By Will Nichols From Business Green

Existential threat from climate change and high electricity costs are driving Caribbean Development Bank programme to boost clean energy investment

Imagine a storm crashing through Britain, tearing down bridges and power lines across the country, cutting off communications, and leaving the government a bill worth one per cent of its entire GDP. Now what if there is a one in five chance this $24bn of storm damage could occur every year.

This is the scale of the threat faced by the low-lying islands of the Caribbean and explains why the Caribbean Development Bank (CDB) is stepping up efforts to attract investment into green energy and climate resilience projects in the region.

“There’s a 10 to 24 per cent possibility of one or more of our countries being hit by a major weather event each year and the damage would average about one per cent of GDP – but in some instances it’s significantly greater,” Dr Warren Smith, president of the CDB, tells BusinessGreen. “The threat is getting more and more ominous as climate change unfolds and as the world delays its response to that phenomenon. Really, the imperative of responding to climate change for us is one of survival – it’s as fundamental as that.”

Smith estimates the region needs at least $30bn over the next decade to modernise and improve the efficiency and resilience to extreme weather of the region’s energy systems, primarily by tapping into the huge potential for renewable energy in the CDB’s 27 member countries.

He says the current situation, where countries repeatedly borrow to repair storm-damaged infrastructure that may only last a few years before the next extreme weather event, is acting as a major drag on the region’s growth prospects as increased indebtedness and an inability to focus on more productive financial investment combines to create a vicious circle of under-investment.

The CDB has already been active in financing small solar projects across the region, but has now stepped its activities up a gear by opening up a €50m line of cheap credit with the European Investment Bank (EIB) to channel towards those member states committed to building up their renewables capacity. It is also positioning itself to be an intermediary for finance from the UN’s Green Climate Fund (GCF), which should be capitalised with $15bn by the end of this year.

While there is obviously a compelling existential reason for building more climate friendly forms of power generation, Smith has also engaged with countries in the region to explain how producing their own green power would be economically beneficial. Electricity in the Caribbean is typically produced using high cost, imported oil and diesel, leaving prices four times higher than in the neighbouring US, the region’s principal trading partner. The cost differences not only burdens households with high energy bills, but it also creates a real competitiveness issue for the region’s industries as they struggle to undercut rivals in the US.

“The generating plants in several of our countries need to be replaced in five to 10 years,” Smith adds. “If that does not happen, what is going to result is increasing unreliability and we will continue to be faced with very, very high electricity rates. If we do nothing but replace the outdated plants using the same fossil fuels we would be able to get a reduction in the cost of electricity from increased efficiency. But we want to go further than that. We would like to see [countries] replace dirtier fuels with cleaner ones.”

Upgrades could see natural gas for base load power, but that would still have to be imported. Instead, Smith is keen to finance countries, particularly smaller islands, to help them exploit geothermal and solar resources, while building up interconnectivity between themselves to further drive down power prices.

“Much of the eastern Caribbean – the smallest Caribbean countries – have large amounts of geothermal potential, allowing them to dramatically reduce their fossil fuel imports and put them in a position where they could become an exporter of energy because of the proximity of nearby islands without these resources,” Smith explains. “The other benefit here is that they would be able to build a size of plant that is bigger than what they need for their own market so they would get economies of scale and a lower cost of electricity.”

Smith is confident the countries are buying into the idea of transforming the region into a prosperous green economy that reduces indebtedness, improves competitiveness, and starts to tackle climate risk.

“The whole business of climate awareness is growing quite rapidly in the region and we’re doing our part in trying to spread the message … it is good business in going green – that there is benefit to be had from it,” he says. “For the Caribbean to develop and to have a sustainable standard of living we need to be able to make our way in the world. Old colonial protected markets are now passé – you have to paddle your own canoe. So this thing is very closely related to our future survival as viable economies.”

However, the region is moving from a very low level of renewables deployment and needs policy support from governments if it is to realise Smith’s vision. Only two countries – Jamaica and Barbados – currently have legislation in place allowing households and businesses generating their own power through technologies such as solar panels or small hydro to sell it back to the grid, leading to a policy gap that acts as a barrier to wider investment.

“The regulatory environment is a prerequisite for a major uptake of renewables,” Smith says. “If you want to move to a situation where you can attract investment in renewable then you have to have the ability to sell to the grid. Right now, we are behind the eight-ball on that. But we are working with the countries to try to ensure that legislation is put in place.”

Finance from outside the region is likely to make up the bulk of that prospective investment, and Smith is convinced that creating a portfolio of investable projects will ensure funds keep flowing into the region and negate the fear that rich countries will fail to meet their commitments to the GCF.

“These things only happen if you are persistent in making your case,” he says. “We have a role to play in convincing the developed world that this is good for all of us. Some [developing] countries try to make the case that climate change is the responsibility of the developed countries – they developed their economies without any consideration of what damage it was doing to the environment. Ok, that’s probably a historical fact, but at the end of the day we’re all in this game together – we share the same world so we need to work together to get it done.”

For more on this story go to: http://www.businessgreen.com/bg/interview/2355643/how-the-caribbean-plans-to-become-a-green-energy-powerhouse