The recent PPA awarded at 8.54 US cents/kWh for a 33.1 MW PV project now ranks solar energy as the cheapest source of electricity in Jamaica. Eight Rivers Energy Company Limited (EREC) won the bid, beating out 18 competing projects. “Yes, it is lean – there’s not a lot of fat – but I think ultimately it’s good”, said Angella Rainford, Managing Director of Rekamniar, one of the two partners that comprise EREC. “We’re happy from an investor perspective, but it’s really good for the Jamaican people.”
EREC – owned 50% by Neoen and 50% by Rekamniar – is in the process of arranging financing for the project. Many financial institutions – a range of DFI’s and commercial banks – have issued letters of support for the project and expressed interest in providing debt financing. Neoen and Rekamniar are both fronting equity and are in discussions with additional potential equity investors.
The pricing of EREC’s PPA is in marked contrast to Jamaica’s 2014 tender, which saw two wind projects awarded at 12 cents and 13 cents/kWh and a 20 MW solar project awarded at 18 cents/kWh. Albert Gordon, Director General of Jamaica’s Office of Utilities Regulation (OUR) expresses however no surprise that bids came in so low. “We expected the price to be competitive given the world-wide trend in the reduction in cost of renewables.” In response to raised eyebrows he continues that “We were satisfied that the majority of the bids were competitive and of satisfactory technical standards.”
“I was surprised,” said Jamaica Public Service (JPS) CEO, Kelly Tomblin. “The level of solar prices worldwide has embedded some skepticism into the result, so I’m going to have a wait and see approach. I’m just hopeful that this is a real price and they can really deliver. If so, certainly JPS will be shouting in the streets about that lower price.”
EREC is confident they can deliver. First, they believes the market has confidence in JPS’ financial underpinnings. “I always start by asking ‘who’s going to pay’,” said Ms. Rainford. “At the end of the day, even if the market is exceedingly interested, if your offtaker is not creditworthy, you can’t get financing.” She also believes that market conditions are impacting the way equity investors look at renewable projects. Capex is coming down and investors are willing to accept lower margins that make these lower priced PPA’s possible. Lastly, scale is of course a significant factor. Bigger projects – 33 MW is huge for the Caribbean – can achieve better cost efficiencies.
So who are the winners? First, of course, falling PPA prices for renewable projects should ultimately translate into stable and low pricing for the Jamaican consumer. EREC, if they’re able to finance the PPA, are unlikely to line the coffers with this project but they will have established a credible foothold in the Caribbean in one of the region’s biggest markets. There’s little doubt, too, that JPS comes off looking good. In what is turning out to be a paradigm-shifting year for JPS, 2016 will see 80 MW of new wind and 20 MW of solar come online. With the purchase of an additional 33 MW of solar, and the recently inked contract to buy natural gas from New Fortress, JPS is aggressively diversifying its portfolio – and, so it seems, at a price that’s right.