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Caribbean energy: devastation and opportunity

Governments want to remake their electric grids

The hurricanes that swept through the Caribbean late last year took a devastating toll on islands across the region. Hurricane Irma's 185-mile-per-hour winds flattened entire communities, while epic downpours turned streets to rivers. The region's electric grids were devastated. Five months after the storms had come and gone, a third of Puerto Ricans were still without power, and other islands' systems have been similarly slow to come back.

The devastation has given renewed impetus to an effort to remake the region's energy system.

Governments across the Caribbean have complained for decades that importing diesel and fuel oil to generate the vast majority of its power is both too costly and too polluting. The region's grids are also susceptible to exactly the kind of destruction wrought by hurricanes Irma and Maria last year.

What exactly that new energy system will look like isn't clear yet, but there's a fight brewing between gas and renewables.

There has long been interest in bringing liquefied natural gas into the Caribbean, but the small and fragmented nature of the markets, and relatively high cost of LNG, have made the economics difficult to pull off. That's starting to change. Floating regasification vessels have made LNG a more viable option for small markets. At the same time, the emergence of the US as a low-cost LNG exporter on the Caribbean's door-step has transformed the supply picture.

McKinsey, a consultancy, found that Gulf Coast LNG exports could be delivered to the Caribbean for around $7.50 per million British thermal units, with regasification adding around $0.5 to $2.50/m Btu. That's competitive with diesel deliveries, which cost the Caribbean around $11/m Btu, according to McKinsey—aside from the environmental benefits that would also come with such a switch.

New Fortress Energy is leading the way on floating LNG imports into the region with a new floating storage regasification unit (FSRU) moored off Jamaica. The company, backed by a $36bn investment fund, commissioned the Golar Arctic FSRU to supply a new gas-fired power plant it is building, as well as a major bauxite miner and the iconic Red Stripe brewery.

Momentum has also gathered after the devastating storms to pair renewables with increasingly affordable utility-scale battery storage to create more climate-friendly, resilient and decentralised microgrids. The issue has shot up to the top of the agenda for the Caribbean Community (Caricom), a regional intergovernmental body, which hopes to marshal tens of millions of dollars in post-storm financial assistance into such projects.

Caribbean islands' grids are uniquely vulnerable to disruption. They often rely on just a couple of large generation sources, usually diesel-fired power plants, which can leave an entire island in the dark if they are knocked out in a storm. And even if the generation source survives, downed powerlines can have catastrophic knock-on effects for the grid.

Renewables have been growing across the region for several years. Combined wind, solar and geothermal capacity has more than doubled from 2011 to 2016 to more than 550 megawatts, according to data from the International Renewable Energy Agency. That's set to continue rising as governments look to hit ambitious renewable targets (see table).

Many now see an opportunity to link these renewables with increasingly affordable battery storage, which can smooth out their intermittency in normal times, and help keep power humming during the severe storms that regularly rock the islands.

AES, a battery storage developer, deployed the first major storage systems in the Caribbean last year with a pair of 10-MW facilities in the Dominican Republic. Both systems proved their mettle during the storm season. Elon Musk's Tesla deployed a series of its battery storage systems in Puerto Rico following Hurricane Maria. More projects are in the works.

Source: Petroleum Economist
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