By: Jose Mesa
Barbados must replace fossil fuels with renewable energy as the source of its electricity generation. Once this change is made, it has the potential to reduce Barbados’ import bill, improve its foreign reserve position, and reduce its fiscal deficit. It also has the potential to increase business activity, create new jobs, and significantly increase the standard of living.
In 2013, Barbados imported approximately BB$700 million in fossil fuel. Approximately 50 percent of this sum was expended upon the generation of electricity. Under the present arrangement between the Barbados Light &Power (BL&P), the island’s primary electricity generator, and domestic consumers, the fuel is paid by the latter. In most cases this accounts for over 50 per cent of the amount paid by the consumer. Since the imposition of the FCA the cost of electricity in Barbados has steadily increased. It is unlikely to fall as long as fossil fuel remains the source of electricity generation.
In a recent study commissioned by the Inter-American Development Bank (IDB), The Private Sector Assessment Report for Barbados, electricity was found to be a major or very severe obstacle to doing business. This has, in turn, had a negative effect on the growth of the Barbadian economy. The Central Bank of Barbados Working Paper entitled, Modelling the Binding Constraints to Economic Growth in Barbados, the high cost of electricity was found to be at a significant constraint upon the growth of local businesses. In a study conducted by the Caribbean Hotel and Association, with the support of the European Commission, a similar correlation was found between decreases in hotel occupancy and rising electricity costs in Barbados.
Barbados can hardly afford any restriction upon its economic growth. According to a recent report by the International Monetary Fund (IMF), Barbados’ economic prospects are foreshadowed by external risks, the high fiscal deficit and debt levels, and competitiveness challenges. In addition, the trend of weak growth in its real GDP continued in 2015.
It was against the backdrop of this reasonably dismal assessment that the IMF recommended that Barbados’ growth strategy be focused, among other things, on strengthening the business environment. The move towards renewable energy make this objective a reality. The foundation is already in place. It started with the 1974 Fiscal Incentives Act. Installers of Renewable Energy Generating Systems (“REG systems”) were granted import preferences and tax holidays. Subsequent legislation provided an annual allowance of 150 per cent of the capital expenditure for assets used in the business;and an exemption from the imposition of import duty or the environmental levy on various items. The savings generated have significantly reduced the costs of inputs for installers of REG systems. Consequently, the industry has continued to grow and the contribution of REG systems to the supply of electricity has increased. Approximately 20 megawatts of electricity are supplied to the public grid by REG systems. Barbados has committed to further increasing the supply of renewable energy. By 2029 it should contribute 29 per cent of all electricity consumption.
The private sector has also embraced the renewable-energy initiative. In particular the BL&P, through the Renewable Energy Rider Program (RER Program) which it commenced in 2009. The RER Program allows BL&P’s customers with REG Systems to sell the electricity they generate to the BL&P. This program has to a large degree been quite successful. It has served to reduce the net expenditure of consumers with REG systems upon electricity. Once certain administrative issues are resolved, the RER Program will continue to generate substantial savings for local business. Over the long-term, the movement towards renewable energy and energy-efficient electricity generation is likely to reduce electricity expenditure by commercial consumers by approximately 35.5% per month; and industrial concerns by approximately 11.2% per month. By 2029 electricity costs could be cut by as much as US$283 million.
Barbados’ climatic conditions mean that it is well positioned to continue its push toward the increased use of renewable energy. To date, these resources, especially the sunshine, have underpinned the island’s world-renowned tourism product. Barbados is presently ranked among the top-tier of tourist destinations. If further stakeholders in the renewable energy sector are encouraged, it will drive economic growth in this country for years to come. The legislative and fiscal incentives are in place. A framework for the sustained development of this industry is, therefore, in place. It is, however, hampered by the manner in which the framework is administered. Applications for licences under the recently proclaimed Electricity Light and Power Act 2013 have not been processed by the appropriate ministerial body. This problem must be addressed as a matter of expedience. The stakes are far too high.
 Energy Policy, 2011, vol. 39, issue 6, pages 3515-3519, Demand elasticity of oil in Barbados, Alvon Moore
 Central Bank of Barbados Working Paper, Modelling the Binding Constraints to Economic Growth in Barbados, (2014)
 Caribbean Hotel Association; PA Consulting Group with the support of the European Union Taxation & Operating Costs for the Caribbean Hotel Sector; (November 2006)
 Press Release: IMF Executive Board Concludes 2015 Article IV Consultation with Barbados
 Income Tax Act CAP 73, s. section 12E. 10;
 Small Business Act CAP 318C
 Fair Trading Commission, Press Release, 23 February 2015
 Sustainable Energy Framework for Barbados; ATN/OC-11473-BA; Final Report—Volume 1 Government of Barbados Inter-American Development Bank (2010)
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 World Economic Forum’s 2015 Travel and Tourism Competitiveness Index.