When it began in 2005, Venezuela’s Petrocaribe energy pact with its Caribbean neighbors was in part intended to help the islands wean themselves from fossil fuels. Nearly a decade later, the Caribbean is starting to accomplish that goal – in spite of the alliance.
Seventeen countries receive cheap Venezuelan oil shipments through the Petrocaribe program, with the option of repayment over 20 or more years at discounted interest rates. As part of the plan, governments were supposed to map out a new route to energy independence, including creating more efficient grids and building renewable power sources. Cheaper energy imports also offered a way to subsidize domestic prices.
But some countries did neither, instead seeing it as short-term financing. The Dominican Republic, for instance, gets cheap oil, refines it, and then sells it for market prices, pocketing the difference. As a result, the Caribbean owes Venezuela billions of dollars and, until recently, had little to show in the way of energy independence.
Now, worries are growing that Venezuela’s state-run oil company will soon turn off the spigot on the shipments and sell the oil on the open market to shore up a faltering economy that has caused large scale protests. That fear, along with a realization that high electricity rates are making the Caribbean's tourist-dependent economies less competitive, has pushed regional leaders to the forefront of the green energy movement.
Caribbean countries are rushing to build wind farms, solar panel parks, and geothermal facilities in an effort to embrace renewable energy as the primary source of electricity generation. In doing so, they are making the longterm – and costly – decision to pivot away from energy sources that produce the greenhouse gases that contribute to rising sea levels here, threatening the Caribbean’s very existence.
“Absolutely there is the sense that we need to break from our addiction to fossil fuels to make the investments that provide returns for our future,” Jon Creyts, managing director at Rocky Mountain Institute, a Colorado-based nonprofit that focuses on renewables and energy efficiency, says of the Caribbean countries.
Mr. Creyts was in attendance last month when 12 representatives of regional governments and 30 companies gathered at Richard Branson’s private island in the British Virgin Islands for a summit on green energy.
“The message from senior leaders was that change needs to happen now,” Creyts says.
Changes are already taking place. Aruba is now getting 20 percent of its energy from sources like wind; the Dominican Republic has built two wind fields that generate enough electricity to replace about three days worth of oil imports; Barbados residents can install solar panels and sell the excess electricity back to the grid; and Montserrat, an island that has been largely destroyed by regular volcanic explosions over the past two decades, is tapping energy from the very volcano that has laid waste to the island.
The 'right thing to do'?
Caribbean leaders see renewable energy infrastructure as politically and economically important, Creyts says. “There’s this interesting dynamic that’s being created now in which there’s fierce local pride among leaders who want to be the first to 100 percent” renewable.
Aruba, considered the leader in the Caribbean movement, pledged in 2012 to get all its electricity from renewable sources by 2020. It has spent some $300 million modernizing its wind turbines and water desalination plants, and has built one wind farm and created plans for a second. All told, Aruba (population: 130,000) has cut its diesel consumption by 50 percent since 2012.
“We have seen a switch to renewables but it’s a process to get up to sufficient capacity,” says Marla Dukharan, an economist at RBC Caribbean in Trinidad & Tobago who studies Caribbean energy markets.
Countries that move to renewables can cut their deficits as they spend less on fuel imports. Several Caribbean countries are so indebted that multilateral lenders like the International Monetary Fund consider it unsustainable, while high electricity costs hinder their competitiveness, researchers and officials say.
“Energy costs destroy our profits,” says Carlos Sanchez, who runs a small tourism business, including a hotel, in Santo Domingo, Dominican Republic.
Right now, Caribbean consumers are paying rates upwards of five times those paid in the United States for electricity. And availability is spotty, forcing many businesses – and residents – to buy generators. Unable to rely on the public grid, Mr. Sanchez has installed diesel-burning generators at his hotel and office.
“We can’t compete with bigger [chains] because our costs are so high,” he says.
Loans vs. IOUs
Under former President Hugo Chávez’s self-styled socialism, Venezuela decided to share its petroleum with Caribbean countries in exchange for implicit political support.
Countries rushed to take advantage of the favorable terms. Today, the 17 Petrocaribe recipients receive 43 percent of their energy supplies through the pact, according to PDVSA, Venezuela’s state-run oil company.
But since Petrocaribe’s founding, Venezuela’s economic transformation has failed to exploit its vast reserves, and production has fallen. At the end of last year, petroleum production was at 2.45 million barrels per day, down from 2.9 million barrels a day produced a year earlier, according to a Bloomberg survey.
Meanwhile, as more Venezuelan oil has been promised to foreign partners like China in exchange for loans, Caribbean countries are struggling to repay their debts.
The Dominican Republic owed $3.4 billion to Venezuela as of late last year, according to statistics provided to The Christian Science Monitor under a request through the country’s freedom of information act. Under the deal with Venezuela, the Dominican Republic can repay a portion of its debt over 23 years at a 2 percent interest rate.
Yet, instead of repaying part of that debt in the US dollars that Caracas needs, it sent food supplies, which is allowed under the Petrocaribe contract.
For Venezuela, such an arrangement isn't ideal. High inflation, a shortage of US dollars to buy imports, and political divisions have fueled over a month of street protests that have killed more than 30 people, including security forces, civilians, and protestors.
Even as those protests rage, however, Venezuela sought to reassure its Caribbean partners that Petrocaribe will be safe going forward. Earlier this month, Venezuela’s ambassador to St. Lucia said the agreement would continue in “full force.” But governments in the region don't share this confidence, even if they won't say it publicly.
“You’re not going to hear the recipient countries say in public ‘wow, it looks like Venezuela is in trouble.’ And you’re not going to hear Venezuela say that Petrocaribe’s future is at question, because right now [Venezuela] needs all the political support it can get,” says a Venezuela-based consultant who works with the South American nation and Caribbean countries on energy issues, including Petrocaribe agreements. The consultant did not want to be named out of fear of angering clients.
“I don’t believe there is any administration in the region that does not realize what is happening,” Dukharan says. “It’s foolish to expect Venezuela would have the resources to continue shipping fuel throughout this region as they have been.”