Could the Caribbean, a region that has long suffered some of the highest energy costs in the world, emerge a winner from falling global oil prices? We think it can, if its governments make some smart strategic choices.
Most Caribbean nations depend on imported liquid fossil fuels for their electricity and transportation needs. Businesses and households in this region pay as much as three times more per kilowatt-hour as power consumers in the United States.
Low oil prices, however, have created a unique opportunity. The Caribbean could use this respite to begin to wean its economies off petroleum products and to switch to more stable and cleaner alternatives. Several governments are using this windfall to pay down debt. Others are taking advantage of the opportunity to trim expensive energy subsidies.
What would such a transition to sustainable energy options entail? Investments could range from relatively inexpensive energy-saving measures to big-ticket projects such as replacing baseload capacity using modern technologies.
Energy-efficiency programs often offer the highest returns for modest outlays. In Barbados, the government is already reducing its energy bills by retrofitting public buildings and street lights. Several governments in the Eastern Caribbean are similarly engaged.
Because of its geography, the Caribbean is ideal for deploying geothermal, solar and wind energy technologies. In some cases, hydroelectricity is a proven alternative. The costs of these technologies have decreased sharply since the 1980s. Small-scale solar systems have become so affordable that they are thriving in rural Haiti, and commercial wind farms are sprouting all around Jamaica.
Still, there are limitations to the amount of solar and wind generation that can be reliably added to a national power system.
This week our organizations, the Caribbean Development Bank and the Inter-American Development Bank, are launching a fund, initially with $70 million, to help Eastern Caribbean islands develop their sustainable energy potential, including for geothermal, through public-private partnerships.
For the larger countries, liquefied natural gas is increasingly looking like a good baseload option. The advantages of switching to LNG are clear, as it is cheaper and much cleaner than the bunker fuel currently used to generate electricity across the Caribbean.
The Caribbean would require around $3.7 billion to build new power plants and regasification terminals, retrofit old generators, provide adequate LNG hub capacity, and deploy small tankers to distribute gas.
Once again, public-private partnerships are the best option to spread costs. In order to attract credible investors, most governments will have to modernize their legal and regulatory frameworks.
Rarely have conditions aligned so favorably for the Caribbean. It is up to its leaders to seize this unique opportunity to transform a key sector of their economies and radically improve the prospects of the region.
Luis Alberto Moreno is president of the Inter-American Development Bank. William Warren Smith is president of the Caribbean Development Bank.