The New Today

Commentary

GRENLEC – The bubbol has started

CEO booted out- asked to take rest of his vacation.

It seems that the Keith Mitchell Government including of course Gregory Bowen, Minister of Energy are up to their old tricks reminiscent of the events described in the 1991 Worrell Report (pages 51-55).

GRENLEC’s management is being coerced into entering into a power purchase agreement that features generating equipment not suitable for electric utility service. The proposal for this project is coming from an unknown entity in the energy industry going by the name of Power Phase LLC, a Florida, USA based corporation, and has the backing of a certain high-up figure of St. George’s University fame.

One expert with whom we shared a copy of the proposal commented that this was a project designed to make money for the project sponsors with no benefits to the Grenadian consumer.

He further commented that “a project of this magnitude and importance to the country should be tendered in a transparent tendering process and not awarded in some kind of secret deal to an unknown entity.”

Where is the Public Utility Regulatory Commission (PURC) in this process?

GRENLEC’s CEO and his technical management team informed their Board of Directors of the shortcomings of the proposal and the fact that the generating units being proposed are not suitable for base load electric utility service.

It was also pointed out to the Board that there are several worrying shortcomings with the sparsely detailed offer from Power Phase LLC, both on the equipment being proposed and the financial and contractual aspects of the deal.

Most concerning to the management is the fact that the project will not result in reduced electric rates but will likely result in an increase in fuel and maintenance costs.

With a compliant majority of Directors hand-picked by the Government, it appears that the Board is willing to go along with the project and their response was to oust the CEO by asking him to take the rest of his vacation period which would take him up to the end of his contract.

(The CEO had given the requisite 6 months’ notice of his intent to not renew his contract and was due to depart in November 2021). The Board did not even have the foresight to allow time for a proper hand over to the designated successor, Mr. Clive Hosten (at least for the time being) who is currently acting as CEO.

We contacted an expert with many years of international experience in the energy sector to comment on the proposal from Power Phase LLC.

His comments: Proposed Power Generation Equipment For the new plant, Power Phase is proposing generating equipment consisting of 4 x 2.5 MW machines for a total plant output of 10 MW. However, these generating sets are MTU 4000 series gas engines operating at 1500 rpm.

These are high speed machines (commonly used in naval and other military applications) not used for base load operations especially in an electric utility setting. In contrast, the present GRENLEC generating units operate at 750 RPM and are large robust machines designed to run 24 hours per day and 365 days/year with long intervals between maintenance – not so with high-speed engines that require more frequent maintenance.

Fuel consumption on high-speed engines such as the MTU 4000 are significantly higher compared to the type of machines that GRENLEC would acquire for power generation.

Embedded in the proposal is a vague offer from (the SGU official) to provide the engines free of charge, but what about the installation and other ancillary equipment and services to have a working plant.

Indeed, just the engines alone, usually represent just about 15-20 % of the total installed cost of this type of power plant. But is it truly free, considering the profits to be reaped from the proposed tariff from Power Phase?

One other important consideration is that the engines in the proposed Power Phase plant are designed to run on natural gas ONLY and are not dual fuel machines which GRENLEC has been considering as part of their expansion strategy.

What happens if the ship transporting Liquified Natural Gas (LNG) has a problem or LNG gets so expensive in the USA that it would make it more economical to temporarily revert to diesel?

Gas Importation in the form of Liquified Natural GAS (LNG)
Part of the deal offered to GRENLEC includes supply of LNG which would be the fuel that the new plant will utilise. Power Phase will import the LNG and supply and install the infrastructure to store and convert the LNG to natural gas.

GRENLEC will have to purchase the natural gas at a rate that is based on the Henry Hub natural gas price index plus the delivery cost involved in getting the LNG to Grenada.

The plan is to supply the LNG in 40 ft. ISO Containers (like regular shipping containers) which is very expensive. Furthermore, the price indicated in the Power Phase proposal does not reflect a realistic price of delivering LNG to Caribbean destinations – they have underpriced the LNG delivered to Grenada to make their proposal look more palatable.

GRENLEC will have to enter into a take or pay contract with Power Phase for the LNG spanning a 10-year period meaning GRENLEC pays for approximately18,000 US gallons of LNG whether or not this amount is used. This is equivalent to about EC$800,000 per month.

Tariff Proposed by Power Phase LLC
The tariff structure proposed by Power Phase for providing power from the proposed plant is as follows:

(A) Fuel Component for LNG converted to natural gas: EC$ 0.31/kWh
This is a low-ball number and not reflective of delivery of LNG in ISO Containers and the low efficiency of the proposed generators.

The real number is closer to EC$0.48/kWh given the high fuel consumption of this particular engine type and shipping cost and other logistics cost for LNG sourced from the United States.

(B) Non-Fuel Component to cover capital recovery, maintenance, and operating cost
EC$0.26/kWh – This works out to be about EC$1.7 M per month. Here again is where the trickery is embedded. Power Phase will not be operating and maintaining the generating units – this will be GRENLEC’s responsibility.

The gas storage and regasification infrastructure would require very minimal maintenance – Power Phase responsibility, so a high percentage of that monthly fee is PROFIT!

According to Power Phase, total cost of power from this plant would be EC$0.54/kWh (with discount for GRENLEC doing maintenance on the units) but as noted above this will likely be around EC$0.79/kWh due to the higher fuel cost associated with this engine type.

(C) Payment Security
GRENLEC will be required to provide a payment security to Power Phase LLC of approximately EC$ 17 million representing approximately 6 months of payments.

Bottom line, this proposed plant will be producing power at a cost just about the current retail tariff (including the fuel surcharge) for GRENLEC residential consumers.

Hope that the PURC will not allow this under the table dealing for procuring new capacity for GRENLEC. So do not let Power Phase LLC and its foreign and local collaborators tell us that their plant will reduce the cost of electricity.

Hogwash!

The Falcon