Energy reform and security is an innovative approach towards building greater economic resilience and diversification. In the previous Island Insight, it was pointed out that tourism and other service-based industries are not ideal for long-term economic growth and that exploring more innovative sectors would be better for future economic and social development.
The COVID-19 pandemic could continue to have crippling economic effects on small island developing states (SIDS) like The Bahamas which are also faced with costly repairs from natural disasters and climate change resilience efforts. This sheds light on the need to start applying transformational changes discussed in the National Development Plan (NDP), particularly on energy security.
As consumers and business owners gradually embrace the phased reopening of the Bahamian economy, going back to a normal state of affairs is not advisable for the short to medium term. The COVID-19 pandemic continues to impact the global economy, but countries are now easing restrictions for the domestic economy to start functioning. But going back to the way things were, seems like an inane way for governments to operate going forward. For Caribbean countries like The Bahamas, recovery will likely not be as easy as hitting the “restart button”.
COVID-19: an oil opportunity and lesson
With COVID-19 causing major disruptions in supply chains, there was also a reduced global demand for oil by about 29 million barrels a day from about 100 million a year ago (World Economic Forum, 2020). A decrease in demand for oil left a large surplus of the commodity and as a result, caused an historic U.S. crude oil crash below zero. Many oil-importing countries, where possible, stored large barrels of oil, taking advantage of the low oil prices. Bahamas Power and Light (BPL) stated its intent to take advantage of the low oil prices by hedging its fuel supply. The idea is to generate future savings considering the government’s hefty fuel bill. But while crude oil prices flunked to subzero, consumers still questioned why prices did not decrease at their local gas stations. This is because a low price per barrel for crude oil does not necessarily translate to lower prices for a gallon of retail gasoline. The idea behind this is that crude is not always the best indicator to determine retail gasoline prices. Gasoline futures should also be examined in a standalone manner but there is still a linkage between crude and gasoline futures. For instance, the price of gasoline is comprised of other determining factors such as contracts, transportation costs and taxes. Therefore, the price at the pump is never likely to be zero. Nevertheless, the sudden shock of U.S. oil prices dropping, highlights the economic vulnerability to oil price volatility in The Bahamas and its dampening impact on energy security.
Economic diversification and energy
A Caribbean Development Bank (CDB) country strategy paper (2018-2022) on The Bahamas pointed out that the country is “overly dependent” (approximately 99 percent) on imported petroleum products for powering its economy. This alarming figure deserves more attention as it speaks to the need to diversify the economy and embrace greater energy efficiency/sustainability. The report also points out that in the 2017-18 budget presentation, energy was flagged as a key area to be addressed in order to achieve economic competitiveness. But have the steps made towards this been enough? A main source of energy reform starts with the supplier, yet utility operators across the Caribbean are still struggling to mesh renewable distribution systems with traditional distribution systems. However, this did not stop countries such as The Bahamas, Jamaica, Cayman, Anguilla and others from launching solar projects in an effort to achieve renewable energy goals. The Bahamas government’s National Energy Plan (NEP) aims for 30 percent of the nation’s power to be provided through renewable energy by 2030. Among other factors, the Caribbean Development Bank (CDB) reports notes that there needs to be improved performance – technical and financial – by BPL in achieving the targeted energy sector transformation.
But even in achieving increased use of renewable energy, consideration should also be given to that equipment being hurricane-resilient. In the past, powerful storms have destroyed transmission and distribution systems and they also have the ability to do the same to renewable energy systems. Therefore, a closer look should be taken at strengthening all energy systems in the event of natural disasters. In addition, more climate change-resilient infrastructure is needed.
Circular economy: electricity and waste
One aspect of the environment and climate change that is often overlooked is the “circular economy” which is a system that favors keeping materials in use and is designed to better manage waste from technology and energy sources. A recent Forbes article pointed out that there is “limited” talk about waste within the electricity industry, but adopting “circularity” could turn out to be an opportunity worth “half a billion dollars”. The article states that a major circular economy impact stems from the electricity industry as providers shift toward renewable energy. This can be an opportunity for countries that rely heavily on fossil fuels but have not found efficient ways to pivot from the waste associated with this commodity. But adopting this concept will require a little-to-no-waste mindset which starts from businesses and small and medium-sized enterprises (SMEs). Although this trend has not taken off exponentially as yet, it is still important to keep tracking and updating the NDP as developments are made in this regard.
In closing, The Bahamas needs to further reduce its dependence on petroleum by looking at more energy-sustainable options. It is important to understand that doing so requires more funding, resources and experts to manage the technical and regulatory frameworks that come along with this process. This segment is to raise awareness of how renewable energy will help to build a more resilient economy in an effort to lessen vulnerability to economic shocks caused by natural disasters or crises such as COVID-19.
The NDP can be read at www.vision2040bahamas.org.
• Roderick A. Simms II is an advocate for sustainable Family Island growth and development. Email: RASII@ME.com.