Virgin Islands builds renewable portfolio with new payment system

Source: Jenny Mandel, E&E reporter • Posted: Thursday, May 22, 2014

Renewable energy use can look like a no-brainer for sunny, windy island nations that face high conventional power prices, but the reality of renewable installations can be fraught with challenges linked to the small size of such power systems and barriers involved with linking them to the power grid.

The government of the Virgin Islands this week took steps to tackle some of those issues with the passage of a new Feed-In Tariff Act designed to encourage the construction of small to midsize renewable energy installations that would integrate with its diesel-based electric infrastructure.”Enabling third party entities to develop small- to mid-sized renewable energy generators, which are smaller than utility scale systems but larger than the currently sanctioned net metering systems, is consistent with the trend in energy policies nationwide,” Virgin Islands Gov. John de Jongh (D) wrote in a signing statement about the measure.

The act requires the islands’ sole electric utility, the Virgin Islands Water and Power Authority, to work with the Public Services Commission to purchase up to 15 megawatts of renewable power from local projects under contracts ranging from 10 to 30 years.

The price paid for renewables will be set yearly by the PSC as a percentage of the cost the utility would otherwise pay for wholesale power, depending on the technology, size and location of the renewable energy project.

Stipulations in the law require that renewable payments under the feed-in tariff be capped at the utility’s cost for conventional power and that the renewable project proposer pay costs associated with connecting the new power source to the local grid.

The tariff covers “an array of renewable technologies … including solar, wind, biomass, and geothermal,” according to language in the law.

Renewables a cure-all?

The new feed-in tariff law is designed to target twin problems plaguing the Virgin Islands: power costs in the range of $0.50 per kilowatt-hour, several times what mainland U.S. consumers typically pay, and emissions and air quality compliance problems linked with the territory’s heavy reliance on fuel oil for power generation.

A 2012 report by the Water and Power Authority cited the islands’ reliance on heavy and distilled fuel oil as a key factor driving high local energy costs. Like various Caribbean nations, the report said, the Virgin Islands had historically used fuel oil because the associated power generation capital costs were low, it was easy to transport and could be scaled down to meet the islands’ needs.

But at 2012 oil prices, the report said, “fuel oil electricity generation is higher than almost all power generation technologies.”

The utility said that it also delivered substandard reliability to its customers due to the high cost of burning fuel oil for “spinning reserve” electric capacity to balance demand and that it struggled to meet U.S. EPA emissions requirements that neighboring foreign islands are not subject to.

Underpinning those challenges, the report said, were ongoing problems with late and missing payments from its largest power customer — the Virgin Islands government.

Local officials hope adoption of the new payback system will chip away at all those problems, while also helping the islands reach a target of getting 20 percent of all electric power from renewables by 2015, increasing over subsequent years to reach 50 percent of all power use.

As it moves to add renewable generating capacity to the power grids on St. Thomas and St. Croix, the local utility is also pushing forward with an effort to switch its main fossil energy source from fuel oil to propane.

The utility says the change to propane, which it hopes will be the primary fuel source by the end of this year, will reduce emissions by about 20 percent and fuel costs by about 30 percent, or $90 million yearly.

Officials said the two efforts around fuel substitution and renewable expansion will complement each other to improve local power system performance. “Once in place, [renewable investments] will need a supporting energy source to provide power when the sun is not shining or the wind is not blowing. Propane is an excellent fuel for this purpose,” the utility says.