Debate Paulwell’s solar proposal

PHILLIP PAULWELL, the shadow energy minister, has proposed a mechanism, based on the use of small solar systems, to defeat Jamaica’s long-standing problem of electricity theft and – although he didn’t frame it that way – energy poverty in the country. His suggestion should receive serious attention, even if the idea requires deep analysis and, perhaps, substantial tweaking.

At last count, Jamaica Public Service (JPS), the monopoly electricity transmission and distribution company, had over 594,000 residential customers. But it is estimated that between another 180,000 and 200,000 consumers use electricity generated by the JPS without paying for it. In other words, the number of electricity thieves is equivalent to up to a third of the company’s residential customers, or between 27 per cent and 30 per cent of its entire client base.

While the illegal abstraction of electricity happens across all social and economic classes, the problem, by far is, more acute, low-income, urban, inner-city communities, especially in the Kingston metropolitan region and the parishes of St Catherine and St James. Residents generally attach wires from their homes to the light and power company’s distribution lines. The generation of efforts, including offering incentives for people to properly join the grid, as well as the introduction of ‘smart’ metering technology, have failed to significantly dent the problem.

WAY AROUND FOR PROBLEM

Last week, Mr Paulwell, himself a former energy minister, argued that new/improved solar technologies, which have significantly lowered prices, coupled with a hefty dose of social engineering, could provide a way around the problem. It would benefit consumers all round, he argued.

Under the plan, the Government, over five years, would provide the 200,000 households that regularly steal electricity with solar panels and lithium-ion and lithium ferro phosphate batteries capable of supplying up to 200 kWh of power. That would be twice the amount of electricity on which the JPS, under its licence, is required to provide customers a significant discount – the so-called ‘life line’ rate.

Mr Paulwell estimates that his proposed system, minus the cost of installation, could be delivered at J$100,000 per household, which translates to a cost of J$20 billion for the entire project, or an investment of J$4 billion annually. He said it could be paid from the special tax on petrol that was intended for a since-disbanded hedge fund against rising oil prices.

While the specifics of the idea, its proposed mode of implementation, and figures on which Mr Paulwell premised its potential return demand robust analysis, the principle of social intervention, on which the idea rests, is not without merit. Indeed, the stealing of electricity, especially in inner-city communities, is representative, in part, of intractable social and economic problems that ought not to be solely the burden of a private company supplying what, in a modern economy, is an essential good.

Indeed, the existence, as a matter of regulatory policy, of the lifeline pricing for the first 100 kWh of electricity the JPS delivers to its customers, suggests an acceptance of electricity as a basic commodity to which all strata of society is entitled. In that regard, doing so for electricity is not unlike the Government subsidising other services, or its support of access to health and education to the society’s most vulnerable via direct transfers from its PATH programme.

POSITIVE SPIN-OFFS

Further, as Mr Paulwell implied, removing the thieves from the national grid would have positive spin-offs on the economy. The JPS, freed of the burden of generating power for people who do not pay, would lower the price of electricity to paying consumers, meaning lower energy cost for firms, making them more competitive. Lower electricity rates would also cause consumers to spend more on other goods and services.

Nonetheless, the 17.5 per cent fall in electricity rates projected by Mr Paulwell appears to be significantly overestimated. Indeed, the Office of Utilities Regulation in its determination notice on the JPS’ 2019-2024 tariff application, the company reported its non-technical loss of electricity in 2019 at 18.13 per cent, of which 10.22 per cent was “illegal users/non customers”. Nonetheless, pilferage of 10 per cent of the goods produced by any company is a major loss. In the JPS’ case, it is equivalent to US$90 million of its 2019 operating income, or roughly 28 per cent of the US$319.45 million it grossed from residential customers.

In the circumstances, several questions relating to cost and efficacy also arise from Mr Paulwell’s suggestion. For instance, even with bulk purchases of solar panels and batteries (enough for 40,000 installations annually), the delivery cost of a 200 kWh system, on the face of it, appears low. Further, the cost of installation and ongoing maintenance are factored into Mr Paulwell’s analysis.

In this regard, a review of the idea should, per force, musn’t only take these issues into account, but also look at the cost-effectiveness of alternatives to achieve the same end. For example, it might be more efficient and cost-effective if, rather than installing 200,000 individual units, the Government invested in an at-scale solar and wind system, to be tied into the national grid. Means-tested consumers would receive electricity from the existing distributor, paying only the cost of maintaining the system.

Alternatively, a series of solar-powered micro grids might be developed in areas with high concentration of electricity theft and demographics consistent with energy poverty. Given the Government’s investment to establish these micro grids, their managers would similarly recover from households only the cost of the grids’ maintenance.