BY CHARLOTTE BLOMMESTIJN, MARINA GRUSHIN, & ELODIE MANUEL
Thirty percent access to electricity is unacceptable. The population cannot be living in the dark ages.”
— René Jean-Jumeau, Haitian Minister for Energy Security
Weeks after the earthquake struck Haiti in January 2010, electricity service in the capital of Port-au-Prince remained in disorder. Experts estimated the damages to the electricity system at $40 million. Access to electricity in the capital dropped by nearly 50 percent. In addition, the disaster exposed the urban vulnerabilities of Port-au-Prince, the heart of Haiti’s struggling economy. The hundreds of thousands of people relocating to Port-au-Prince from affected areas in the periphery were putting more pressure on the city’s electricity sector.
On a macroeconomic scale, the earthquake intensified the development challenges Haiti already faced. With an income per capita below $700, Haiti was the least developed nation in the Western Hemisphere. Rene Jean-Jumeau, the Minister for Energy Security, was well aware that economic recovery and growth would depend on reliable, affordable energy. In order to overcome the current crisis, his ministry’s strategy would need to focus on several key goals:
(1) ensuring sufficient energy supply to meet demand and support economic growth;
(2) promoting energy savings and efficiency;
(3) developing indigenous renewable sources of energy; and
(4) creating a regulatory framework to encourage the development of supply while protecting the environment.
The Development Challenge
Haiti’s energy sector has been in a critical state for decades. Most households rely on biomass, particularly in the form of charcoal, for cooking—with detrimental implications for the country’s environment and the health of its people (see note one). Substituting biomass with cleaner-burning fuel would have considerable benefits, but high switching costs and a lack of incentives limit the penetration of fuel alternatives.
The electricity industry, meanwhile, suffers from insufficient supply and inadequate service (World Bank 2010). More than seven million Haitians lack access to electricity and half of the approximately 1.2 million who do have access are connected illegally to the grid. To put this into perspective, per-capita electricity consumption in Latin American countries is about 85 times that of Haiti (Lucky 2012). Nearly 45 percent of installed generation capacity is not available on a regular basis, leaving just 150 MW operational. As a result, power plants fall short of addressing demand. This unreliability forces businesses and residences to opt for expensive and environmentally unsound individual electricity generators (Inter-American Development Bank 2011).
Electricity prices in Haiti and the wider Caribbean are very high by global standards. Power prices depend on the costs of crude oil and oil products, which generate more than 70 percent of Haiti’s electricity. Crude imports from Mexico and Venezuela are a major financial burden to the Haitian government, despite subsidized payment terms from Venezuela. High fuel costs, as well as processing and distribution expenses, elevate final electricity tariffs. Currently, consumers pay as much as $0.35 per kWh, which gas-fired power could decrease by 75 percent or more (Gerner and Hanson 2011).
The state-owned utility, EdH, has a monopoly over the provision of electricity services. EdH has a record of poor operational and financial performance. Even prior to the earthquake, its revenue loss was 53 percent. Despite relatively high electricity tariffs, EdH cannot fully recover its costs due to non-payment of electricity bills, a low count of metered customers, and widespread theft through illegal power connections. Political meddling, poor governance, and corruption contribute to EdH’s failure (Inter-American Development Bank 2010).
Weighing the Options
Minister René Jean-Jumeau, who had recently been brought in to coordinate the Haitian government’s energy efforts, knew that Haiti’s energy problems would require a multi-pronged solution. No single project or program could address environmental concerns, improve access and affordability, and increase efficiency. Meeting energy needs was a priority. Specifically, adequate power supply and reliable access to electricity was critical to business growth and job creation. Yet, increasing Haiti’s dependence on oil would be environmentally damaging and financially unsustainable.
Natural gas stood out as a potential alternative and was in abundant supply since the boom in US shale gas production. It could be used in both cooking and power generation, with fewer carbon dioxide emissions than oil and charcoal. Most importantly, natural gas was less costly to import than either coal or oil.
The timing for gas imports seemed right: LNG, a liquefied form of natural gas shipped by tanker, had steadily gained popularity among gas consuming countries over the past twenty years. In fact, the neighboring Dominican Republic inaugurated its own LNG import terminal earlier in 2010 (see note two).
While gas-fired power plants would require capital expenditures up front, studies showed that they would produce cheaper electricity (Gerner and Hanson 2011). The Dominican Republic was experiencing this firsthand: its LNG terminal was generating savings of $1 billion per year, which is 2.5 percent of its GDP (Latin American Herald Tribune). In Haiti, lower prices for power would benefit customers, including businesses and industrial users.
Yet the greatest impact would come from maximizing LNG use beyond the electricity sector. Piping the gas into Port-au-Prince for use in cooking would tap into Haiti’s largest urban market. It would also facilitate the much-needed transition away from biofuels in households, the largest consumer group. However, implementation would require significant investment in new cooking appliances. It would also involve the construction of gas distribution infrastructure in an area vulnerable to seismic tremors—a risky investment.
The terminal itself involved certain risks. For example, most existing LNG terminals had hundreds of thousands of cubic meters in storage capacity. Haiti, with its limited infrastructure and underdeveloped electricity sector, would need something much smaller. Would typical LNG carriers, which rely on large cargoes to turn a profit, be willing to make small shipments to Haiti?
Resolving the Crisis
Taking this and other concerns into account, a consortium of companies came together to develop a proposal for Minister Jean-Jumeau to consider. Haytrac Power and Gas would serve as the primary project developer. GasEner, a Dominican contractor with experience in the LNG business, would conduct the Front-End Engineering and Design (FEED).
The developers settled on a “mini” terminal with an initial storage capacity of 15,000 cm, located 14 km north of Port-au-Prince. In order to secure supplies on a small scale, the companies would procure gas from intermediary LNG storage facilities elsewhere in the Caribbean. The terminal would supply users in Port-au-Prince and seven other cities, as well as a 40 MW gas-fired power plant near the capital.
The developers estimated that the terminal could serve up to 1,000 large industrial and commercial users, and 92,000 residential users: 82,000 residential users in Port-au-Prince, and at least 10,000 in each of the seven satellite cities. Gas would reach users in Port-au-Prince directly by pipeline. For other cities, specially equipped trucks would transport liquefied LNG to satellite regasification sites. Gas would then be fed into a pipeline network for use by each city. Most of the requisite infrastructure would need to be constructed, adding to the project’s scope and costs (Gasener).
Overall, the terminal would cost $52.3 million, exclusive of the surrounding infrastructure. The initial phase, would amount to $170.1 million, and cover the cost of development and construction of the terminal, 40 MW power plant, pipeline and satellites, and would achieve the 72 MW of distributed generation. Haytrac Power and Gas would provide 100 percent of the up-front investment. However, financial support from multilateral stakeholders would be critical in moving the project forward. The World Bank’s International Finance Corporations (IFC), the Inter-American Development Bank (IADB), the European Investment Bank (EIB), and Agence Française de Développement (AFD) all showed interest in financing the project, though no commitments have been made.With the proposal finalized, Minister Jean-Jumeau now had an option for energy-sector development. Haiti’s reconstruction and development depended in no small part on initiatives approved by his ministry. He knew the country needed a dramatic change, and this was a drastic new solution. Jean-Jumeau gave the project a green light.
Over the coming months, Haytrac laid the groundwork for financing, securing support from international institutions and agencies. In August 2013, the terminal developers announced the start of construction on an artificial island where the terminal would be situated, and the Prime Minister applauded the project as a promising sign for Port-au-Prince. Breaking ground was a critical first step, not only in the construction of the terminal, but also in changing the development agenda in Haiti. Will LNG be the new fuel to drive Haiti’s growth?
NOTES
NOTE ONE: Biomass includes charcoal and primary solid biofuels which the IEA defines as “any plant matter used directly as fuel or converted into other forms before combustion”, including a multitude of woody materials generated by industrial process or provided directly by forestry and agriculture (firewood, wood chips, bark, sawdust, shavings, chips, sulphite lyes (black liquor), animal materials/wastes and other solid biomass).
NOTE TWO: Transferring small quantities of that gas by truck to Haiti was feasible, but expensive. At the same time, constructing a pipeline to import larger volumes would be politically difficult
due to long-standing tensions between the two countries’ governments.
SOURCES
Gasener. MB LNG Import Terminal. http://www.gasener.com/smalllngimportterminal.html.
Gerner, Franz, and Megan Hansen. Caribbean Regional Electricity Supply Options. Washington: World Bank, 2011.
Latin American Herald Tribune. Dominican Republic Inaugurates Latin America’s First LNG Distribution Terminal. http://www. laht. com/article. asp?ArticleId=351552&Category Id=14092.
Lucky, Matt. “The Role for Liquefied Natural Gas in Small Island States.” Worldwatch Institute, June 9, 2012. http://blogs.worldwatch. org/revolt/the-role-for-liquefied-natural-gas-in- small-island-states/.
Inter-American Development Bank. “Haiti: Energy Sector White Paper.” 2010. http:// www.iadb.org/en/projects/project-description- title,1303.html?id=ha-t1130.
Inter-American Development Bank. “Haiti: Institutional Transformation and Modernization Program of the Energy Sector-I.” 2011. http://www.iadb.org/en/projects/project-description- title,1303.html?id=HA-L1083.
World Bank. “Project Appraisal Document on a Proposed Grant to the Republic of Haiti for a Rebuilding Energy Infrastructure and Access Project.” 2012.