Wind Energy in Dominican Republic Proposal

Wind Energy: Promoting A Clean Energy Market in the Dominican

Republic

Carlos Rymer

June, 2007

Climate Change

• Relatively fast increase in the global mean temperature.

• Caused by anthropogenic emissions of greenhouse gases, such as carbon dioxide (CO2), methane (CH4), nitrous oxide (N2O), and others.

• These gases are by-products of the combustion of fossil fuels, such as oil, coal, and natural gas, as well as deforestation and land disturbance.

Global Mean Temperature in the Past

21st Century Global Mean Temperature Projection

Consequences of Inaction• Nicholas Stern, well-known economist from the UK, estimates that the world will

have to pay 15-20% of GDP as a result of climate change towards the end of the century.

• Tropical storm intensification.

• Loss of important but highly vulnerable coasts due to sea-level rise.

• Changes in precipittion, stressing agriculture and water resources, which could affect 70% of the population in Latin America.

• Loss of all mountain glaciers.

• Loss of agriculture in many areas.

• Poverty increase due to more prevalent infectious diseases, malnutrition, and the loss of resources.

Fuente: NASA

Areas Under Water With a 14-Meter Sea Level Rise

Global Goal

• Emission reductions of 90% below current levels by 2030 in the developed world.

• Emission reductions of 60% by 2030 for the world.

• Note: Dominicans emit about 2.01 tons of carbon dioxide per capita, while the biosphere and the oceans can absorb about 2.25 tons per capita today. In 2030, this will be 0.33 tons per capita.

Wind Energy

• Wind energy is electricity derived from the wind using a modern technology.

• Wind turbines convert the force of the wind into electricity that can be used by consumers.

• This technology already has over 20 years of development and its market is growing very rapidly around the world.

Source: US National Renewable Energy Laboratory

Wind Energy

Advantages Disadvantages

Produces electricity without emissions Variable resource, reducing the time of electricity production

Reduces fossil fuel dependence Can affect birds and bats if not well-sited, though not significantly

Precios never rise, they only drop Requires a lot of land to place the turbines

The technology has a lot of space for improvement

Like other renewable technologies, it requires initial investment

It has the potential to electrify remote areas The production cost is currently very low only in good to excellent wind sites

Competitive prices for consumers The production cost still has to decline in moderate wind sites to compete with coal

Has the potential to create a new industry in many countries

Requires storage in remote areas

The use of the technology creates many jobs The tecnology has to be further developed

The source, wind, is abundant

10 Top Countries with Installed Wind Capacity, in MW

Spain

Germany

United States

India

Denmark

China

Italy

UK

Portugal

France

Global Wind Installed Capacity

Wind Energy Production Costs

Other Details About Wind Energy• The price to install 1MW is currently about US $1.2-1.5

million, the same as 1MW of coal.

• However, since the wind is variable, it can only generate electricity for approximately 3,000 hours per year, while coal plants can generate for about 6,000 hours.

• For this reason, twice as much wind capacity has to be installed to match a certain coal capacity.

• Even with this disadvantage, wind energy is a competitive option for consumers, especially under limits for greenhouse gas emisisons.

Source: CDEEE, 2005

Electricity Demand in the Dominican Republic

Source: CDEEE, 2005

Capacity Demand in the Dominican Republic

Source: CDEEE, 2005

***The price of oil today is over US $60/barrel. The increase began in 2005.***

• This projection did not take into account the large increase in the price of oil in 2005, which is now over US $60/barrel.

• For this reason, the electricity demand projected for 2012 is about 16,500GW-hr, which is about 10,000GW-hr less that the 2005 projection.

Projected Demand in the Dominican Republic

Coal Plant Projects

• High electricity prices have forced the country to use cheaper sources of electricity, particularly coal.

• The advantage of coal over oil is that it is much cheaper and can generate electricity around US $0.05/kW-hr for ditributors.

• The most significant disadvantage is that coal emits much more carbon dioxide into the atmosphere, and emits other pollutants as well.

• The Dominican Corporation of State Electric Enterprises has contracted the company Westmont Power S.A. to install two coal plants, each with a generation capacity of about 600MW, in Pepillo Salcedo, Monte Cristy and Puerto Viejo, Azua.

Coal Plants• The coal-burning power plants will come into service in 2009 and 2010m

according to the latest anouncements.

• After 2010, the electric corporation has plans to build additional coal plants with a total capacity of 900MW.

• The 1,200MW project will cost about US $423 million, which is about 26% of the real market cost.

• The project will generate about 500 direct jobs, and 2,000 jobs in the construction process.

• Due to the urgent need for capacity to meet all demand, these projects are appropriate to reduce electricity prices in the next 3-4 years.

Wind Potential in the Country• In 1999, the US National Renewable Energy

Laboratory published a summary of a study that measured wind resources in the Dominican Republic.

• The study estimated that the country has the potential to generate about 24,600GW-hrs using 1,482 squared kilometers, which is 3% of the land.

• Using about 9% of the land, there is potential to generate about 60,000GW-hrs.

Source: Secretaria de Estado de Medio Ambiente y Recursos Naturales

Estudios Necesarios• Estudios para prevenir que los molinos de viento sean instalados en rutas

migratorias de aves.

• Un estudio para evitar los conflictos entre territorios protegidos y molinos de viento.

• Un estudio para desarrollar un plan del ordenamiento territorial.

• Un estudio extensivo que resuma los impactos del cambio climático en el país para este siglo.

• Estudios más específicos para obtener información más segura y detallada sobre los recursos de viento en el país.

• Estudios sobre las aptitudes de los turistas al uso de energía renovable en el país.

Economic Scenario A

• Under this scenario, wind and coal prices are as expected, and foreign companies would pay 25-50% of the investment to install wind turbines or coal plants.

• This scenario does not include a global tax on carbon dioxide for developing countries, but sets goals that countries must try to reach.

• After 2010, the country would need to produce 5,000-15,000 GW-hrs extra to meet demand in 2020.

Scenario A Coal Wind

Production Cost US $0.05/kW-hr $0.03-0.05/kW-hr[1]

Installation Cost US $0.35-0.7 millions/MW US $0.4-0.75 millions/MW

Needed Capacity (2020) 800-2400MW[2] 1600-4800MW

Total Cost US $280-1,680 millions US $640-3,600 millions

Consumer Savings (per year)[3] US $400-1,200 millions US $500-1,200 millions

Conclusion More Económic[4] Less Económic

[1] Assuming installation in good to excellent sites, or 3% of the land. [2] Assuming that the coal plants will generate electricity for 6,000-6,500 hours per year (70-75% factor). [3] Assuming comparison to the price of electricity from oil: US $0.13/kW-hr. [4] Cheaper for investors, not consumers.

Economic Scenario B

• Under this scenario, wind and coal prices are as expected, and foreign companies and public funds would pay 100% of the investment to install wind turbines or coal plants.

• This scenario does not include a global tax on carbon dioxide for developing countries, but sets goals that countries must try to reach.

• After 2010, the country would need to produce 5,000-15,000 GW-hrs extra to meet demand in 2020.

Scenario B Coal Wind

Production Cost US $0.05/kW-hr $0.03-0.05/kW-hr

Installation Cost US $1.35 millions/MW[1] US $1.35 millions/MW[2]

Needed Capacity (2020) 800-2400MW 1600-4800MW

Total Cost US $1,080-3,240 millions US $2,160-6,480 millions

Consumer Savings (per year) US $400-1,200 millions US $500-1,200 millions

Conclusion More Economic Less Economic

[1] CDEEE, 2005.[2] The average between 1.2 and 1.5 million was used.

Economic Scenario C• Under this scenario, the production costs of wind and coal would

be different because there would be a tax on carbon dioxide emissions under a post-Kyoto treaty.

• The carbon tax would be based on a goal of reducing greenhouse gas emissions.

• In this scenario, a conservative tax of US $30/ton of carbon dioxide would be imposed.

• Foreign finance and public funds would pay 100% of the cost to install wind or coal plants.

• After 2010, the country would need to produce 5,000-15,000 GW-hrs extra to meet demand in 2020.

Scenario C Coal Wind

Production Cost US $0.08/kW-hr $0.03-0.05/kW-hr

Installation Cost US $1.35 millions/MW US $1.35 millions/MW

Needed Capacity (2020) 800-2400MW 1600-4800MW

Total Cost US $1,080-3,240 millions US $2,160-6,480 millions

Consumer Savings (per year) US $200-600 millions[1] US $650-1,650 millions

Conclusion Less Economic More Economic

[1] Savings are less because coal emits approximately 50% more carbon dioxide than oil.

Escenario Económico D• Bajo este escenario, los precios de energía eolica y carbón serian diferentes

porque habría un impuesto a las emisiones de dióxido carbono bajo un tratado post-Kyoto.

• En este escenario, un impuesto conservativo de US $30/tonelada de dióxido carbono seria implementado.

• Financiamiento extranjero y domestico pagaría 100% del precio de instalar los molinos de viento o las plantas térmicas a carbón.

• Pero en este caso, las plantas a carbón no pueden emitir dióxido carbono por regulaciones para eliminar el crecimiento de las emisiones, y entonces su precio incrementa por un estimado de 50%.

• Después del 2010, el país necesitara producir entre 5,000-15,000 gigavatios-hr adicionales para abastecer la demanda del 2020.

Escenario D Carbón Energía Eolica

Precio de Producción US $0.08/kW-hr $0.03-0.05/kW-hr

Precio de Instalación US $2.7 millones/MW US $1.35 millones/MW

Capacidad Necesaria (2020) 800-2400MW 1600-4800MW

Precio Total US $2,160-6,480 millones US $2,160-6,480 millones

Ahorros a Consumidores (por año) US $200-600 millones US $600-1,500 millones

Conclusión Menos Económico Mas Económico

Regulatory Framework

• Law 112-00 on hydrocarbons and Law 125-01 on electricity created incentives to develop renewable energy, including a 5^ tax on hydrocarbons that generates about US $200 million per year.

• Recently (April 2007), the Dominican Congress and President Leonel Fernandez passed the Law of Incentives for Sources of Renewable Energies and their Special Regimes.

Law of Incentives for Sources of Renewable Energies and their Special Regimes

• Guarantees tax exemptions for all machines, equipment, and accessories imported for renewable energy by companies or individuals.

• Garantiza la exención de impuestos sobre la renta a las compañías que instalen sistemas de energía renovable en el país.

• Reduces transmission costs for renewable energies by 50% until these meet 10% of total demand.

• Fixes the price of electricity from renewable energy that enters the national grid to the price of the market for the distributors.

• Offers up to 50% of the investment for projects less than 5MW.

• Establishes a repayment to generators of renewable energy (a credit).

• Offers up to 75% of the investment in renewable energy systems for autoproducrs, such as homes.

• Leaves gained credits from emission reductions under the Clean Development Mechanism to the same generators.

The Next Step: Large-Scale Support

• It is possible to further incentivize renewable energy in the Dominican Republic to create a new, significant industry.

• As analyzed, the wind potential in the country is around 25,000 GW-hrs using 3% of the land.

• In addition, wind energy from this land could generate electricity at a cost of US $0.03-0.05/kW-hr, with an estimated cost reduction for 2020 of 35-45%.

Large-Scale Wind Energy Development

• While wind is a variable resource, the strategy of using larger wind capacities could reduce the risk of variation in electricity production.

• The Dominican government should, in conjuction with the tourism sector, commit in the form of a law to a national renewable energy target in which renewable energies will meet a significant portion of the energy demand in the country.

• In the case of wind energy, it is possible to expand the current law to exploit this resource in large scale and meet 30% of electric demand with wind in 2020, since it would be an economic and environmental advantage.

Government Finance

• In the Dominican Republic, the largest sector and the sector with the largest growth rate is the tourism sector. With incentives for development of this sector from the government, the sector is growing rapidly, benefiting the country greatly.

• This sector contributed 6.6% to the nation’s GDP in 2006, y employs 656,000 people directly and indirectly (18.4% del empleo).

• The sector also created a total demand of US $8.14 billion in 2005, and it is estimated that it will generate a total demand of more than US $10 billion in 2008.

Tax on the Tourism Sector

• A tax on all transactions of the tourism sector could collect necessary funds to promote wind and other renewable energies in large scale, creating a new industry of clean energy in the country that could generate over 1 million jobs by 2020.

• In the case of the Dominican Republic, a 30% wind energy target for 2020 would need wind production of about 7,000-10,000 GW-hrs, which will need a capacity of 3,000-4,000 MW using current wind turbines, and a total maximum investment of about US $4 billion.

Note: This sector is chosen because most of the investments are foreign, and the sector should have a significant interest in preventing the consequences of climate change.

Tax on Tourism Sector

• With a 2% tax on all transactions of this sector beginning in 2010, the renewable energy fund could collect an additional US $200 million per year.

• This number would increase every year, and could collect around US $3 billion in 2020 (in addition to US $1 billón from the tax on hydrocarbons).

• With at least an additional foreign investment of US $1 billón, this target could be reached.

Benefits of the Plan

• A new, clean energy industry in the country.

• Low and stable electricity prices for consumers.

• Savings of about 1billón per year starting in 2015-2020.

• The creation of about 80,000 direct jobs and 640,000 indirect jobs.

• International model, which would help the country gain further foreign investments.

Recomendaciones• Introducir un proyecto de ley al Congreso con los siguientes

(para ser promulgado en el 2009 o antes y venir en efecto en el 2010):

– Un compromiso del país a usar energía eolica para abastecer 30% de la demanda eléctrica en el año 2020.

– El financiamiento de inversiones iniciales (subsidio de por lo menos 200 megavatios por año, con la intención de instalar 400 megavatios por año) de proyectos con un fondo que recaudara el 2% de todas las transacciones a causa del sector turístico.

– Un moratorio a la construcción de plantas a carbón.

– Ordenamiento especial del territorio fuera de áreas protegidas para la instalación de parques eolicos.

– Un compromiso a que todos los proyectos de energía eolica sean contratados con el sector eléctrico del país (la CDEEE, las distribuidoras, e otras).

Recomendaciones• Introducir un proyecto de ley (puede ser el mismo) al Congreso

para comprometer al país a derivar 50% del uso primario de energía con fuentes renovables para el 2020-2025, incluyendo:

- Una mezcla en el uso de combustibles para el transporte de 50% etanol, producido domésticamente.

- El incremento en vehículos vendidos en el país que pueden usar etanol (“flex-fuel”), lo cual necesitaría cambios técnicos o un acuerdo con las compañías de autos.

- El incremento del uso de la energía solar para abastecer 5-10% de la demanda eléctrica 2020, cuando el precio de la tecnología este competitivo con las otras fuentes de energía usadas para ese tiempo.

Recomendaciones

• Introducir un proyecto de ley (puede ser el mismo) al Congreso para ejecutar un plan de alta eficiencia energética en todos los usos de energía (lo cual ahorraría recursos financieros) para reducir el consumo de energía primaria 20-50% por capita.[1]

• Ordenar a la Comisión Nacional de Energía y los Ministros relevantes a desarrollar un plan para implementar las recomendaciones en este reporte antes del 2009.

[1] USAID y CNE. 2004. Estrategia de Eficiencia Energética para la Republica Dominicana.

Questions? Comments?