Securing optimal policy mix in Jamaica’s energy sector

Ensuring stable electricity rates at low enough prices to encourage production for sustainable economic growth is the stated goal of the National Energy Policy (2009-2030). A key element of the policy is diversification of fuel sources to include renewables.

What are the optimal strategies to achieve energy diversification? This question was brought into focus recently with a public debate concerning the future of the licencing regime under which the island’s main electricity provider, the Jamaica Public Service (JPS), operates.

Under the regime, known as a revenue cap mechanism, electricity rates are calculated on the basis of a forecast of usage by each category of customer over a year which establishes the JPS revenue target for the year. If that targeted revenue is exceeded, the price for electricity in the next year should, in theory, fall to reflect the fact that the utility collected more money than was budgeted in the previous year. The converse is also true. Under the previous regime JPS secured its revenues through a price cap mechanism based on an efficiency target set by its regulator, the Office of Utilities Regulation, (OUR). This system in theory, should force the utility to be more efficient.

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