The following is the first part of a two-part commentary.
A perfect storm is walloping Virgin Islands consumers. They are battered and distressed by the fury of an economic storm driven by a stagnated economy, flat or declining income, and a skyrocketing cost of living. One of the main drivers fuelling the spiralling cost of living is electricity cost, particularly the fuel variation surcharge (FVS).
All VI residents are suffering from the adverse impact of rising electricity cost, but the increases put a heavier strain on the poor. What is driving the soaring electric bills? FVS.
A typical BVI Electricity Corporation bill summary consists of fixed charges, block energy charges, and FVS charges. The FVS, as I understand it, is the additional fuel cost incurred to generate a kilowatt-hour (kWh) of electricity above the standard average cost. It is the delta between the average and fluctuating fuel cost. Nevertheless, the skyrocketing electricity cost is adversely affecting VI residents’ quality of life and standard of living.
Moreover, in addition to the impact on residential and business communities, the high electricity costs also affect the tourism and financial services industries, the twin pillars of the VI economy. Clearly, the high electricity cost touches and affects the whole community.
As such, the situation requires urgent action both short- and long-term to lower the cost of electrical power generation, transmission and distribution, and to address consumption. Both the BVIEC and the consumer play critical roles in this endeavour.
Thus, in this commentary, I will suggest some options for lowering costs and reducing consumption. However, first let me start by stating that I am by no means an expert on generation, transmission or distribution of electricity. I am just a layman who has dabbled in installing, maintaining and repairing electrical systems. Therefore, this commentary is just adding to the many discussions floating around about high electricity cost. With that said, the first task is discussing power generation and suggestions for lowering cost.
The availability and access to high quality, reliable, sufficient and cost-efficient electricity is vital to territory’s economic growth, sustainability and social development. Currently, the BVIEC — a vertically integrated, self-regulated statutory corporation — is the sole provider of electrical power within the VI. It is a government-sanctioned monopoly with no regulatory agency or competitors. Therefore, in my view, there is little to no incentive for the body to minimise costs. Consumers, then, absorb all the costs.
Moreover, the BVIEC serves about 15,000 customers, meeting a peak demand of 32 megawatts from 11 diesel-driven generators with a capacity of 44 MW. Because the BVIEC is a business, it should recover its generation, transmission and distribution cost, while making a profit to increase capacity as needed to improve the level and quality of service, and to upgrade and modernise equipment.
Nevertheless, the BVIEC’s profit margin should be reasonable, and its operations cost should be consistent with what a competitive market would generate.
Around the region
The following is a summary of unit price information gleaned from the BVIEC website (www.bvielectricity.com). These unit prices are neither the highest nor the lowest in the region. Regional prices vary between $0.03 in Trinidad and Tobago to $0.27 in Dominica, according to World Bank Paper #58. The BVIEC numbers fall in the middle:
1. 0-60 kWh @ $0.24.
2. 61-25,000 kWh @ $0.225.
3. 25,001-100,000 KWh @ $0.19.
4. 100,000-plus kWh @ $0.1675.
In addition to the kWh charges, each customer is assessed a fixed monthly charge of $2.50. Further, an FVS is assessed to cover the fuel cost delta between the average and fluctuating cost. Intended for use in periods of highly fluctuating fuel cost, the FVS now appears to be a permanent feature in the billing. The largest line item on many bills is the FVS; and on many bills, it can be larger than the sum of all the other line items. As such, it presents the greatest opportunity for lowering cost.
According to the World Bank Working Paper # 58: Institutions, Performance, and the Financing of Infrastructure Services in the Caribbean, electricity prices are driven by four primary factors:
• the cost of energy used to generate electricity (the cost of diesel, in the VI’s case);
• the cost of generation, transmission and distribution assets, which are influenced by the technologies used, the age of assets and the efficiency with which they are operated;
• the extent to which government subsidises the electricity supply; and
• the efficiency of generation, transmission and distribution functions, particularly the effort in minimising system losses (dead weight losses) and maximising the electricity delivered to customers from each unit of input.
The BVIEC is a small-scale producer and does not have the economies-of-scale advantage to allow it to spread out the cost among a large customer base.
Therefore, it will tend to have higher production cost and inevitably higher prices. And as a result, the BVIEC must put forth greater effort to reduce cost.
To be continued next week, with suggestions for lowering electricity cost in the territory in the short and long term.