0-60 KWh @$0.24
2. 61-25,000 KWh @$0.225
3. 25,001-100,000 KWh @$0.19
4. <100,000 KWh @$0.1675
In addition to the KWh consumed charges, each customer is assessed a fixed monthly charge of $2.50. Further, a FVS is assessed to cover the fuel cost delta between the average and fluctuating cost. The fuel adjustment, I think, was intended for use in periods of highly fluctuating fuel cost; but now it appears to be a permanent feature in the billing. The largest line item on many bills is the FVS; and on many bills, it can be larger than the sum of all the other line items. As such, it presents the greatest opportunity and should be the main but not the only focus of lowering cost.
According to the World Bank Working Paper #58: Institutions, Performance, and of Infrastructure Services in the Caribbean, electricity prices are driven by four primary factors:
• The cost of energy used to generate electricity. Fossil fuel (diesel) is the BVI’s only energy source;
• The cost of generation, transmission, and distribution assets, which are influenced by the technologies used, age of assets, and the efficiency with which they are operated;
• The extent to which government subsidizes electricity supply; and
• The efficiency of generation, transmission, and distribution functions, particularly the effort in minimizing system losses (dead weight losses) and maximizing the electricity delivered to customers from each unit of input
As such and against this backdrop, the following are some short-term suggestions for lowering electricity cost and price:
• Review and restructure the VFS charge. The BVIEC has fuel supply contracts in place to stabilize its operations and to proactively to smooth out price fluctuations. As such, these contract prices should be built in to its rate structure for the contract duration. Consequently, fuel adjustments should be nominal and temporary (duration of fluctuation) and apply only for price increases consistent with the contract terms (inflation…..etc). Thus ,aside from these special situations for price adjustments, fuel suppliers should be expected to deliver fuel at the agreed contract price; and the BVIEC should generate power at this price. Moreover, fuel adjustments were intended to apply to highly fluctuating fuel prices; but now the adjustment appears to be a permanent feature on the bill. And as a personal example in regards to contracts and fuel adjustment, I currently have an agreement with an electricity supplier for $0.10 per KWh that stays fixed throughout the contract period regardless of price variations in the energy market. The difference here is that my electricity supplier has to compete with other suppliers for my business;
• Establish an independent regulatory agency. Currently, the BVIEC is a self-regulated monopoly and has the legal authority and market power to recover all its cost from customers. This cost of service arrangement provides for little or no incentives to minimize cost. Further, this arrangement could result in inefficiencies and higher production cost—Averch-Johnson effect. Per the Center for the New economy: A new look at Puerto Rico’s Electric Sector, an independent regulatory agency could provide some of the following benefits 1) set price caps/rate of return regulation, 2)establishes, reviews, and revises electricity prices/tariffs annually 3)set price adjustment criteria, 4)protect consumer interest, 5)approve capital investment plans, 6) review and facilitate transitioning to renewable energy sources opportunities, and 7) provide general oversight of BVIEC;
• Improve fuel efficiency, i.e., reduce the quantity of energy needed to produce a KWh of electricity;
• Explore the opportunity to retrofit prime movers to use less expensive heavy fuel oil (#6, Bunker C) instead of the current and more expensive diesel fuel;
• Contract an energy performance contracting (EPC)/ energy service company (ESCO) to assess power plant energy efficiency, and to develop plans for implementing improvements. ESCOs normally provide improvement guarantees, and fund improvements which are paid with some of the improvement savings;
• Reduce technical system and unaccounted for (unmetered) flosses. KWh produced should closely match billed KWh; reduce number of uncollectable accounts;
• Collaborate with other regional countries on joint purchasing of bulk fuel to achieve economies of scale and to reduce cost;
• Research possibility, just in time delivery notwithstanding, of buying fuel directly from wholesalers and storing to reduce cost;
• Develop and institute benchmarks and performance standards to enhance accountability, i.e., KWh generation Cost…….etc ;
• Benchmark non-generation employee to number of customers served;
• Benchmark production and maintenance/operations processes for efficiency;
• Benchmark general administrative and general expenses for efficiency;
• Review peak demand billing option;
• Employ load management techniques to lower cost of service;
• Evaluate privatizing or outsourcing electric power services.
• Consider allowing private entities to generate power and purchase excess power from them if price is competitive;
• Review managed competition(outsourcing) for all or portions of the generation, transmission, and distribution functions;
• Develop and enact a comprehensive energy policy;
• Explore the possibility of government subsiding portions of residential, particularly lower income households, electric bills;
• Review the impact on government revenue if import duty on diesel fuel were reduced in an effort to reduce cost and ease the burden on consumers;
• Operate power plants at a high load factor (ratio of actual loading to potential loading) to spread fix costs over more KWh of output; and
• Encourage and incentive purchase and use of high efficient appliances and equipment.
The suggestions thus far have been for the short-term; next, though, are some longer-term suggestions. Fossil fuel (diesel) is the primary and only energy source used by the BVI to generate electricity; but it is expensive relative to other energy sources. As such, the BVI, like most of the region, needs to explore other energy sources. For the longer-term, it needs to explore sources such as wind, solar, thermal, compressed natural gas (CNG), liquefied natural gas (LNG) and coal as possible sources to address its critical electric power needs. Further, it needs to explore interconnection(s) between islands, e.g., with Nevis who may have excess capacity from its promising geothermal explorations.
Next, let’s transition to some consumption tips. We (Virgin Islanders) could survive without electricity; but some that have not lived without electricity may differ. Nonetheless, let’s imagine a day without electricity. This is not a pleasant thought, for electricity is an integral part of our daily lives; we used it from the time we jump out bed in the morning until we fall asleep at night. Clearly, we need electricity to maintain a high standard of living. But we can reduce how much of it we used and how much of our disposal income we pay for it. How can we accomplish this? Consumption. Consumption is win-win for the BVIEC, the consumer, and the territory. As a result, the following are some commonly cited consumption suggestions to help lower consumers’ bill:
• Replace inefficient incandescent light bulbs with more energy efficient compressed /compact fluorescent lamps/bulbs;
• Turn television, video, hifi, play stations and other electronic devices off when not in use;
• Purchase new or replace existing inefficient appliances with high efficiency energy star ones. BVIEC can institute program to buy down cost of purchasing more efficient appliances;
• Operate fridge at 38-42 degrees Fahrenheit; freezer section at 0-5 degrees Fahrenheit. Ensure door seals are in good working condition;
• Wash clothes at either warm or cold settings;
• Operating air conditioning units at 78 degrees Fahrenheit; used ceiling fan in conjunction with air conditioner;
• Set temperature on water heater between 120-130 degrees;
• Enable “sleep mode” feature on computers, allowing them to use less power during periods of inactivity;
• Configure computers to hibernate automatically after 30 minutes of inactivity;
• Unplug seldom-used appliances and charges when not in use;
• Retrofit lighting systems; and
• Turn off lights
Other consumption tips can be found on the BVIEC website or goggling a host of other sites.
Finally, the high cost of electricity, particular the Variable Fuel Surcharge, is putting a crimp in Virgin Islanders and residents budget. And urgent action is needed to bring some much needed relief to the suffering consumers. Hopefully, the suggestions noted above can create some frank discussions that will result in some concrete result to alleviate the skyrocketing electricity cost. A number of individual suggestions are listed but what is really needed is a comprehensive evaluation of the planning, organizing, directing and controlling of the BVIEC organization; a coordinated system review is needed.
Edgar Leonard is native Virgin Islander currently residing abroad
This article was posted in its entirety as received by bvinews.com. This media house does not correct any spelling or grammatical error within press releases and commentaries. The views expressed therein are not necessarily those of bvinews.com, its sponsors or advertisers.
18 Comments
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SOLAR PANELS…SOLAR PANELS…SOLAR PANELS!!!
We have been blessed with a major natural resource…THE SUN!!! let’s use it and not watch it go to waste.
don’t want solar panels to be imported? well develop an industry where we are manufacturing them (maybe BVIEC staff could be trained to do this) so we can provide them at an affordable price to our own and raise income by exporting them in large quantities.
need to try pay as you go it has helped some countries like dominica and more,try it who knows it might work
What are they doing in Dominica in regards to PAYGO? Dominica generates about about 45% of its demand from hydro yet it cost per KWh is one of the highest in the region—~27 cents per KWh Are you saying that Dominica is the model for the region?
Further, as I understand PAYGO in regards to cell phone, you buy your minutes upfront an do not have a bill. In budgeting it means paying for things within the confines of the approved budget; if something outside the budget is needed it is paid for at the cost of something else in the budget. I have to plead ignorance, for I’m not familiar with PAYGO relative to electricity.
Assuming that PAYGO applies to electricity, it only reduce use but does not lower the cost.
good article but a few points to consider
1. the points you make on the bottom are almost in reverse order we need to reduce demand and find alternative supplies in terms of priority. The government can not afford to continue to buy engines and diesel to meet a demand of infinity.
2. you reference the world BANK. remember it is a bank and its primary goal is to finance projects for countries like ours so take it with a grain of salt. Will they say hey small island developing state, you out and get more of your residents to do solar and wind and grid tie it so you dont need to finance buying large engines with us?
3. in the rest of the world they are finding that alternative energy is not the future and its not something to “try” it is the present and they are seeing the benefits while in the BVI we are thinking about perhaps doing it while the oil companies and the banks are glad that we are taking this approach because they are getting richer from our ignorance.
4. look at this article from 2 years ago in africa. http://www.nytimes.com/2010/12/25/science/earth/25fossil.html?pagewanted=all
5. Ray: Energy efficient light bulbs do make a HUGE difference in your light bill, it simple science and technology, those little numbers on the bulbs with the w after it actually tell you how much watts you are using when you turn on the light, then go to your bill and see the kwh (kilo watt hours) of usage. If you have a low wattage bulb, it means your bill is lower.
6. LED lights are not the future, they are the present. Buy them and see your bill go down they are like 5 watts compared to 60 watts. Do not be ignorant. Get a lower light bill!
Futures, I went to the website and from my read renewable s are showing great promise. But yet in your comments(3.) you are asserting that renewable is not the future. Did you mean that they are the future and BVI is slow off the mark. Then in (6.) your assert that lED are not teh future……buy them and see your bill go down. Are these comments typos?
The BVIEC has a challenging job. According to the commentary it serves ~15K customers; this is an extremely low number. It cannot achieve much economy of scale with these low numbers; the larger the customer base the more the cost per KWh can be spread out, lowering the unit cost per KWh.
Nonetheless, the BVIEC is dealt this hand so it must be played and played efficiently and effectively. Availability of a quality and reliable electricity supply at reasonable cost is critical to the competitiveness of the BVI in the tourism and financial services market place. As such as the sole provider of electricity in the BVI, the BVIEC must make every effort to lower the cost of electricity.
Mr. Leonard has laid out a valuable starting point for attacking this problem—lowering the cost. Additionally, he has highlighted the need for establishing a national energy policy, setting up a regulatory agency, and exploring the use less expensive renewable energy sources, i.e., wind, solar, thermal among others.
The article is a bit lengthy yet worth fully reading and analysing. Does the BVIEC have any working or position papers on the suggestions noted? If no why not?
In particular I would like the BVIEC to review the variable fuel surcharge, fuel efficiency improvements, system losses, operational benchmarks, hiring an ESCO, and a regulatory agency. Investment will be needed but the benefit will outweigh the cost.
Need a regulatory agency to regulate this electrical utility; it may be nuance but there is a difference between day-to-day management and regulatory oversight. A disinterested body is needed to provide oversight of the utility. Hire a disinterested third party to assess the merit of the suggestions in this commentary.
Are there any low hanging fruit among this smorgasbord of suggestions that are ripe for the picking that will eased the burden of high electricity costs. Lowering the cost of electricity needs urgent action, not just lip service.
Mr Leonard your article is very much appreciated. My take on the matter of electricity is two fold. 1, anything that costs as much as the energy that we receive BVIEC should be efficient. 2, BVIEC continues to be a burden on the public purse and it has been in existence for than two decades and it seems like it have yet to turn a profit? I am baffled as to why no government has come up with the simple idea of turning it into a public corporation. I am of the view that we the people will do a better job of running it, with a little help from Government in the form of amendments to the current energy legislation. Anyone interested, Wind, water, solar, trash?
I watched a show that talked about how much an electricity bill can be reduced over the year by just unplugging cell phone rechargers and computers from the wall.
Someone mentioned in an earlier blog about turning all the breakers off but for the fridge. Does anyone know if this works? Is there any harm to appliances and electronics if this is done?
The jury is still out on the electrical cost avoidance of unplugging all electronic devices and appliances not in use. Some see this unplugging as inconvenient and not worth the effort.
Further, some experiments have shown that unplugging devices and appliances with transformers and “standby” reduce electricity use. Over time teh phantom use of watts add up.
If it is plugged in, it burns electricity and cost money, if you are not using it plug it out. simple.
You do not have to turn of a breaker if nothing is plugged into the outlets.
Use surge protectors with 6 outlets and turn off the surge protector when you are not using the TV, etc. Cable TV box burns money all day and all night. Feel how hot it is when its plugged in and turned off, you will be amazed. And that heat is electricity and money down the drain.
***do not plug one surge protector into the other to get more outlets, fire hazard***
why people in the bvi dont want to pay for luxury? certain things in life dont come cheap/free…you cant expect to have a/c on in your house for 24hrs,tv and radio blasting and lights on day and night and expects to pay next to nothing? come on!!!!
I don’t know anyone who does that. Most I know are very consciencious about turning off lights when not in the room, running a/c if only necessary etc.
Critic….you internet TROLL!! LOL….do you sincerly mean that having power go off w/o warnings, appliances destroyed from low/high surges is a ‘luxury’? You truly are lost in space!
zues you had to be trolling in order to find me….lol
Government can start by amending legislation to give people the option to install solar water heaters in the houses….I mean cut the import duty on this item is a start. Affordable power saving halogen bulbs should also be cheaply made available and we need as a pilot programme carry out the fesiability of having a solar power generator. come on the sun hot hot hot….all that good natural power should not go to waste!
These suggestions are well and good Edgar and I thank you for taking the time to put this article together.
However, if our new government is truly concerned with the business of helping people lower their electricity bills, they will rescind the law preventing Virgin Islanders from employing both solar and wind power.
The current load shedding programme that is going on harkens back to the time when the NDP first got into power and we had to endure almost daily outages. It’s ridiculous that in this day and age we are forced to deal with this ongoing problem.
To add insult to injury, the BVI Electricity Corporation can’t even be bothered to send out press releases to the various media to let people know when the planned outages will be.
We are moving into the height of tourist season and here we are in the dark AGAIN! It is totally unacceptable.
The solutions lies in alternative energy. The laws has to be revisited to accomplish this. In a part of the world where there is an abundance of sun, there is absolutely no reason home owners cannot be allowed to utilize solar panels on their homes and businesses. Even solar water heaters and other solar run appliances should be encouraged.
There are other technologies that can also be utilizes that are cheaper in the long run and do not utilize the limited and more expensive carbon fuel. Additionally, we are surrounded by an abundance of wind as well that is not being utilized.
I gather that as long as our country see BVI Electricity as the only source of energy, we are not going to see much if any progress in this area, and home & business owners will continue to experience unnecessary elevated electricity cost.
During the recent election, one of the unsuccessful candidates, Preston Stoutt, addressed this matter quite well in my view in his platform. I trust that if the current government is serious about lowering electricity cost for consumers, they will take a serious look to alternative sources of energy, and not stop at asking consumers to utilize efficient bulbs. If they do, 10 years from today, this will not be a topic of discussion. The gains from more efficient lighting will be minimal at best.
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