Energy: We are barking up the wrong tree

The national debate on energy has largely taken place in an atmosphere of ignorance and self-interest. The result has been that there continues to be no real intelligent leadership...

The national debate on energy has largely taken place in an atmosphere of ignorance and self-interest. The result has been that there continues to be no real intelligent leadership emerging which will take the country on a path of medium to long term rational energy utilization.

The first issue to be clarified is that Jamaica must arrive at a consensus that energy is one of (if not the single most) important macroeconomic developmental factor which will ensure the future growth of the economy. The Government has not fully grasped the fact that a significant part of the strategy to grow the economy will be to address the inhibiting cost variables to the productive sector. Labour costs have long been superseded by other key input- energy, security, debt servicing among others. The Government’s energy policy has not truly placed this fact as the center of the developmental strategy.

Consequently, there have been mixed messages given in that taxes are allied to “alternative” energy initiatives rather than the conservation. Also, the focus is on formulating a new framework for the future generation of energy on basically the old monopolistic foundation.  It should instead dismantle not only the veritable generation monopoly of the JPS but its distribution monopoly as well. There are several workable mechanisms to liberalize the distribution network. The most obvious ones could be that the Government reassumes ownership of the energy distribution network or ownership be given to a private consortium with wide public ownership (through stock issues).

Not until there is wide competition in the generation and trading of energy will the long-run cost decline and in turn, the associated economic benefits be realized.    

Yet, the real immediate solution is to address the consumption of the energy, irrespective of the method by which it is generated. In the same way that the ultimate solution to the drug problem is to systematically reduce the number of addicts; dealing with energy is no different.  Jamaica’s annual fuel import bill (US$1.7 billion) is now twice the total export earnings and a third of the GDP.   If we systematically reduce our consumption of commercially generated energy by 5% annually over the next five years, then the projected capital expansion may not be required.

 How should we approach national awareness towards energy efficiency? Firstly, the Government must set targets for its own reduction in energy consumption. The Government and its agencies as a composite entity, account for just under 10 % of JPS revenue annually. 

A major budget expenditure (and in turn the fiscal deficit) is energy. Consequently, the Government must present to the nation a road map of how it will reduce the amount of energy being used by the over 200 state agencies. This is even more urgent if we consider that the long-run cost of energy will increase before there is any appreciable reduction.  The National Water Commission, Office of the Prime Minister (public lighting), National Irrigation Commission among others MUST have targets which are publically known so that we can monitor as a country.

The Government must go further and allow tax exemption for commercial solutions which effectively reduces the amount of energy usage by companies and large commercial complexes. This is really a no brainer. Let’s walk through this. A significant benefit of the reduction in a firm’s energy bill is the availability of liquidity for expansion of their businesses. If the Government is serious about an indirect multiplier stimulus, then this is probably one of the most obvious methods. Of course, these measures have traditionally been difficult for past and present administrations to implement because of a narrow and short term approach to development.  However, the Government ultimately recovers the taxes in the form of GCT or corporate taxes on the associated and allied services and companies which facilitate the energy efficiency transactions.   

The shareholders of publicly listed companies should also insist on energy reduction targets which are known and on which their executives and managers are judged. The Stock Exchange can also make energy statistic as mandatory as annual or quarterly financials. For the purist this may seem like an unnecessary requirement, however, the seriousness of the country’s dilemma requires us to rethink the “normal” and forge new paradigms.  

New paradigms are the only answers to overcome the immanent, crushing realities which Jamaica faces at this time. Currently, there is over 20% of the working population which is NOT gainfully employed. That problem could be significantly reduced (if not eliminated) if we can get firms and industries to operate at least two (ideally three) production shift every day. Now for those persons who were born after 1980; yes Jamaica once had firms which employed persons 24 HOURS EVERY DAY! Also, if the country was able to have key retail outlets operating for 24 hours (gas stations, fast food, delis, gaming et al) then we could be poised to genuinely sustainable growth. Most importantly, however, is that we would have created the basis to better utilizes the capacity of the energy we produced (JPS or otherwise). The cost of energy would fall without any significant injection in capital (all things considered).

But how can we do this in the short term? It is accepted that reducing property crime is an obvious precondition. However, if that is achieved but there are not key inputs such as a reliable energy sector, then we will simply be marking time. In addition, for long term growth, policies such as those mentioned before will have become common placed and acceptable for these national objectives to be achieved.

Energy efficiency, like poverty reduction, cutting, reducing state “terrorism” or  ‘greenhouse emission’ and curbing corruption can all be sexy buzz words for non-profit organizations to milk and make their principals financially comfortable. However, as a country, we need to filter through the verbal circus and get to real, solid and lasting solution to these problems. Energy efficiency is no gimmick. Moreover, the solutions in many cases are things which individuals, companies and the Government can do. 

The Ministry of Energy can have a real impact on the country’s energy bill if it gets down to basics. Discussions about alternative energy are vital. However, the immediate question of maximizing what we currently produce is the real low hanging fruit. As the adage goes “in the abundance of water the fool is thirsty”. The Government under these circumstances is truly the fool.  Simple engineering changes or attaching retrofits to huge energy equipment such as motors, boilers, etc. can make a dramatic improvement in energy consumption. Why then are we still living in the 1960s and complaining about how high “the JPS bill is..” The real primetime news is that they are not going down anytime soon; period and full stop.

The manufactures should be seeking out firms which can assess them in lowering their energy usages in areas such as lighting, cooling, pumps, etc. Entities such as the UWI must be commended for taking the initiative to contain their energy expenditure. However, this is not a beauty pageant; this is a discussion about whether companies (and universities) are going to remain in operation. At the cost of the next car for the CEO, some companies can implement efficient solutions which can save millions of dollars towards their bottom lines.

Complaining about the low the cost of energy to Trinidad firms, will not change anything. Firstly, we must ensure that our Jamaican firms are working as efficient as nuclear clocks. Only then, we can sincerely address external issues such as what are the ‘unfair’ advantages of our competitors.      

At approximately five percent (5%) of the oil bill for 2018, Jamaica could retrofit key industries and reduce overall energy consumption by as much as 7% annually. What is the immediate benefit? The country would not import at least US$82 million in fuels annually. This increased liquidity can also provide firms with retained cash flow thus easing their demand for bank credit. Assuming this liquidity does not go into purchasing the CEO’s new car but into more raw materials for production, the economy wins overall.

Obviously the debate about renewable energy is fine, however, it is being driven in part by groups of persons who, while sincere, continue to avoid the immediate constrains and prohibited costs involved in many of these solutions. Whole “industries” of specialist, experts and conference speakers has grown over the last three or so decades. However, there has not been a proportionate expansion in the effectiveness of sustainable solutions and their concomitant benefits to the ordinary 7.7 billion persons which inhabits the globe. The essential role which energy now plays in the modern world makes it imperative that we solve the immediate problems now while we work on long and medium-term solutions.

Firms and households must be encouraged to employ strategies and apply solutions which effectively reduce their consumptions. The power companies, governments, multilateral agencies, trade associations and universities all have a role to play.  As the crucial issue of energy goes not only are we barking up the wrong tree but we may even be in the wrong jungle.     

Economic and Finance consultant   

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