CUC defends its CORE programme

| 30/01/2009

(CNS): In the wake of considerable criticism of its Customer Owned Renewable Energy (CORE) programme, local power firm CUC has denied that it aims to profit on the backs of customers. President and CEO Richard Hew has said that renewable energy is more expensive than conventional sources and that the CORE programme is not intended to provide a financial incentive but is for the environmental benefit only.

The Core programme was introduced earlier this month allowing customers with an interest in generation from renewable sources such as solar or wind to do so while remaining connected to CUC’s transmission and distribution grid. Hew stated that since then there have been various articles and letters in the press which have unfairly judged the intent of the programme.

“One of the assertions made is that CUC aims to profit on the backs of the CORE customers by buying their energy at a low cost and selling to other customers at a higher cost,” Hew stated. “The difference between the variable credit rate that CUC will give to the CORE customer and CUC’s selling rate is to cover the cost of CUC’s poles, wires and generators which have to remain in place to meet the electricity demand of all customers, including the CORE customer for the hours that he or she is not able to self generate.”

He said that with CUC compensating CORE customers for all of the savings generated, he failed to see how it can be interpreted that CUC is profiting from the CORE agreement, and to give CORE customers greater credit would shift an inequitable portion of fixed costs over to the non-generating customers whilethe CORE customers continue to enjoy the CUC system free. He said that renewable energy is presently significantly more expensive than conventional sources and requires a subsidy to be financially viable.

“This CORE programme is not intended to provide a financial incentive to those who choose to install and connect renewable generation sources; it is intended to introduce the ability for CORE customers to interconnect their renewable generators to CUC’s grid for a reliable energy source, on a cost and revenue neutral basis to CUC,” Hew added.

If the cost of renewable energy continues to decline and the cost of conventional sources such as diesel rises beyond the levels experienced last summer, Hew noted that renewable sources may then become viable without subsidy. “Until such time, if we are to adopt renewable sources for the environmental benefit only, customers would pay a premium. Such a decision to provide energy from more expensive energy sources cannot be taken by CUC on behalf of consumers; it must be directed by government policy, which CUC would implement subject to the approval of the ERA,” he stated.

Despite the criticisms, Hew said CUC was not discouraged and wanted to work with people interested in advancing the cause of utilizing renewable energy sources in Grand Cayman. “It was certainly not our intention for the CORE programme to evoke negative responses from some customers. We intended that the introduction of CORE would be a positive first small step to enable the adoption of renewable energy sources,” he said, but added that CUC could not lose focus on of the interests of the vast majority of our customers that do not own renewable energy generation.

He also addressed the question of net metering which he said was not necessarily fair to all, and in the US such systems are financed either through allocated tax dollars or by rate rebalancing, passing additional fixed costs to non-generating customers. “Net metering could therefore be considered unfair to those who do not generate electricity using renewable means if they are required to pay higher rates to subsidise renewable generators.”

Hew noted that valid questions have been raised on the size restriction and explained that the 10 kW was considered to be sufficiently large for residential application given that a home with a peak demand of 10 kW typically consumes approximately 4,500 kiloWatt-hours (kWh) per month, which is four times the average residential consumption level. “We are currently reviewing the size limit with the view of including only the restriction to the size of the residential customer’s peak load,” he added.

Related article: Tax break on green energy

Print Friendly, PDF & Email

Category: Business

Comments (10)

Trackback URL | Comments RSS Feed

  1. Chris Randall says:

    Mr Hew is, unfortunately, doing his best to obfuscate the details and confuse the general public just as he has succeeded in doing with the ERA.
    Granted that the cost of a system which will generate sufficient current to power a house with enough left over to convert into a stable 60Hz A/C supply that can be synchronised with the grid, will be very substantial; but, if someone is prepared to so do, and feeds current into the CUC lines, then it will effectively be consumed by the nearest CUC customer so the argument about wires and poles is nonsense: It is not that this ‘new’ current has to travel all the way back to North Sound Way to be distributed.
    The ONLY fair method is to simply feed the spare current back through the meter; at the end of the billing period either the consumer pays CUC or the reverse depending upon whether the meter reading is greater or lesser than it was before.
    This is how it is done in some other countries.
    From a wider perspective, I should like to see a national debate on whether it is in the country’s best interest for a major utility company to be foreign-owned.

  2. Robert says:

    Look at the big picture.

    Homeowners who choose to invest in renewable energy generation are doing the Cayman Islands a favor by reducing our dependency on imported diesel fuel.  At the same time, they are doing the world a favor by reducing greenhouse gas emissions ( and the associated threat of sea level rise and severe weather that threatens the very existence  of Cayman !).

    CUC  have no incentive to support the green modernization of the Cayman islands or even their own generation efficiency as long as they can pass through increases in the cost of diesel fuel to the consumer. It is time to eliminate  the fuel surcharge that  CUC is allowed to  charge. Then watch  how quickly their story will change !

     

     

    • Anonymous says:

      Oil at $41 dollars – was $141 – maybe its a good time hedge or get some reserves!

      If anyone has any contacts within the small circle of power within the PPM – please try to convince any of its’ sober members that this would probably be a good time for CUC to take advantage of the low price of oil. (But please tell them to not get a foreign consultant – just think about it amongst themselves). 

      • Anonymous says:

        "Oil at $41 dollars – was $141 – maybe its a good time hedge or get some reserves!"

        My, my how things change. A few months ago Govt. was being lambasted why it had not locked in the prevailing price at the time it reached agreement with CUC for a long term contract. Oil at the time was $95 per barrel. We had clearly lost out since oil was then well over $100 per barrel and analysts were predicting it would reach $200 by year end. If Govt. had done that it would look pretty stupid now. Now we have someone who is sure we’ve reached the bottom at $41. People, don’t get  so emotional. We are facing a worldwide economic meltdown. Despite the cut in production by OPEC we may see prices tumble further before rising again.   

        Interesting how those who posted to complain about their high bills are not posting about the steep drop in their bills. That is simply taken for granted.     

         

    • Anonymous says:

      Robert, I am afraid you have it quite wrong. (1) the new regime provides for competition in generation. If the outside bidder can bid lower than CUC, and even more so if it can do so using renewable energy sources that provide firm power, then it will win the bid. This is an incentive for CUC to sharpen its pencil. (2) The new regime provides for generation efficiency benchmarks and rewards and penalties associated with them. (3) fuel is a major of CUC’s bill from which it gains no profit. If the cost of fuel is high consumers consume less to CUC’s detriment. Ideally, it would want to reduce all items that significantly increase its bill and offer no advantage but garner much public criticism.

      The last one is precious: "eliminate the fuel surcharge"! Well, why did we think of that before? It’s so simple: if fuel is 50% of your bill then your bill is halved!  I am afraid that is not the way it works, Robert. You have two options: (1) include provision for fuel in the rates. With the volatility of fuel prices CUC would be back and forth to ERA to increase/reduce rates with all the lag time that it entails. That is the way it is done with many utilities in the U.S. but it is obviously inefficient. They may be slow to return to the ERA for a rate  reduction; (2) have a fuel surcharge. But of course you would wish for them to absorb it altogether. "Watch how quickly their story would change!". Depending on fuel prices at any given point fuel may represent say 70% of CUC’s operating costs. You’re right.  Their story would change very quickly – from financial health to insolvency. Then we would all suffer. The lights and the a/c would be off. Scores of workers would be unemployed. Pensioners’ nest egg in CUC stock would have disappeared. Do you get the picture?                 

  3. Chris Pope says:

    A couple of questions here.

    First of all don’t CUC consumers own part if not all of the grid distribution system? If that is not the case then what were the consumers paying for post Ivanfor the last three years?

    What happens to the out going energy that is generated if the incoming supply is disrupted, just like in the case post Ivan, let’s say the lines to my residence are down and there is no supply coming in, why can I not be able to use the energy that I am producing, would that mean if energy that I am producing cannot go into the grid I would have to disconnect the source?

    I understand what CUC are saying, that they need to collect revenue for distribution maintenance, but really how many homes or businesses are going to invest in a renewable energy? a rented business premise? a rented apartment,condo? Not very likely.

    • Anonymous says:

      No, Chris. Consumers do not own any of CUC’s T&D system. It is owned by CUC and ultimately by CUC’s shareholders. When any business suffers an increase in costs and passes it on to consumers in the form of higher prices it does not mean that the consumers then own the business or the assets of the business. Do you really suppose that Fosters does not pass on in higher prices its increases for example in its cost of doing business? In terms of the industry, Florida Power & Light were allowed to charge customers for the estimated $1.2 billion in hurricane repair costs. The concept is not unique to Cayman, or indicative of some nefarious plot against consumers.  However, the case with the Hurricane Cost Recovery Surcharge is even further removed than that.  CUC was entitled to a 9.5% increase in its rates under the terms of its old licence in 2005. This incease would have been permanent. Note that utilties everywhere who were hit by Hurricane were allowed double digit rate increases. Instead, of a permanent rate increase of 9.5%, Govt. negotiated a 4.7% temporary surcharge. Yes, it was motivated to allow even that increase because CUC needed it to help replaced destroyed infrastructure. Well, why wasn’t it insured? Most of it was, but insurance premiums for some parts was prohibitive and guess who the costs of the prohibitive premiums would have been passed on to?  In others words we as the consumers would have been paying for  it all along. Consumers actually got a good deal. I hope this now makes sense to everyone. 

      The provision for consumers to sell energy back into the grid simply permits you to do and does not compel you to do so. If CUC’s supply is off and you have your own power, good for you.      

  4. Anonymous says:

     

    It appears to me that MR. Hew is confusing (unintentionally I hope) CONSUMER owned renewable energy systems with UTILITY scale renewable energy infrastructure (CUC implemented) which he points out “currently requires a subsidy to be financially viable" and “until such time, if we are to adopt renewable sources for the environmental benefit only, customers would pay a premium. Such a decision to provide energy from more expensive energy sources cannot be taken by CUC on behalf of consumers; it must be directed by government policy, which CUC would implement subject to the approval of the ERA.” 
     
    Someone has already pointed out that the cost to the CUC for allowing consumers to install their own clean energy system infrastructure is zero. It is ludicrous to believe Mr. Hew’s point of view that someone who is generating their own electricity for their own use is a burden on non renewable energy customers and this somehow "would shift an inequitable portion of fixed costs over to the non-generating customers while the CORE customers continue to enjoy the CUC system free." The truth of the matter is that either consumer, renewable generator or not, would pay exactly the same rate for the energy they consumed that is generated by the CUC’s diesel generating system. Does Mr. Hew suggest that small households and shacks around Cayman that use very little electricity on a monthly basis are somehow being unfairly subsidized by consumers who have a much larger monthly consumption? No, each consumer pays equally and fairly for each KWh of CUC generated electricity that they consume and the CUC has been more than happy to provide that source of electricity to every residence regardless of what the monthly consumption is going to be.
     
    The CORE agreement as announced simply allows the CUC to "tax" consumers who install renewable energy systems and who want to use the CUC grid as their storage infrastructure. The CORE customer is not only charged normally for each KWh of CUC electricity they consume, but, are “taxed” for storing their generated electricity on the grid, even if they will use that self generated energy at a later time. The rate of the “tax” is the difference between the normal retail price of a KWh of electricity and the “variable credit allowance”. This unfortunately conflicts with Mr. Hew’s statement that the CUC does not aim to profit on the backs of the CORE customers.  From the standpoint of the consumer, using the grid as a storage medium on a net metering basis may be a viable option, however, on a net billing basis, depending on the variable credit allowance (which we will never know exactly what that is as it is a FLOATING value), it may be more advantageous to install a renewable energy system with an ‘in house’ storage component. An integrated storage component would provide the consumer with a source of back-up power when the CUC grid fails, whereas a system that depends on the CUC grid for it’s storage component provides no level of reserve electricity for emergency situations.
     
    I have to partially agree with Marek that this agreement is at least a baby step in the right direction but disagree strongly that “something is better than nothing”. We proclaim ourselves to be a first world nation and we could have at least adopted policies that meet with current world standards rather than what we have just been presented with. It is unfortunate that the ERA has agreed (through negotiation with the CUC) to a watering down of their initial goals and have allowed arbitrary limits to be placed on system size and to move forward with net billing and not net metering. There has also been a substantial change in policy from last years initial announcement regarding how CORE customers would be remunerated for generating clean energy and sending it to the grid. It was originally announced that the CUC would be providing a cash payment for excess electricity generated and sent on to their grid system (I believe the stated rate was in the neighborhood of CI$ 0.21 per KWh) but that has now been replaced with the “variable credit allowance”. One ste forward, two steps backwards.
     
    I commend and applaud the Minister of Communications, Works and Infrastructure, the Hon. Arden McLean and the Cabinet for their forward thinking and implementation of the import duty waiver for renewable/alternative energy equipment. I believe this policy is the first real step forward for the Cayman Islands in promoting the use of clean energy and I can only trust that the ERA will follow the lead of government, review what are the current world standards for renewable energy integration with existing utilities and move their policies in line with those standards.
  5. Marek says:

    It’s a good first step and better than nothing. Hopefully as we move forward the CUC agreements can be modified and made more consumer friendly.

     

    But at least we have taken, the first step.

     

    Marek

  6. Anonymous says:

    Mr. Hew is seems very anxious to point out several times that " that renewable energy is presently significantly more expensive than conventional sources and requires a subsidy to be financially viable" yet fails to explain that the CUC will not have to pay one Cayman cent for any of  the  renewable energy system infrastructure that will be installed by the consumer, ZIP, NADA, ZERO. (To be fair, CUC has said it will cover the costs of the intertie meter that is required for the net billing system that will be used to tax any energy you send to the grid). Renewable energy infrastructure costs can’t be all that unreasonable looking at the explosive growth of the industry worldwide. This press release is just strictly more CUC spin to confuse those who don’t yet fully understand renewable energy systems and how they can be designed whether they are grid tied or not. CUC wants you to believe that you must be tied to the grid if you want to generate clean energy and in the process they are trying to prevent any losses in the annual revenues. Fortunately, for those of considering implementing clean energy systems (yes, even with capacities greater than 10KW), you do not need send any energy on to the grid, and frankly, this agreement gives you pleanty of incentive not to intertie.

    The current agreement gives any customer generating renewable energy "partial CUC credits" for any energy that is sent to the grid and not a cash payout so I would like to know just what is this "financial incentive" Mr. Hew likes to refer to. In actual fact, by giving the consumer credits rather than cash, there is absolutely no incentive for anyone to generate in excess of their current demand. The only entity to benefit from excess energy produced would be the CUC as they are the only ones able to sell this power; (at full retail rates may I add for something that did not cost them anything produce). To add insult to the potential clean energy producers of the Cayman Islands, CUC and the ERA have agreed to placed an arbitrary cap on the maximum capacity of any renewable energy system (10KW) so that those most likey to install a system will always need to remain dependent on the CUC for the capacity in excess of what they can generate  for consumptionin thier homes and businesses.

    Mr. Hew surely can see the writing on the wall for the CUC and the impact it WILL have on the companies earnings. It may take a few decades for renewable energy systems to installed in sufficient capacity on this island to severely impact their bottom line but its going to happen and they know it. If we have another big run up in oil prices in the fututre similar to last year, renewable energy will be all that more attractive here in Cayman and around the world. In the mean time, it appears that Mr. Hew and his crew of spin doctors wield sufficient bargaining power and charm to dictate the terms of any agreements negoitiated(?) with the ERA board of directors  all at the expense of a cleaner and more secure energy future for the Cayman Islands. Way to go CUC.