Vanuatu’s National Energy Road Map (NERM) 2016-2030 lists targets and objectives that the Government, through the Department of Energy (DoE), considers essential for overall growth. They include sustainable energy, and green growth. Both objectives allow increased penetration of renewable energy sources into electricity generation with a target for 2030 set at 100%. Current electricity generated from renewable sources is approximately 18.9%. Therefore, reaching a goal of 100% by 2030 is highly unlikely. Major barriers include, but are not limited to: existing concession contracts between the Government and the electricity service providers, financing, and a small customer base.
Vanuatu currently has concession contracts for the generation and distribution of electricity services set for a fixed period of time, specifically with UNELCO for Port Vila, Malekula and Tanna capturing the southern part of Vanuatu and VUI concession deed for the north. Concession agreements when not properly designed carry significant risks if there are clashes with the regulator. For example, the Utilities Regulatory Authority (URA) is responsible for regulating utility services within Vanuatu under its Act of 2007 (as amended). However, the nature of the contract with UNELCO means the regulator is obligated to allow provisions that may or may not be in line with generally accepted regulatory practices therefore limiting regulatory oversight. So, with limited regulatory assistance there is likely to be little progress made with regards to incorporating renewable energy sources into the generation of electricity or creating incentives to promote such exercises. There are efforts made by the Government in this area in the form of Power Purchasing Agreements (PPA) e.g. PPA for solar photo-voltaic systems. However, this process is relatively slow because these are aid funded projects therefore limited to when aid is available. A speedier transition to greater use of renewable sources could be achieved by using feed-in tariff systems recommended by the URA that expand solar electricity generating to include electricity customers.
Financing renewable sources of electricity generation can be costly, which can drive up electricity prices significantly if privately financed. This explains the significant portion of donor funded renewable energy generating sources in Vanuatu such as the PPA previously mentioned worth approximately 500 million vatu (AU$6.8 million) which is grant funded by the European Union. Therefore with solar currently accounting for 4.5% of the 18.9%, it is clear that the NERM target of 100% renewable by 2030 would be near impossible, in the absence of other interventions. With respect to coconut oil used as a substitute for diesel in the generation of electricity with lower capital costs, it is less efficient in generating electricity. It is also uneconomical pricewise compared to diesel as determined by the URA final electricity tariff determination of 2018.
Finally, Vanuatu is geographically disadvantaged with the spread of islands disproportionally spreading the electricity customer base where the majority reside in Port Vila (Efate) and Luganville (Santo). Therefore, the marginal cost of extending access to outer islands is significant corresponding to smaller customer densities over which to spread the incurred costs. Additionally, the two main customer bases are under two separate concession contracts. This lack of customer numbers, disincentivises feasible Government or concessionaire investments in renewable energy generating sources throughout Vanuatu if based on a least cost approach.
In summary, a lack of regulatory oversight due to existing concession contracts does not allow for rapid inclusion of renewable electricity generating sources. This coupled with required high capital investments and low customer densities deviates from a sustainable energy future in Vanuatu and reaching the NERM target for 2030. Implications include slowed future economic growth due to inevitable price rises and affordability issues slowing electricity demand. Continued reliance on diesel generation maintains susceptibility to volatile fuel prices which cannot be mitigated by rapidly increasing the use of renewable energy sources.
Edmond Tambisari is currently employed as the Senior economist at the Utilities Regulator in Vanuatu. A Master’s Degree holder in Applied Econometrics from the University of Queensland with background experience in economics and financial analysis, as well as financial and compliance auditing.
