Energy in the Caribbean:

Challenges & Opportunities

Scarlett Piantini and Nils Janson26 January 2017

About Castalia

1

Sample of Our Clients

• Experience in energy in Anguilla, Antigua and Barbuda, The Bahamas, Barbados, Belize, Bermuda, The Cayman Islands, Dominican Republic, Grenada, Jamaica, St. Kitts and Nevis, St. Lucia, St. Vincent and the Grenadines, Suriname, Trinidad and Tobago, and The Turks and Caicos Islands

• Comprehensive study on feasibility of introducing natural gas to the Caribbean

• Developing benchmarking system for over 100 electricity utilities in LAC

• Assessed NG feasibility and provided roadmaps for procuring LNG in Bermuda, Barbados, and Suriname

Sector Experience

Energy

Water

Transport

Telecommunications

Founded in 1980 with assignments in over 90

countries

Offices in the US, Colombia, Australia, and New Zealand

Experience designing, implementing, and evaluating private sector infrastructure

investment models

2

AGENDA

• Current Challenges• Seizing Opportunities

3

CURRENT CHALLENGES OFFER OPPORTUNITIES FOR IMPROVEMENT

• Why are Costs High?• Countries are Small and Lack Natural Endowments• High Generation Costs are Driven by Fuel Oil • High Generation Costs Lead to High Tariffs

Current Challenges Offer Opportunities for Improvement

4

Service is poor

Costs are high

Why are Costs High?

5

Costs are high

• High system losses

• High generation costs

• Limited natural endowments

• Small markets

• No incentive to save on fuel costs

Countries Lack Natural Endowments and are Small

6Sources: United Nations, World Statistics Pocketbook 2016; CIA, The World Factbook, 2016; Moody’s, “Latin America & Caribbean,” 2016.

Annual Generation

(GWh)

Oil Coal NG Solar Wind Geothermal

Hydro Bio/WTE

Cuba 20,288 81.6% 4 14.4% 0.1% 0.1% TBD 0.5% 3.1%

Dominican Republic 14,970 48.5% 12.4% 20.1% 0.7% 5.1% 0 12.6% 0.6%

Trinidad & Tobago 8,900 00.2% 0 99.8% 4 4 0 0 4

Jamaica 4,142 84.9% 4 4 1.8% 7% 0 2.7% 3.6%

The Bahamas 1,930 99.7% 4 4 4 4 0 0 0.3%

Guadeloupe 1,733 83.4% 4 4 5.6% 3.4% 2.9% 0.8% 3.9%

Martinique 1,591 93.3% 4 4 4.8% 0.1% 4 0 1.9%

Suriname 1,580 45.0% 4 4 0.7% 4 0 54.3% 4

Haiti 1,105 79.7% 4 4 0.1% 4 0 20.2% 4

Barbados 903 97.8% 4 4 2.2% 4 0 0 4

Guyana 690 90.7% 4 4 4 4 0 4 9.3%

US Virgin Islands 641 93.9% 0 4 6.1% 4 0 0 4

Bermuda 590 98.1% 0 4 0.3% 4 0 0 1.6%

Belize 535 40.9% 0 0 0.1% 4 0 48.6% 10.4%

Antigua & Barbuda 320 99.9% 0 TBD 0.1% 4 0 0 4

SVG 320 89.8% 0 TBD 0.5% 4 4 9.7% 4

Grenada 206 99.0% 0 TBD 0.9% 0.1% 4 0 4

St. Kitts 196 97.8% 0 TBD 2.2% 4 4 0 4

St. Lucia 143 99.9% 0 TBD 0.1% 4 4 0 4

Dominica 110 75.0% 0 TBD 0.9% 0.5% 4 23.5% 4

Nevis 56 88.0% 0 TBD 4 12% 4 0 4

British Virgin Islands 50 95.2% 0 TBD 0.2% 4.6% 0 0 4

0 not viable4 viable, but not in useSource: CREF-Castalia Renewable Energy Islands Index and Marketplace, 2016.

Fuel costs account for approximately 50% to 80% of operating expenses for many utilities in the Caribbean

High Costs are Driven by Fuel Oil

8

(69%)(69%) (61%) (58%) (49%)

Source: Compiled by Castalia from utility data

0.14

0.19 0.19

0.12 0.12

0.120.06 0.05

0.09 0.08

0.36

0.340.32

0.30

0.25

0.00

0.05

0.10

0.15

0.20

0.25

0.30

0.35

0.40

DOMLEC LUCELEC CUC GRENLEC JPS

US$

/kW

h S

old

Cost of Service (2015)

Dividends

Taxes

Interest

D&A

Non-Fuel OPEX

Fuel Cost

Avg. Tariff

High Generation Costs Lead to High Tariffs

9Source: Compiled by Castalia from utility dataBased on consumption of 300 kWh per month by residential customers.

0.37

0.33

0.28 0.28 0.27 0.27 0.27 0.26 0.26 0.260.23 0.22 0.22 0.20

0.18

0.12

0.04 0.04

0.00

0.05

0.10

0.15

0.20

0.25

0.30

0.35

0.40

US$

/KW

h

Average Residential Tariffs (Dec 2016)

10

SEIZING OPPORTUNITIES

• Cheap Oil, New Gas, Cheaper RE—What To Do?• Options for Developing Lower Cost Generation

$66.05$72.34

$99.67

$61.95

$79.48

$94.88

$94.05

$97.98$93.17

$48.66

$43.33

$50.82

$55.18

$0.00

$20.00

$40.00

$60.00

$80.00

$100.00

$120.00

2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017* 2018*

WTI

Cru

de

Oil

Pri

ce p

er B

arr

el

Oil prices are coming back up, but they’re still below the average price between 2006-2013

Cheap Oil

11Sources: US EIA, “ Cushing, OK WTI Spot Price FOB,” January 11, 2017; US EIA, “Short-Term Energy Outlook,” January 10, 2017.

In real terms, crude oil prices in 2016 (based on the global benchmark North Sea Brent) were at theirlowest levels since 2004, and natural gas prices (based on the domestic benchmark Henry Hub) were thelowest since prior to 1990.

* Projections

Natural gas

Utility scale renewable energy- Wind

- Solar PV

- Geothermal

- Waste to energy

Options for Developing Lower Cost Generation

12

Natural Gas Projects in the Caribbean

13

T&T: 2,400 MWExports 13 mtpa

JamaicaBogue 120MW, floating storageOld Harbour +190MW, deal with NF

Dom Rep: 690 MWAES: 1.5 mtpa, marketing LNG from USGC

United States—exports9 mtpa exports from Sab. Pass +43 mtpa by 2019

Puerto Rico: 263 MWPeñuelas: 0.97 mtpaCrowley sales of LNG from US in ISO containers to private companiesAguirre Offshore: +1.8 mtpa

PanamaAES Colon +380MWMartano +350MW

Existing imports/exportsPlanned imports

BermudaLNG as option in IRP

Barbados:Imports of ISO containers from US

CuraçaoPlans for converting to LNG

Natural gas prices similar to HFO when taking into account infrastructure costs (about US$5-7 per MMBtu)

Projected Spread Between HFO and HH Supports NG

14

Sources: World Bank, “World Bank Commodities Price Forecast,” October 19, 2016; EIA, “Refiner Petroleum Product Prices by Sales Type,” January 3, 2017. 2016 HFO and Diesel estimated were calculated using January to October data. Projections for future years were estimated by Castalia with EIA data and World Bank data.

The cost of renewable energy is also becoming cheaper

Falling Cost of Utility Scale RE in the Caribbean

15Source: CREF-Castalia Renewable Energy Islands Index and Marketplace, 2016.

Jamaica EREC (8.54¢)

Jamaica- Malvern

-

0.05

0.10

0.15

0.20

0.25

0.30

0.35

0.40

2012 2013 2014 2015 2016

$/kW

h

Puer

Wind

Solar

Fuel cost at $100/bbl

Fuel cost at $40/bbl

Solar + Battery Not There Yet, But On The Way

16

Diesel prices—from US$52/bbl in 2016 to US$123/bbl in 2037

Solar PV—US$0.10/kWh now, fall by 60% by 2040 (Bloomberg)

Lithium-Ion Battery—US$0.21/kWh now. 12% annual reduction for 5 years (Lazard), after that 5% annual reduction

Kauai Island Electric Cooperative just announced it will pay $0.11/kWh for electricity it receives from pairing a 28 MW solar array with a 20 MW, 100 MWh battery system

Geothermal is Moving Forward in the Eastern Caribbean

17

ReconResource

DevelopmentPre- FeasStudy

Test Drilling

Production Drilling

Identify Partners

Sign Concession Agreement

Sign PPA

Raise Funding

Build Plant

Operate & Maintain Plant

ST Kitts20MW

SVG10MW

Dominica2 100MW

Dominica 10MW

Grenada 10MW

Nevis 10MW

St. Lucia 20MW

WTE: More Complex, But Multiple Benefits

18

Planned projects

Existing projects

KEY

Source: CREF-Castalia Renewable Energy Islands Index and Marketplace, 2016.

BermudaTynes Bay (5MW)

NG Solar PV Wind WTE Geo

L S L S L S L S ECS

Availability of land/sites 4 2 4 3 4 2 3 3 4

Availability of resources 3 3 4 4 4 4 4 4 3

Technical viability 4 3 4 4 4 4 4 4 3

Economic viability with cheap oil 3 1 4 4 4 4 3 3 3

Interested developers and financiers 4 3 4 4 4 4 4 4 4

Incentives for utilities to develop 3 2 2 2 2 2 1 1 3

Support from development partners 2 2 3 4 3 4 3 3 4

Adequacy of economic regulation 2 1 2 1 3 1 2 1 1

Adequacy of environmental regulation 3 1 3 2 2 2 1 1 2

Permitting processes 2 1 2 1 2 1 1 1 1

Factors Enabling Development of Lower-Cost Generation

19

Leading Role for Governments

20

Develop or update actionable and sustainable sector plans

Update legal framework

Provide support for financing structures- Specialized funds

- Opportunities for PPPs

- Liaison with development partners

Strengthen regulatory frameworks- Disaggregated, cost-reflective tariff structures

- Tariff structures that allow utilities to take advantage of lower-cost generation

- More clear rules regarding contracting and licensing IPPs

Antigua & Barbuda

The Bahamas

Barbados Dominica Belize Dominican Republic

Guyana Haiti Jamaica SVG St. Kitts & Nevis

St. Lucia

Grenada

Suriname Trinidad & Tobago

Generation, Transmission,Distribution

Distribution

Transmission

Utility RoleUtility Type

Majority Privately Owned

Majority Government Owned

Roles for Others

21

•Develop or update actionable and sustainable sector plans

•Update legal framework as necessary

•Provide support for financing structures

•Strengthen regulatory frameworks

Governments

•Develop regulations and procedures for contracting and licensing new generation

•Adjust tariff regimes so that they support new lower-cost generation

Regulators

•Develop IRPs and update as necessary

•Develop tender documents and PPAs for contracting IPPs

• Identify and develop (or contract) projects with lower-cost generation

Utilities

•Provide support for developing sector plans and strengthening legal and regulatory frameworks

•Provide financial support for developing lower-cost generation

•Provide information and advice regarding options

Development Partners

Paris • Sydney • Wellington • Washington, DC. • New York • Bogotá

Contact Us

22

Nils JansonExecutive Vice President

Nils.Janson@Castalia-Advisors.com+1 (202) 466 – 6790

M: +1 (703) 408 - 3802

Scarlett PiantiniSenior Analyst

Scarlett.Piantini@Castalia-Advisors.com+1 (202) 466 – 6790

M: +1 (202) 813-6568