Dominican Republic’s Power Sector Enables Clean Energy Growth

Dominican Republic’s Power Sector Enables Clean Energy Growth

 

Positive Outlook for Clean Energy in the Dominican Republic

Patricia Eloizin, Latam Energy Advisors LLC

 

One of the major barriers to the growth of clean energy in the Dominican Republic is its crumbling electricity sector. This challenge can be overcome however. By shoring up inefficiencies in the power sector and strengthening current policy structures, the Dominican Republic can reduce investment risk and attract critical private capital for sustainable energy solutions. 

The country’s struggling electricity sector poses a significant threat to progress. The power system experiences a high rate of outages, an average of 4.5 hours per outage, in comparison to the rest of the Latin America and Caribbean region (not including Haiti) where blackouts last 2.5 hours on average. The Pacto Eléctrico was presented in 2017 as an opportunity to guarantee electricity to the country’s 10 million citizens over the next 15 years.

The policy aims to resolve some of the major issues faced by the power sector – including a low tariff structure, low rate of payments, and high distribution losses to end users. If the policy is enacted, this could be a significant step forward to resolving major problems in the power sector and making space for additional renewable energy investment.

 

Unpacking Challenges in the Generation, Transmission, and Distribution Subsectors

The Dominican electricity sector runs a deficit and is dependent on the government to stay financially afloat. Between 2010 and 2015, the Dominican government transferred over $5 billion to state-owned electricity generator companies. This number represents close to 7 percent of the Dominican Republic’s total expenditures over this period.

A large part of this deficit is because the cost of electricity generation is so high. So far, oil prices have remained low and have not caused an undue financial burden, but in the long-term, the government will need to consider how to manage this high risk.

The distribution companies also owe generation companies a significant amount of debt which totaled about $781M in 2014. Although low oil prices mean that this debt has decreased, these delayed payments have deterred new market entrants, thereby decreasing overall competition and keeping prices high. Similar challenges exist in the transmission sub-sector.

The Dominican Electricity Transmission Company (ETED) struggles with delayed payments of “transmission tolls”, resulting in delayed service. This is a significant challenge because any network enhancements or expansions must be postponed.

As it relates to electricity distribution, the Dominican Republic power sector experiences high energy losses. In 2012, this number topped 35 percent. Today, about 32 percent of electricity is lost in transmission and does not reach the end user.

In contrast, the Latin America and Caribbean region experiences about a 17 percent transmission loss. The proposed Pacto Eléctrico has set a goal of reducing transmission losses to 15 percent. If the Pacto Eléctrico is eventually signed into law, it should increase the pace at which improvements are made to the electricity transmission system.

 

Towards a Sustainable Energy Future

The Dominican government must commit itself to repairing its crumbling power sector because doing so is tied to its long-term economic success. The law intends to reduce the percentage of blackouts significantly. This would create opportunities for new market entrants who are hesitant to do business in the Dominican Republic because of unreliable power. This condition increases the cost of doing business as companies must purchase backup generators.

In the meantime, the Dominican government, in coordination with international organizations and private businesses, can undertake technical assessments to determine how much variable renewable energy sources (VREs), including solar and wind power, can be integrated in the existing grid. By doing this, the country will take one more step forward towards a sustainable energy future.