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Brink: The Curaçao Solar Market Needs Fuel to Endure

Dec 9, 2013

This is a story of an island solar policy that has pushed the distributed solar generation to brunk, or past the brink. Curaçao on paper shares a lot with neighboring islands: similar population size, prevalence of sunshine, expensive power, progressive interconnection practices and an island state. Only miles of the Caribbean Sea separate islands with slight differences that appear to be fueling a faster acceptance of solar power. The speed and scale of adoption has been demonstrable for the last two years. More than thirty companies have moved to solar power as part of their generation with more than five megawatts installed. Curaçao has a real solar market driven by savings more than environment but requires financing to make in omnipotent.

The Curaçao Water and Electricity company, Aquaelecta, considers themselves a "pioneer in renewables for the Caribbean" with wind and solar projects dating back 20+ years. The Green Energy Program enacted two years go spurred solar growth. This program is not revolutionary across the Caribbean islands but remember solar panel interconnection is also illegal in many islands today. The pillars of the program are higher interconnection limits of one megawatt and net billing supported with zero percent import duties for solar. Solar customers see a meaningful immediate savings.

The Aqualectra program has two important principals that sparked adoption. First, size does matter. This policy allows for projects up to one megawatt without concessions. This solves the inevitable dialog with customers, “small projects are not going to make a dent in my overall bill, why bother?” The second is using economics to lower grid challenges using net billing and not net metering. Net billing credits the customer for energy that was generated and consumed onsite at the prevailing tariff (~NAf 0.70 or $0.30/kWh USD) and energy delivered to the grid with a substantial discounted credit (~Naf 0.42 or $0.23/kWh USD). This creates an economic incentive to reduce the amount of energy delivered to the grid. A side but important benefit is this does not change or charge for the relationship of the grid operator and the customer. The Aqualectra program provides sufficient bill impact, sizeable returns, and a clear interconnection agreement/process.

The future of energy prices are uncertain but likely to increase over the project lifetime. Curaçao has to date installed nearly five megawatts of distributed solar generation on the grid in fewer than two years. Sounds perfect. Getting systems installed validates good policy.  The challenge is to make it sustainable. These markets need money to be sustainable and build an industry to design, install, and maintain these systems for decades to come. 

The fuel for solar power is not the sun alone but finance is what fuels these programs. The key is simple: finance. The global economic debacle produces a sinister feeling for financial ‘wizz-kids’ that have spreadsheets that show exceptional returns. This is magnified in small island states where these tools and professionals are coming from somewhere far away setting the ‘right’ way. The reality is these projects are interesting opportunities. Project finance alone cannot make a good project.

Two methods of finance are the solar lease and power purchase agreement. The lease model requires only five to seven years of commitment versus a twenty-year power purchase agreement. The lease affords no upfront investment, save twenty percent immediately, no obligation past the lease period, off-balance sheet, and all being installed by locals. Too good, right? Yep. All of this is true and the high returns look like mistakes. The challenge is finance needs to be secure in the investment, credit, and pipeline. There is no shortage of liquidity in the world today but sourcing good projects is challenging. The market is now caught trying to convince clients and investors about benefits and credit. This will take time and patience. However, this purchase actually saves the client money. It is unique to invest in something that actually puts the company in better financial health.

The Curaçao market has demonstrated scale and growth but can it continue? The answer is likely yes but requires combining building local technical pedigree, financing expertise, client education, clarifying policy and global capital focused on small but a vastly replicable number of deals. 

Lead image: Curacao ocean via Shutterstock

The information and views expressed in this blog post are solely those of the author and not necessarily those of or the companies that advertise on this Web site and other publications. This blog was posted directly by the author and was not reviewed for accuracy, spelling or grammar.

David Williams currently leads SolCarib, focused on developing emerging solar markets. He has a technical and entrepreneurial background. Recently, he served as peer reviewer for the US DoE and NREL's Quality Assurance task force. He led technology, risk and investment as Chief Risk Officer for a...


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