Tonga's renewable energy push to help economy
Following rising oil costs, Tonga is looking to alternative energy to reduce its reliance on imports
Tonga is facing an energy crisis as soaring oil-import bills are crippling its economy. The Kingdom is now looking to renewable energy to alleviate its oil dependency.
Tonga is made up of an archipelago of 176 islands in the South Pacific, around 2,000 kilometres northeast of New Zealand. Tonga is highly susceptible to both climate change and energy-price volatility because of its high dependency on imported oil. All of Tonga's grid-supplied power, which makes up 98% of its total electricity, is generated using imported diesel.
According to the US Energy Information Administration Tonga imported around 1,240 barrels of oil per day (b/d) last year. This is up from around 780 b/d in 2002.
Although the small Kingdom, of around 100,000 people, is no energy-consuming powerhouse its dependency on oil is a huge economic stranglehold. Between 2005 and 2008 Tonga's electricity generation costs increased by 106% to $13.8 million.
Since 2008 Tonga has suffered a series of economic and environmental shocks which have had a dramatic effect on the country's economy. Natural disasters, such as storms and earthquakes, and the oil price shock of 2008 - when Brent prices soared to almost $148/b - have taken their toll.
Since 2001 poverty in Tonga has risen by around one third, according to the World Bank, leaving one in five people unable to afford basic resources such as food, electricity and medicine. "We depend 100% on fossil fuels. We cannot control the price of those but the effects show on consumers. Even if they just go to the shop to buy bread, everything has gone up because of the price of oil" Prime Minister Lord Tu'ivakano told Petroleum Economist. 'My government is trying to bring in cleaner fuel, to introduce fuel efficiency measures and to look at policies which reduce greenhouse gas emissions."
Another financial burden is Tonga has also received loans from China to rebuild the capital, Nuku'alofa, which was destroyed in pro-democracy riots in 2006.
Tonga's GDP is around $433.9m, according to World Bank figures. The International Monetary Fund (IMF) said Tonga's total public sector debt was expected to reach over 45% of its GDP by the end of the 2012 fiscal year. This was mainly because of two external loans from China EXIM Bank. The first, of 440m yuan ($72m), was agreed in 2007 and covered reconstruction of Nuku'alofa after the riots. A second loan, of 291m yuan, was agreed in 2010 for building new roads. According to the IMF, these loans account for 61% of the Tonga's total external debt.
Lisiate 'Akolo, Tonga's finance minister, has said that for the past five years the government has been repaying just the interest on the loan but from September it will have to start repaying the capital as well. Tonga expects to repay around $10.8m this year.
Although Tonga lowered its wholesale prices for diesel, kerosene and petrol for May and June this year, because of lower crude prices, this is likely to be short lived, the government said. Geopolitical issues, such as the conflict in Syria and the possibility of Opec cutting its oil production, are likely to give long-term support to crude prices.
Another major problem for the Kingdom is oil transportation costs which are inflated by crude shipments being diverted from Singapore to Fiji before arriving in Tonga.
Samiu Kuita Vaipulu, Tonga's Deputy Prime Minister, has said Tonga could save up to $100 per tonne (/t) of crude deliveries on freight charges by cutting out the stop off in Fiji.
Tonga's freight costs for oil products are around $170/t, Vaipulu said. Supplying oil products directly from Singapore could save Tonga millions of dollars which would result in "a direct transfer of benefits to the public", the Prime Minister said.
Renewable energy push
In response to the 2008 oil-price shock Tonga decided to try and cut its oil import bill by developing renewable energy. The Tonga Energy Roadmap aims for 50% of the country's energy to come from renewable energy sources by 2020.
Tonga is initially focusing on solar, wind and tidal power to cut its oil use. Around 30% of Tonga's oil consumption goes into electricity production, the government said. It wants to halve this by 2020.
The government acknowledges that it will have to provide subsidies to avoid raising domestic electricity prices because of the high capital costs of running the projects. Tonga is also eyeing private investment to bolster its renewable energy ambitions. "We now need investment from the private sector to come through. There isn't any silver bullet but the institutional framework is one of (our) greatest priorities, making sure that we have the system in place, thus leading through to investment," the Prime Minister said.
As well as reducing Tonga's oil import bill the Kingdom also wants to help mitigate some of the impacts of climate change. "My kingdom is a recipient of all the worst parts of climate change but unfortunately none of the funding mechanisms that are currently in place," Lord Tu'ivakano said. "These initiatives could be transferred to other small island states and possibly to show that if the political will is there then it can be achieved. Maybe we could teach the developed world by looking at the Tonga energy roadmap."