POWER TO THE PEOPLE

Dominican Republic 2014 | ENERGY | FOCUS: ELECTRICITY REFORM

The Dominican Republic is seeking plentiful electricity capacity that is clean, universally distributed, and no longer hostage to rising oil prices.

Generating electrical power sufficient for public consumption and economic growth runs the gauntlet of global fluctuations in the price of input. The Dominican Republic's electricity generation had historically used oil as a major input, with price rises leading to the need to pursue alternative, and moreover, renewable avenues. This is precisely what electricity reform has sought to undertake for over a decade. The refurbishment of existing power plants has contributed to higher capacity utilization, while data of the Coordinating Body (Organismo Coordinador) of the National Interconnected Electric System (SENI), reveals that overall power generation, formerly 90% dependent on liquid petroleum, is today 40% liquid petroleum based, with 14% derived from coal, 31% from natural gas, 14% hydroelectric, and 1% wind power. Yet, more is required to ensure universal uninterrupted electricity supply, not to mention reduce the state's energy bill in terms of the subsidization of the current matrix, officially put at $1.4 billion in 2013. Official figures cited by Lexology indicate that by 2016 the nation will require around 600 MW of additional capacity just to tread water at today's supply level, which meets 84% of demand. Meanwhile, the figure that SENI forecasts in terms of meeting full demand is 1,500 MW by then.

SHAKING UP THE MIX

Renewables have proven slow to generate sufficient reliable capacity, and hence the government has also incentivized investment in more reliable electricity sources such as coal and natural-gas-fired power generation units. With an estimated launch date of early 2018, two coal-fired power plants turning out roughly 380 MW apiece are being realized by the government at an estimated cost of $2.04 billion. The burden this places on state coffers has necessitated an inviting investor landscape for the private sector to join the party. An LNG terminal in San Pedro de Macoris is designed to facilitate the conversion of the 300 MW Cogentrix power plant belonging to privately-owned utilities enterprise CESPM, and the development of additional natural-gas-fired plants providing roughly 700 MW of capacity will foster generation matrix diversification.

LEGISLATING FOR RENEWABLES

A more balanced generation matrix will also enable fulfillment of the government's emission reduction commitments. Renewable Energy Incentives Law No. 57-07 of 2007 and related legislation of 2008 established the regulatory framework of the republic's renewable energy projects. It laid the groundwork for wind energy facilities with a potential cumulative initial installed capacity of 50 MW. Other renewable schemes feature micro and small hydroelectric plants of no more than 5 MW capacity, photovoltaic generation schemes of any capacity, thermo-solar facilities generating as much as 120 MW per plant, and biofuel burning plants, among others.

The sweeteners extended to encourage investment are 100% exemption from import taxes on renewable source related equipment and machinery and exemption from the Transfer Tax on Industrialized Goods and Services (ITBIS), or Dominican VAT—plus sales taxes. Tax breaks aside, legislation foresees no obligation for renewable energy producers (gencos) to sell to the wholesale market, and the right to sell to distribution companies (discos) at the market's prevailing marginal cost. The Superintendency of Electricity (SIE) will meanwhile determine the price at which gencos sell surplus generation. The government has wisely taken bureaucracy to task to prevent costly delays to project timelines. It has launched a one-stop-shop that processes all approvals, permits, and certification by integrating related public entities. Meanwhile, to expedite the financing of these projects, the government has committed to the awarding of power purchase agreements (PPAs) that ensure prices and cover lenders under prevailing market conditions.