Renewable energy prices posed with high potential

The cabinet has set prices for government-owned utilities companies to purchase renewable energy as part of an investment scheme to bring the Maldives closer to its carbon neutral goal.

“We think renewable energy has a lot of potential, it is why we are in the business. We think this is where things should be going,” said Renewable Energy (REM) Director Hudha Ahmed. Noting that diesel rates are currently higher than projected solar energy rates, she said solar energy is a more reliable source long-term.

According to the Cabinet’s decision, State Electric Company Limited (STELCO) can buy a unit for Rf3.42. South Central Utilities Limited will be charged the highest rate per unit (Rf5.39), and Upper North Utilities Limited can buy a unit for Rf4.44. Units are available to Northern Utilities Limited for Rf4.40, Central Utilities Limited for Rf3.97, and Southern Utilities Limited for Rf3.94.

The Maldives currently aims to cut carbon emissions by 60 percent using solar power. Currently, no company is carrying out a commercial renewable energy project in the Maldives.

STELCO, which just received the rates and is awaiting conditions from the Ministry of Housing and Environment, said there are plans to provide renewable energy locally.

“We have some projects which are being planned, mostly in solar and wind. One solar project is expected to be commissioned in a few weeks,” said STELCO Chief Technology Officer Mohamed Zaid.

Since signing the Copenhagen Accord in January 2010 the Maldives has focused on decarbonising the electricity sector, which accounts for over 31 percent of industrial project expenses.

Decarbonising the country is expected to cost the Maldives US$3-5 billion over the next 10 years.

The rates approved by the Cabinet were researched and recommended by Maldives Energy Authority. Deputy Director Ajwad Musthafa said the rates were calculated according to fuel prices in each region and differences in fuel efficiency.

“The amounts we set were about 10 percent cheaper than they currently are in diesel,” Musthafa said.

Over 25 percent of the Maldives’ GDP is spent on diesel used for boats alone.

Consumers won’t be affected by the plan, which currently targets investors only and is likely to be lucrative, he added.

“As it stands now, a person can put a solar panel in his home and send the power to a grid. Having invested in energy production, that person can expect a six to seven year payback period before making a profit, which are expected to grow significantly with time. Currently, there is no mechanism in place between the investor and the utility company, but I believe it is being developed,” said Musthafa.

He observed that the system would be especially attractive to people in the Upper South and South Central regions, “where energy prices and feed-in tariffs are higher.”

In September, the Maldives signed the Renewable Energy through Feed-In Tariff in an effort to reduce electricity costs by promoting a shift from oil fuel to renewable energy sources.

“The existing system is fairly inefficient in these areas,” he said. “About fourteen years back the government was charging an Rf3.5 flat rate for energy. We got complaints from investors, so now we are trying to make it more exciting for investment.”

Earlier this month the Maldivian government solicited bids from solar power companies to power 29 islands, which are facing power generation difficulties. Many small islands have small power stations, which are expensive and yield disproportionate returns.

As fuel prices increase, Musthafa explained, so will the feed-in tariff, and the overall price of diesel is unlike to drop in coming years. By comparison, locally-produced solar would be a valuable option.

Musthafa said a buyer’s mechanism was being developed and would be implemented in due time. “Right now, we want to create a market that offers transparent, confident investments,” he said, adding that foreigners are expected to play an important role.

“Foreign investors will only have to sign a power purchase agreement. Nothing has to be taken from the government’s side,” he said. Local companies are also expected to benefit from external support provided by foreign investors.

Past the investment phase, the solar plan includes capacity development, training and awareness programs on renewable energy, and methods to make the investment more affordable, including concessional loans.

“Our hope is that by early next year we will have the proper institutional set up to make this happen,” Musthafa said.

Correction:

Previously, this article stated, “As it stands now, a person can put a solar panel in his home and send the power to a grid…Currently, there is no mechanism in place between the investor and the utility company, but I believe it is being developed.”

It should have read, “As it stands now, a person can install a solar panel in his home and sell the power to a grid…We have already established a set of technical guidelines and application procedures for Solar PV installations. Additional regulations are being developed.”

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