Think about that you’re a typical household residing in a low- to middle-income group within the Caribbean nation of the Dominican Republic. You earn near the typical wage of US$250 per 30 days and your month-to-month family electrical energy consumption is 200 kilowatt-hours (kWh) — about one fifth of the typical US family. You pay on common US$25.00 per 30 days to your electrical energy. The true price of electrical energy is US$62.50, however the authorities is paying practically 60 p.c of that to subsidize the excessive price of fossil fuels used to generate electrical energy within the nation. Even with the federal government subsidy, 10 p.c of your wage should go towards powering your own home. With out this authorities subsidy, 25 p.c of your wage must go to electrical energy prices, making the subsidy important to take care of a fundamental way of life for you and your loved ones. Annually, you pay US$300 to your electrical energy and the federal government pays US$450. This electrical energy isn’t solely costly, however polluting your setting — spewing more and more excessive quantities of carbon into the ambiance as native populations improve. This has occurred for many years, and if nothing adjustments, it is going to proceed to occur into the longer term.
Now think about subsequent month, as a substitute of providing you with the electrical energy subsidy that you’d require over the following three years, you obtain a grid-tied, net-metered photo voltaic photovoltaic (PV) system in your roof that gives one hundred pc of your electrical energy wants. Extremely, within the Dominican Republic, a grid-tied PV system that produces these 200 kWh/month can price roughly US$2,400. To pay for the system, the federal government provides you a grant of US$1,330 (equal to 3 years of subsidy) and a neighborhood cooperative gives you with a mortgage for US$1,070.
The system lowers your month-to-month electrical energy price to US18.75/month (25 p.c lower than what you pay now for electrical energy), of which US$2.40 is the fastened payment and US$16.35 is your month-to-month cost to the cooperative for 5 years. This technique ensures dependable electrical energy for your loved ones and, whilst you repay the mortgage for the photo voltaic system, your cost of electrical energy is diminished by 15–25 p.c from its prior stage. In 5 to 6 years, after you have totally paid off the system, your electrical energy prices are 90 p.c decrease than their preliminary stage, now making up only one p.c of your wage. The graphic under depicts your month-to-month money circulation, with a financial savings of US$6,900 over 25 years.
Let’s flip roles. Now think about that you’re the Authorities of the Dominican Republic, conscious of the challenges within the energy sector similar to excessive and fluctuating electrical energy costs, vitality dependency on account of reliance on imported fossil fuels, and poor grid resiliency, that are issues confronted by many countries within the area. Traditionally you will have tackled these challenges in an atomistic method — selecting to deal with the biggest and most short-term drawback: the excessive electrical energy costs to customers. The best technique that you’ve discovered is a month-to-month electrical energy subsidy by which you pay for 35–60 p.c of all electrical energy consumption for every client to offset the excessive prices of fossil gas. This prices you US$2 billion/yr, or 11 p.c of your 2023 annual price range, to make sure that the practically 2.8 million households within the nation cannot solely energy their houses, but in addition afford an appropriate high quality of life for his or her households.
You notice that somewhat than persevering with to pay billions in electrical energy subsidies annually, you possibly can make investments three years of electrical energy subsidies, round US$6 billion, to assist set up stand-alone photo voltaic techniques in any respect residential houses. Amazingly, each time you assist a household set up a photo voltaic system on their house, because the household is now producing their very own electrical energy, you don’t need to pay the subsidy anymore … eternally. Thus, your new technique has eradicated the electrical energy subsidy fully and can prevent no less than US$2 billion a yr, as gas prices are prone to rise additional sooner or later. Additional, this mannequin is scalable globally, offering a long-term resolution for different nations with the same historical past of utilizing gas subsidies to stabilize electrical energy prices.
Turning the Electrical energy Subsidy into Photo voltaic Energy
The present subsidy is efficient at reducing prices for electrical energy customers, however ineffective at lowering total nation prices and creating lasting change. On the finish of the day a subsidy continues to be cash despatched off island. In a altering world with extremely risky gas costs, an growing frequency of grid-impacting storms, and a drastic price discount of an ever-improving photo voltaic expertise, the electrical energy subsidy is only a band help for the a lot bigger subject at hand: an influence sector reliant on fossil gas. The billions of {dollars} being dumped into the electrical energy subsidy simply proceed to perpetuate the struggling energy sector in a unfavorable suggestions loop — the subsidy helps burning fossil gas to permit for increasingly vitality consumption, which additional will increase the necessity for the subsidy. The federal government is actually burning cash to burn extra money sooner or later. The excellent news? They’re actively exploring new techniques and prospects.
It’s potential to rethink the electrical energy subsidy utilizing blended financing to create a extra lasting influence. The RMI Islands staff has used a blended monetary mannequin in Puerto Rico to assist set up commercial-scale photo voltaic and battery techniques at vital services. It includes a mix of cash from “free” capital, both philanthropic donations or grants, and a financial institution mortgage to surpass the excessive upfront capital price barrier for photo voltaic techniques. Nevertheless, inside nations that at the moment have excessive vitality subsidies that might be used because the “free” capital, blended financing is a no brainer to shortly remodel vitality techniques, paving the best way towards a extra holistic strategy to sort out not solely the excessive price of electrical energy, but in addition longer-term resilience and independence objectives.
The blended monetary mannequin presents an answer to quickly scale photo voltaic — which ripples into fixing most different issues: the reinvestment of electrical energy subsidies generates native jobs within the photo voltaic sector, improves vitality independence, reduces carbon emissions, and improves total environmental well being. The blended finance strategy works as a result of it addresses the barrier of excessive upfront capital prices that the Dominican Republic and lots of different nations within the Caribbean face. If the federal government may spend 2.5 to three years of its typical electrical energy subsidies, or US$4.5–US$6 billion, in funding rooftop photo voltaic techniques for residential households and small companies, it may get rid of the electrical energy subsidy eternally. Thus, utilizing electrical energy subsidies together with loans to fund rooftop photo voltaic techniques is a win-win for customers and governments.
Max Lainfiesta (on the left), Euren Cuevas (third from the left), and coalition members after a gathering in October 2022 with World Financial institution representatives to debate the solar energy resolution for the Dominican Republic.
Euren Cuevas, government director of the Attorneys Institute for the Safety of the Setting (INSAPROMA) within the Dominican Republic thinks it’s a fantastic thought. “Client electrical energy prices primarily vanish, and the federal government now not must pay billions a yr in an electrical energy subsidy,” he says. “It simply is sensible — and we’ve got the capability to do it right this moment.”
It appears too good to be true, but it surely might be made a actuality by continued collaboration and a holistic view of the vitality house.
What Subsequent?
Alongside the federal government and native companions, together with INSAPROMA, RMI has been pioneering this blended finance mannequin within the Dominican Republic to resolve systematic issues of electrical energy subsidies and to unlock rooftop photo voltaic for 200,000 houses in low-middle earnings communities and small companies in susceptible sectors. The electrical energy subsidy is basically versatile capital that the federal government is already dedicated to spending sooner or later that may be higher utilized to shortly remodel the ability system. A newly fashioned coalition known as “RD 100% Renovable,” which interprets to “Dominican Republic one hundred pc Renewable,” contains the Authorities and varied native and regional entities which can be dedicated to put in 600 MW of rooftop photo voltaic within the Dominican Republic utilizing this mannequin.
Santo Domingo November 4, 2022, “RD 100% Renewable” representatives in a gathering with the Dominican Republic vitality minister and staff. Through the assembly, the vitality minister expressed his want to pursue the initiative and designated the vitality vice minister and his staff for the co-creation of the ultimate technique.
The method is already underway with negotiations and pleasure from all stakeholders — nevertheless, we have to take just a few vital steps first. Whereas the long-term mannequin is self-sustaining, which means that the cash saved by the federal government from not having electrical energy subsidies can be used to fund future photo voltaic techniques, some upfront capital is required to begin and initially maintain the venture, similar to for hiring, assembling key stakeholders, venture procurement, and extra. Moreover, there can be prices to take care of, execute, and talk on the broader mission and outcomes of the mannequin — each throughout the Dominican Republic and past. Philanthropic assist will assist us shut these funding gaps and get began extra shortly.
This mannequin is transferable, which means it may present dependable clear electrical energy to tens of millions of consumers and scale back spending on vitality for governments all over the world. The exhibit under reveals 2022 estimated fossil-fuel subsidies for electrical energy and oil across the globe as a share of GDP, and it reveals that there are a lot of nations in Africa, the center east, Oceania, and bordering the Caribbean that would profit from this mannequin.
Leveraging over 10 years of deep nationwide partnerships and collaboration, in addition to technical experience, RMI is nicely positioned to assist the Dominican Republic’s transition to renewable energy. To make a present and speed up our collaborative influence, contact Jennifer Stokes, managing director of Improvement, at jstokes@rmi.org. If you’re fascinated with extra data on this initiative, please attain out to Max Lainfiesta at mlainfiesta@rmi.org.
By Lillie Ogden, Max Lainfiesta
© 2023 Rocky Mountain Institute. Revealed with permission. Initially posted on RMI
Featured Photograph by Asael Peña on Unsplash
