568k 
233k 
41k 
Subscribe 
Even more compelling than renewables, however, is energy efficiency. Utilities throughout the Caribbean should make deep investments in energy efficiency first. The payoff is profound. On San Andres, most refrigerators and home air conditioning units are 40 – 60 percent less efficient than similarly priced, more-efficient units currently available on the market. By spending about $8 million up front (which equates to a very modest $0.04/kWh) to replace the island’s existing refrigerators and air conditioning units with newer, more-reliable, and more-efficient ones, the island could save more than $65 million dollars net present value on a 15-year basis. In other words, such an investment would pay back in less than two years.
2. LNG Infrastructure Isn’t Cheap
At first glance, switching to LNG may seem inexpensive because islands’ existing diesel generators can be converted to run on natural gas at a “relatively” low cost. However, LNG retrofits for diesel generators can cost $4.8 million for a 14 MW diesel generator, plus there are also additional capital costs, including tanks to store LNG after delivery to the island and the need to upgrade ports to be able to accept shipments of LNG. San Andres, for example, will need an estimated 250 LNG storage tanks at a cost of $170,000 – 200,000 per tank. Each tank is about the size of a shipping container, so a significant amount of land would be required to house them—a serious challenge for an island half the land area of Manhattan.
Additionally, LNG must be transported from the port where it is received to the generators that will use it, which are not located near the island’s shore. Even on a small island like San Andres, this requires additional infrastructure for transporting LNG, either by truck after the tanks are filled or by using a new pipeline. After arriving at the power plant, LNG also needs to be re-gasified—in an additional multi-million dollar LNG plant—in order to finally generate electricity.
Finally, Caribbean islands are small; they don’t need bigger, more-efficient LNG plants that benefit from economies of scale. San Andres would thus spend a disproportionately large amount of capital to build a small LNG plant and fuel delivery system at a very high levelized cost. That LNG infrastructure is not useful in any other capacity, so if an island migrated away from LNG—such as to renewables—those tanks and pipes would sit largely unused. Investing in renewable technologies now, while also improving energy efficiency, would be a much better use of capital.
3. LNG = Energy Price Volatility
Swapping out a fossil fuel whose price escalates slowly (diesel) for a marginally lower-cost resource (liquefied natural gas) injects a new kind of risk into the electricity system: extreme price volatility. The price of natural gas itself, as well as the export price of LNG from the U.S., has varied greatly and been especially volatile in recent years. In other parts of the world, there is similar natural gas price volatility, as well as large variations in price between different regions. Given natural gas price uncertainty, it is difficult to estimate the costs of importing LNG from the U.S. or other countries over time. More volatility means less predictability in future energy prices for Caribbean island nations like San Andres, and in a region where 15 percent of total GDP is spent on electricity (in the U.S. that percentage is closer to 8 percent), such dramatic exposure to price volatility from natural-gas-fired electricity generation can be a serious hindrance on economic growth.
When talking about liquefied natural gas at small scale like we are in the Caribbean, a different kind of volatility also comes into play: capital cost uncertainty. For example, shipping costs for LNG are notoriously difficult to predict. Such costs include chartering fees, brokerage, fuel consumption, port costs, canal costs, and insurance costs, all of which vary based on where the LNG is shipped from. Along with shipping, liquefaction costs vary dramatically, as do re-gasification costs at the final location.
Each of these cost components include uncertainty, which makes estimates for LNG electricity generation for islands like San Andres extremely wide, from $10 to $30 or more per MMBTU. Given a heat rate for LNG of 7,203 BTU/kWh, the cost of LNG fuel is between $0.07 and $0.22 per kWh. While this does provide an improvement over diesel fuel, which currently costs $0.28/kWh on San Andres, this major uncertainty makes it difficult for islands to understand the true cost of switching to LNG.
Finally, LNG facilities across the globe are significantly larger than what’s needed on a Caribbean island. While there are examples of small-scale LNG in places such as Norway and Japan, these nations are moving LNG short distances within their own region, not shipping the fuel over long distances. Islands the size of San Andres would likely need only one terminal to receive LNG shipments. This may seem beneficial, but it also creates a single source of potential failure for the islands’ electricity system. Installing various distributed and varied energy resources, including renewables, mitigates this concern.
4. Small-Scale LNG Faces Serious Contractual Challenges
The LNG prices we estimated are only valid if there is a seller willing to provide LNG at that price to an island.
Currently, LNG prices are set regionally and are hugely sensitive to the volume of LNG under contract. The world’s main LNG customers, like post-Fukushima Japan, are truly massive customers and can command a lower overall LNG price: Japan alone imported 11.5 cubic billion feet per day of LNG in 2011. By comparison, San Andres would need less than one-tenth of one percent of Japan’s annual import volume. And since natural gas is a regional commodity (as opposed to a truly global one like petroleum where prices are largely uniform regardless of volume purchased), this leads to an important question: Can small islands like San Andres secure contracts for (globally) miniscule amounts of LNG at competitive prices?
Plus, under current natural gas prices, agreements can be reached before natural gas export facilities have been fully approved and constructed—resulting in an uncertain timeframe for when LNG might actually available for import to an island like San Andres.
Furthermore, if LNG is a “bridge fuel” to future alternatives, such as renewables, the amount of LNG needed over time to generate electricity would go down as more renewables come online. As renewables and energy efficiency decrease the needed amount of electricity from LNG plants, the volume of LNG purchased goes down dramatically, further increasing the per-unit price of LNG and making long-term contractual LNG even more difficult.
A Bridge to Nowhere
Given the abundant wind and solar resources available in the Caribbean, and the still-falling costs of installing renewable generation compared with converting existing diesel resources to LNG, choosing renewables over LNG now is a smart economic decision. As the case of San Andres illustrates, sinking capital into LNG would be a poor decision for most Caribbean islands facing similar challenges. There’s simply no reason to build this expensive, unnecessary natural gas bridge when the cost-saving benefits of renewables and efficiency can be captured here and now.
YOU MIGHT ALSO LIKE
Samso: World’s Most Inspiring Renewable Energy-Powered Island
Wind Energy Could Generate Nearly 20 Percent of World’s Electricity by 2030