Small Islands, Greater Opportunities

The energy sector across jurisdictions is shaped by several factors that are specific to the location. These factors can include various aspects such as geography, politics, economy, and the size of the jurisdiction, which could have an impact on situations such as the type of energy resource that could be used and the amount of energy that would be required to meet demand.

Island nations are no different.

Islands can be quite remote or isolated, leaving them in a very vulnerable position, faced by many unique challenges that can largely impact the development of their island energy sector. Four large obstacles which islands can face and shape the energy sector include:

1.       Vulnerability to climate change

2.       Isolation and absence of interconnection

3.       Land scarcity and dependency on tourism

4.       Lack of a robust regulatory frameworks.

In this blogpost, we’re going to delve into each 4 obstacles island nations can face:

1.    Vulnerability to climate change

Island states are highly vulnerable to the increasing impacts of climate change. 

According to the Met Office, global sea levels could rise up to 0.5-1 meter by 2100[1], which could have serious consequences for islands. According to a study published by the United Nations Development Programme, some of the impacts from a sea level rise of 1 meter, in the Caribbean alone, are expected to include[2]:

• Land loss of around 1,300 km2
• Displacement of over 110,000 people
• Inundation of sea turtle nesting beaches (35% in The Bahamas, St. Kitts and Nevis, 44% in Belize and Haiti, 50% in Guyana)
• Damage or loss of 28% of airports

In addition to sea level rise, other consequences from climate change are expected to include the increased frequency and magnitude of tropical storms and hurricanes, and the warming of the oceans, thereby threatening ecosystems.

2.    Isolation and absence of interconnection

Islands like Great Britain and Ireland benefit from interconnection with other countries, decreasing the challenges associated with complete isolation, whilst increasing security of electricity supply.

However, not all islands have this interconnection advantage.  

The fact that some islands could be quite isolated if they lack interconnection, means that they either have to be heavily independent or rely on imports, and historically it has mostly been the latter.

Many islands have become dependent on imported fossil fuels to produce electricity. However, this dependency can make islands very susceptible to any disruption, which could include geopolitical instability, transportation, political agendas, or logistical issues. This vulnerability can expose customers to high electricity prices and high price volatility.

According to the World Bank, customers in the Caribbean face some of the highest energy prices in the world due to the reliance on imported fossil fuels. In 2022, electricity prices in the Caribbean averaged around US$0.25/kWh, which was more than double the average price in the United States[3]. 

Furthermore, the World Bank studied 11 Caribbean countries with available data and determined that nine (9) of the 11 generated more than 80% of their electricity from imported fossil fuels and five (5) countries imported 90% of their energy.

The isolation and lack of interconnection faced by some islands threatens energy security. However, it can also create an incentive for island states to pursue clean local power generation. By installing such generation technologies, it could improve islands’ energy security and increase independence, while limiting price volatility for customers from a lower dependence on imported fossil fuels.

3.    Land scarcity and dependency on tourism

Even though island states may wish to increase their energy supply or increase their own renewable energy deployment levels, it is often not as simple as it sounds. Islands can be faced with additional challenges associated with limited land space and dependency on tourism.

Limited land mass can physically constrain opportunities for developing new power projects. This challenge could influence the type of electricity generation that would need to be installed on the island and could favour technologies which could be placed on rooftops to avoid using available land.

Not only does limited land space constrain the type of technology that could be used on islands, but it can heavily skew the size of electricity projects towards the smaller end.

Moreover, the combination of smaller projects and diseconomies of scale when it comes to electricity generation projects (i.e. increasing per unit costs with decreasing size), creates an additional financial constraint for these jurisdictions.

To help alleviate concerns associated with space, island states are looking into offshore generation projects. However, offshore generation projects come with additional difficulties or considerations due to potential impacts on wildlife, seabed characteristics, stability concerns, and their ability to withstand tropical storms and hurricanes out in the ocean. These challenges are amplified for islands as they could be more dependent on the blue economy than coastal mainland jurisdictions. 

The economy of islands could have a high dependence on tourism, which could have a large impact on the energy sector. Hotels, beaches, resorts, and other tourist destinations will need to adapt to the evolving electricity sector and deployment of renewable energy technologies. A clear balance must be struck to ensure progress in decarbonisation, while not putting the island’s economy at risk.  

4.    Lack of robust regulatory frameworks

Islands nations across the globe may not yet have robust regulatory frameworks in place for the electricity sector. Regulatory frameworks could outline competition guidelines, regulate utilities and other stakeholders, and specify the methodology to determine electricity prices, to name a few.

The lack of robust frameworks could create a level of uncertainty for utilities, independent power producers (IPPs), and investors, which could make private sector participation in the power sector less attractive.

Implementing regulatory frameworks that enable private sector participation in electricity generation can be a catalyst in accelerating renewable energy deployment. Additionally, enabling private participation could increase competition, which could incentivise participants to reduce costs thereby reducing electricity prices, benefitting consumers.

Facing these challenges for your island

We are seeing more and more island nations that are already becoming hubs for energy innovation, leading the way in sustainable development in order to overcome some of these challenges they face.

At Ricardo, our international experts work with islands around the world to develop sustainable systems, regulatory frameworks, and roadmaps/plans that improve energy security, independence and resilience, reduce costs, support the local economy, and battle climate change and negative environmental impacts. Some of our services include:

• Support and advise on electricity regulation
• Electricity system planning (generation, transmission, and distribution)
• Electricity pricing
• Development of Integrated Resource Plans and roadmaps
• Modelling and forecasting the electricity sector by developing tailored and country-specific models using CompactPRIMES
• Supply and demand forecasting
• Capacity building
• Hydrogen strategy, planning, and feasibility

So, whether you are just starting to plan your energy transition, or already have a roadmap in place and want expertise to deliver your ambitions, our experts are here to help you and your island.

[1] Met Office, Past and future sea level rise, https://www.metoffice.gov.uk/weather/climate-change/organisations-and-reports/past-and-future-sea-level-rise

[2] United Nations Development Programme (UNDP), 2010, Modelling the Transformational Impacts and Costs of Sea Level Rise in the Caribbean

[3] AskWBCaribbean: Talking Energy, Finding Solutions, October 2022, The World Bank, https://www.worldbank.org/en/events/2022/10/11/caribbean-talking-energy-finding-solutions#:~:text=Electricity%20prices%20in%20the%20Caribbean,over%20US%24%200.40%20per%20kWh.