Golden opportunity for Guyana’s energy grid

By Arthur Deakin

The Hinterland communities, as they are known locally in Guyana, are vast plains in the country’s interior that house roughly 20 percent of the population. These lands are home to most of Guyana’s indigenous population, where electricity is unstable and scarce. The recently sworn-in PPP administration, led by president Irfaan Ali, has vouched to continue the Hinterland Electrification Project launched in 2011, aimed at expanding access to clean and affordable energy throughout Indigenous communities. An important first step has been to procure 25,000 solar panels from India to supply power to households in those areas.

With electricity tariffs ranging from U$0.25 to 0.35 cents per kilowatt hour (kWh) Guyana has one of the highest electricity costs in the region. Despite having a much lower GDP per capita, it costs up to three times more to consume electricity in Guyana than in the United States. The electricity system also loses nearly 30 percent of its energy due to technical deficiencies, power outages and theft. This had propelled large power consumers to install their own diesel generators, which are more reliable, but extremely costly.

As it stands, more Guyanese businesses rely on generators for intermittent power than any other country in the CARICOM region. The latest figures show that Guyana’s installed capacity is 404 MW, with Heavy Fuel Oil accounting for 67 percent of energy generation; the remainder comes from automotive diesel oil (21%) and Biomass (12%). This heavy dependency on oil to sustain the grid, and the costs associated with it, has slowed industrialization and discouraged businesses from settling in Guyana. Diversifying the energy sources that supply the grid, and subsequently lowering energy costs, will be a fundamental factor in Guyana’s economic development.

For those reasons, president Ali vouched to cut energy prices by half during his tenure. He has promised to do this by introducing 400 MW of new generation capacity, through a mix of hydro, gas, solar and wind power. This added capacity will double Guyana’s current generation capabilities and will provide much-needed diversification, reliability and reserves to the grid.

In addition to developing renewable energy in Guyana, the golden opportunity for Ali’s energy policy is the monetization of associated natural gas deposits. Associated natural gas is a byproduct of extracting crude oil, of which eight billion barrels have been discovered off the coast of Guyana. Although this gas has historically lacked much use, it can now be processed and used to supply gas powerplants that emit up to 50 percent cleaner energy when compared to heavy oil.

Since natural gas plants can easily go from zero to full production in response to fluctuating energy needs, this also allows them to mix nicely with intermittent renewable power. These benefits have led the government to accelerate its discussions with ExxonMobil to finalize the details surrounding a 300 MW state-of-the-art combined cycle gas turbine powerplant. Through a 120-mile long pipeline, the powerplant will be supplied with associated gas from the offshore Liza-1 field.

Capitalizing on this gas powerplant also makes economic sense. While it costs US$0.50/kWh to produce energy via diesel sources, the outgoing minister of public infrastructure said that gas production in Guyana will cost below US$0.10 /kWh. In gas producing countries such as Trinidad and Tobago, comparable powerplants produce power for around US$0.04/kWh. Thus, the proper implementation of a gas plant could exponentially reduce electricity costs for all Guyanese citizens and operating businesses.

Despite all the benefits, there are still pending issues that should be addressed. First, the administration needs to decide whether the project will function under a public-private partnership (PPP) or be government-owned. Chile’s success with PPPs in developing toll roads, or Brazil’s development of Belo Horizonte schools, shows that PPPs can be a great solution if they have a clear bidding process, a robust regulatory framework and transparent concession contracts.

The gas plant also needs to be complemented with investments in other energy sources. President Ali’s recent discussions with the Islamic Development Bank to finance solar energy is encouraging. But Guyana also needs to develop more hydropower projects and keep utilizing sugar waste to produce biogas. As seen in some of the offshore oil development projects, regulatory slowdowns have plagued approvals and could hamper important developments for the country.

Another concern is the announcement that the office of the president will have direct oversight over the country’s finances and natural resources. To ensure transparency and avoid political coercion, it is vital for ministries to have a certain level of independence from the cabinet. This is especially true when billions of dollars in oil revenues are about to enter the country’s coffers. It would assuage citizen’s fears if the administration swiftly established the public oversight committee for the National Resource fund (NFC), whose role will be to ensure government compliance with the NRF Act.

Lastly, the administration has to move forward with a new local content law to ensure widespread participation of the Guyanese peoples. The Stabroek consortium, led by ExxonMobil, invested U$67 million in local content in the first half of 2020 and has already provided 100,000 hours of training to Guyanese staff. The new local content law should continue to drive inclusive participation of the local community, while allowing for foreign businesses to competitively operate in Guyana. A law that is too extreme, whether in the local community onus or the foreign company side, will inhibit development. At this point, Ali’s administration is off to a good start. Only time will tell if it is able to keep going in the right direction.