Energy Cost Rise 'Achilles Heel' For Private Sector

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WITH Bahamian hotels suffering a 24 per cent year-over-year increase in electricity costs for January 2012, a senior industry executive yesterday warned that energy prices were the "Achilles heel" for the sector and wider business community, urging this nation to press "the priority button" in tackling the issue.

Robert Sands, Baha Mar's senior vice-president for external and governmental affairs, told Tribune Business that the Bahamas "cannot continue on this same path" of ever-increasing energy costs and volatile global oil prices, given the negative impact on profits, operating costs and cash flow for the sector that is this nation's largest private sector employer.

Data obtained by Tribune Business, which shows the average cost of electricity for a 400-room Bahamian hotel as measured in kilowatt hours (kWH), revealed that for January 2012 the resort sector experienced a 24 per cent year-over-year rise, up from $0.30 in 2011 to $0.3735 per kWH.

The latter figure was the highest cost ever seen for the month of January since 2007, the furthest back the data - produced by the Bahamas Hotel Association (BHA) - goes.

Together with December 2011's price of $0.3746 per kWH, the energy costs faced by Bahamian hotels during the peak 2012 winter season were higher than they have ever been, except for the July-October 2008 period, where they ranged between $0.3931 to $0.3766 per kWH. That period coincided with when oil prices hit their all-time $147 per barrel peak.

Commenting on the data yesterday, Mr Sands said oil price volatility had caused the Bahamian hotel industry's energy costs "to be extremely high and a very significant issue for us that we continue to monitor as a sector".

Noting that the prices quoted in the BHA survey included both the base rate tariff and fuel charge, he added: "We have made repeated advocacy positions to the Bahamas Electricity Corporation (BEC) over a period of time to look at ways to help the sector.

"Some reduction in the base rate cost and how it is calculated have helped," he added. "There was an issue of peak demand charge ratings being taken two times a year. If it was done on a more regular basis, that would help, but the biggest issue is the volatility of the fuel charge."

Mr Sands told Tribune Business that if energy costs in the Bahamas were not addressed, it would affect not just the hotel sector, but would be "the Achilles heel of many businesses in the country".

"The hotel sector represents 25 per cent of electricity usage in the country, and next to labour that is the second most impactful cost we have," he said.

"We have to find ways to bring it down, finding renewable forms of energy, finding ways of delivering energy at more economical prices. A lot of generation is based on diesel duel, fossil fuels, so we have to begin to look at new ways to generate power."

A report produced for the Government by Fichtner, the German consultants, said hotels accounted for 40 per cent of all energy consumed in the Bahamas today, and Mr Sands confirmed that electricity costs were "a significant impact for most of our properties".

While many Caribbean competitors were also struggling with high energy costs, the Baha Mar executive pointed out that the Bahamas was competing against destinations throughout the world for business. "Certainly, we are not competitive at all," he said of the Bahamas' energy costs.

This was reinforced by the International Monetary Fund's (IMF) Western Hemisphere economic outlook, published yesterday, which recognised the threat rising business costs, especially on energy and labour, posed to Caribbean business competitiveness.

"Despite a relatively healthy business climate, the cost of key inputs is higher than in competitors. For example, the cost of electricity in the Caribbean is about 16 per cent higher than in the Pacific Islands and more than two times that of islands in the Indian Ocean (Mauritius and Seychelles)," the IMF said.

"Meanwhile, the cost of labour redundancy is double that of the Pacific Islands, and the cost of starting a business is twice that of Indian Ocean Islands. That said, the Caribbean region ranks above those competitors on important dimensions of governance, such as government effectiveness, regulatory quality, the rule of law and control of corruption."

Baha Mar has itself moved to tackle energy costs for its $2.6 billion Cable Beach redevelopment, signing an agreement for a $102.3 million Seawater District Cooling (SDC) system that would run the resort campus's air conditioning system.

The Ocean Thermal Energy Corporation (OTEC) said its SDC plant would reduce Baha Mar's air conditioning-related electricity demands by almost 90 per cent, from 42,837 Mega Watt hours (MWh) per year to 4,512 MWh - a drop of 38,325 MWh.

Referring to its Bahamian subsidiary, OTE BM, OTEC said: "OTE BM Ltd. has estimated that the conventional cooling system would require 42,837 MWh of electricity per year to generate the 12,000 tons of air conditioning that the Baha Mar Resort and the existing Sheraton and Wyndham resorts would require.

"The use of the SDC system instead of the originally planned centrifugal compressor systems and their associated cooling towers would allow the Baha Mar resort to reduce its electricity for chiller-related cooling requirements by almost 90 per cent........

"The savings of electricity realized by operating the SDC system instead of a conventional chilling system is referred to herein as avoided electricity use. Calculations of the SDC system's avoided ton-hours of electricity, less the pumping load required to operate the system, result in a reduction of 38,325 MWh of electricity annually (from approximately 42,837 MWh to 4,512 MWh)."

Describing the project as a potential "win-win" for all parties, Mr Sands said the OTEC proposal could "be opening a door for a new direction in terms of energy for the Bahamas".

He added: "We cannot continue on this same path. I recognise it's not an overnight solution, and I recognise the capital intensiveness of such a change, but the longer we wait, the more difficult it becomes and the more expensive it becomes to implement in this area.

"I'm sure it's an issue that causes every user of electricity in this country to scream. We have to press the priority button on this issue."

The Tribune
Published: April 27, 2012