Energy & Mining

Path of Least Resistance

Energy

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Path of Least Resistance

In addition to being in short supply, power is also expensive to produce. This is largely due to the fact that approximately 60% of its generation capacity is indexed to […]

In addition to being in short supply, power is also expensive to produce. This is largely due to the fact that approximately 60% of its generation capacity is indexed to oil prices because of the fuel oil technology used in generation. For the government, reducing the cost of power generation means diversifying the energy mix by increasing generation capacity through natural gas, coal, renewables, and hydroelectric means.

Upgrading distribution capacity, efficiency, and management is also a state priority. Currently, issues of payment avoidance and the provision of arbitration between power suppliers and customers inhibit the efficiency and profitability of distribution. However, the state is working to resolve these issues through legislative changes, infrastructure upgrades, and partnership with private sector companies. The involvement of the latter, which includes a range of fiscal incentives and lucrativecommercial opportunities, is seen as key to driving the development of the sector.

GENERATION TO GENERATION

Breaking the cycle of power shortage remains a national priority, and the government has indicated that the Dominican Republic needs to create between 600 MW and 1,400 MW of generation capacity to cope with both current shortfalls and anticipated demand. Additionally, it needs to reduce the costs involved, which, while subsidized, are still expensive for the end user. The public purse picks up so much of the bill, as Rubén Jiménez Bichara, Executive Vice-President of the CDEEE told TBY, “If we were to transfer the entire cost of the energy generation process to the clients, some customers would be required to pay 160% more than what they currently do.”

To meet both the power deficiency and the high costs currently incurred, the government is seeking to utilize natural gas and coal, rather than oil-linked generation means. Coal represents a much cheaper alternatives and a tender process, implemented by EDE Este is currently underway for the construction of two coal-fired plants with a combined capacity of 600 MW. The government is aiming to reduce energy production costs by transforming its approach to generating energy.

These large-scale developments have yet to be realized, and in the meantime the state is working to increase capacity through smaller scale generation facilities and infrastructure upgrades. According to the Dominican Corporation of State Electricity Companies (CDEEE) throughout 2013, seven micro-hydroelectric plants and three new substations were built, while 12 substations were renovated during this period.

EARTH, WIND, & FIRE

One increasingly popular approach to reducing the generation shortfall, lowering costs, and directing the country away from a dependence on oil derivatives is renewable technology. Of the options available, the Dominican Republic is best suited for solar and wind power generation facilities. At the time of writing, the CDEEE has renewable energy tendered projects with a generation capacity of approximately 1,500 MW.

A legal framework, complete with incentives, was passed to encourage renewable development in 2007. The legislation in question is the Renewable Energy Law No. 57-07, which outlines a number of subsidies for energy generation projects related to renewable technologies. Exemption from import duties on equipment necessary to produce energy from renewable sources. This includes exemption from VAT for certain equipment, a 10-year income-tax holiday, a 5% tax reduction on foreign financing interest, a single tax credit of up to 75% on capital equipment, and special financing conditions of up to 75% of the cost of projects intended for community use. This is applicable for small-scale wind farms, hydroelectric plants, biofuel production facilities, and thermal energy generation assets, but unrestricted for oceanic and solar installations. Given the conditions in place, it is hardly surprising that global players are active in the sector. Spanish company Isofoton is one such example, and has a concession for a 50 MW solar plant with a capacity for expansion to 100 MW.

Additionally, better utilization of power through sustainable practices is also underway. Pedro Almonte, President of Almonte explained to TBY, “Today, besides energy services, we are working on renewable energy and sustainable architecture design, to use site conditions to improve efficiency and reduce energy use, like we are doing on our own building.”

POWER TO THE PEOPLE

In addition to increasing the volume of power generated, and the way it is used, the government of the Dominican Republic is also working to improve customer service in the transmission sector, upgrade and expand national distribution capabilities, and improve the monitoring of power use. To this end, the CDEEE announced plans to normalize over 130,000 customers, construct 825 kilometers of power lines, and install 143,000 remote-control meters plus an additional 8,000 macro-meters in 2014.

As is the case with generation improvements, distribution upgrades are being done in coordination with private companies. As Bichara told TBY, “The National Integrated Plan is aimed at…bringing closer both the public and private sectors to achieve common goals. For example, we currently implement 82 projects at the national level to upgrade and rehabilitate the electricity network, as well as to install better metric counters.”

One key issue motivating the government to act on metering is the avoidance of electricity bill evasion and illegal connections to the grid, which is evaluated at costing the country approximately $850 million annually, according to the Dominican Electrical Industry Association (ADIE). This equates to some 37% of national supply and is a core problem that continues to hinder sector advances.

One private company addressing the problem is Seaboard. Explaining the nature of the problem, Managing Director, Armando G. Rodrí­guez, told TBY that, “This is a country with a high risk associated to the collection of invoices for power generation, not necessarily meaning that power companies will not collect at all, but that timely collection on sales, something crucial to any business, is not the norm.”

To monitor the providers, the Office of Consumer Protection (PROTECOM) was established in accordance with the 2001 General Law on Electricity. It has a presence in 17 provinces and plans to expand its network by 14 offices to improve service, according to Eduardo Quincoces, Superintendent of the country’s power regulatory body, the Electricity Superintendency. This move will help protect end users who have suffered from poor service. PROTECOM works to investigate any claims against electricity providers and moderate disagreements, ensuring a fair resolution for all parties involved.

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