Clean energy and regional integration as pillars for energy security in the Caribbean

By: Gary Jackson (CCREEE), Joseph Williams (CDB), and Roberto G. Aiello (IDB)

In the context of the current climate crisis, the world is shifting towards a new global energy economy characterized by an increasing uptake of clean energy technologies. At the same time, the Russia-Ukraine conflict has impacted the conventional energy markets bringing uncertainty on prices and sources of supply.

The time seems right for the Caribbean to undertake a profound and sustainable paradigm shift of the energy systems. This reconfiguration will consider building greater resilience through a combination of distributed energy resources inter alia demand side measures, transmission, distribution planning, and regulatory reform.

While the energy sector in the Caribbean is complex and varied, it faces several common challenges, including a heavy reliance on imported liquid fossil fuels, dis-economies of scale, and the exposure to potential crippling natural disasters such as extreme weather events about six months out of every year. All these factors undermine energy security in the region.

The opportunity

The Caribbean has abundant renewable energy resources, especially wind and solar as well as geothermal and biomass on some of the islands. The region also exhibits opportunities for improvement in energy use by energy conservation and energy efficiency measures. Developing the existing potential of renewable energy coupled with energy efficiency actions would reduce the reliance on imported fossil fuels, thus enhancing energy security while decarbonizing the economies.

However, most countries do not have completed or updated Integrated Resource and Resilience Plans (IRRPs) in place, neither adequate governance frameworks nor effective regulations to promote clean energy solutions, thus hampering private sector involvement.

Integration of the fragmented island energy markets has been identified as key for obtaining a better bargaining position vis-a-vis technology suppliers and fuel traders, for several reasons. First, collective fuel procurement models would increase contract volumes tenfold or more, compared to individual island transactions. It would trigger sharper price offers and draw competitive global traders into the region who would otherwise ignore this market. Even as countries transition their energy sectors, petroleum products will continue to play a significant role in the years to come, therefore this optimizing of fuel procurement can provide significant cost-saving benefits. Secondly, renewable energy project scales can be increased through a regional umbrella approach. Thirdly, regional integration would assist Caribbean countries to harmonize technical standards, optimize intra-regional logistics and supply and maintenance schemes, exploit energy trading and storage options to reduce price volatility exposure, and improve energy security in general.

There are ongoing discussions in the Caribbean about the potential of large-scale offshore wind (OSW) and development of green hydrogen (GH2) and derivatives. These would not only enable the decarbonization of the power sector but also of other sectors that are difficult to electrify, such as transportation (long-haul, shipping, aviation) and industries. While OSW and GH2 are not competitive yet, a regional approach (Hubs) would contribute to achieving larger economies of scale and thus more cost-effective projects. These initiatives may open new business models, such as exporting green commodities that would bring employment and economic growth to the region.

Coordination, regulation, and signaling.

Global technology suppliers and project developers tend to focus on larger, developed markets, rather than small business volumes that can be achieved in the Caribbean. Hence, a regional umbrella would help address that barrier. Additionally, there is a need to accelerate planning and modernization of the regulatory frameworks to attract much needed private investment to the sector. Guarantee instruments for de-risking RE projects offered by MDBs and other development partners would also increase market competition thus lowering costs.

To achieve a more consistent regulatory environment across the Caribbean and to have a better bargaining position with respect to technology providers, there needs to be well coordinated actions, ideally led by Caribbean entities that know the context and are empowered and trusted in the dialogues by CARICOM stakeholders.

There are various ways for achieving economies of scale following a regional approach. Co-financing or parallel financing are ideal arrangements for procurement, but not always possible given other factors. A common signal on clean energy policy, regulation, or tendering announcements across the region may have very positive outcomes in terms of market traction. For instance, several countries concurrently announcing the tendering of solar PV investments in a common time window would attract more attention from private sector than individually. The same applies for the adoption of common standards across countries on energy efficiency (e.g. minimum performance standards of electric appliances), grid codes, among others. Standardization in the electric vehicles ecosystem would also contribute to streamlining the deployment of key inputs in the supply chain.

The following are some illustrations of concrete steps being taken on policy and analytical work:

  •  CARICOM Energy Ministers at the Eighty Second special meeting of the Council for Trade and Economic Development (COTED) on Energy approved the establishment of a working group to develop a comprehensive strategy for regional energy security. The COTED agreed that the strategy should explore, among other things, opportunities for Regional Energy Integration that would consider cross border supplies of energy and opportunities for the harmonized procurement of Renewable Energy Technologies and projects on a regional basis. The Caribbean Center for Renewable Energy and Energy Efficiency (CCREEE) has begun the exploration through its work and development partners standby ready to assist.
  • A recently completed study “Green Hydrogen Opportunities for the Caribbean” 1sponsored through a collaboration among the Inter-American Development Bank (IDB), CCREEE, and Caribbean Development Bank (CDB), provides insights into possibilities for a more coordinated approach in pursuing opportunities in this emerging area. These opportunities include offshore wind development as a key potential resource for green hydrogen.
  • There is consensus on a recommendation for establishment of a minimum regulatory function in Caribbean countries, aimed at catalyzing regulatory reforms and strengthening. There was a key output from a regional workshop involving wide-cross section of stakeholders including regulators, government representatives and partners which was held in February 2023 as part of the CDB’s Accelerated Sustainable Energy and Resilience Transition (ASERT) 2030 framework. Development partners also agreed to intensify coordination in this area among themselves and with the countries.

Increasing preparedness in the sector through emergency response strategies and actions for the aftermath of natural disasters would also benefit from regional approaches. Examples include the design of fast-response coordination mechanisms to reduce the time of restoring the electricity service by pooling of technical staff, equipment supplies, and auxiliary services; parametric insurance products to enable utilities claim compensation for incurred reconstruction costs; the preparation of “ready-to-bid” procurement packages for equipment, works, and associated services; and vulnerability assessments of existing infrastructure.

While we gain momentum to continue progressing on a just and resilient energy transition in the region, we need to accelerate to cope with the current energy challenges, notably the reconfiguration of our energy systems and the modernization of regulatory frameworks to enable faster and larger investments in resilient RE and EE. There is also an opportunity for Caribbean countries to take stock of the current energy market structure and consider the merits of regional approaches to overcome the barriers on scale and cost-effectiveness towards the goal of decarbonizing the energy sector to enhance energy security.