By John Denny
(Charlestown, Nevis) – The leaky roof at the Hamilton House didn’t dampen the spirits of the Nevis Island Assembly as the Administration voted to pass into law the Geothermal Resource Ordinance. The ordinance is waiting the signature of the Deputy Governor General.
“This is the most important piece of legislation since the vote for our independence 25 years ago,” said the Hon. Carlisle Powell, Junior Minister for Public Utilities and Natural Resources.
Minister Powell read the bill before the Assembly and blasted the opposition for the way they had handled the resource.
“The previous administration did not realize the importance of our geothermal resource,” he said. “The original draft under the CCM would have given all control of this resource and all the fees to St. Kitts. We have rescued this and repatriated it for the people of Nevis.”
For the opposition, Mark Brantley spoke.
“The people of Nevis need to look past all the smoke and mirrors,” said Mr. Brantley. “They say all this work has been done on just a handshake… millions of dollars being spent on just a handshake?”
The Administration countered that they had granted a license to the development company, West Indies Power, to do exploratory drilling for 18 months. All expenses in this deal were to be covered by West Indies Power.
“The NRP jumped into bed with the first suitor that came along,” said Mr. Brantley.
In an interview the next day, CEO of West Indies Power, Kerry McDonald clarified the deal between WIP and the NIA and said it was in a sense a handshake.
“There was an exploration agreement and there is a document, but nothing was covered about what happens after the exploration,” said Mr. McDonald. “They gave us 18 months to find it.”
Another point Mr. Brantley brought up was royalties paid to the NIA for the sale of power. Under the ordinance, the NIA receives no royalties for domestic production until WIP produces at least 10 megawatts. After that the NIA will receive a maximum of five percent of the gross revenue. For exported power, the NIA will receive a maximum of 10 percent of gross revenue. Mr. Brantley felt the NIA had constrained themselves by putting the maximum percentage of the royalties too low.
So far, WIP has spent US$4 million in exploratory drilling. To develop the power generating capacity of 35 Megawatts/hour and lay undersea cables to St. Kitts, they will spend approximately US$119 million. Thirty five Megawatts is approximately the amount of electricity both islands use. The reservoir at the Nevis 1 site in Spring Hill is expected to yield approximately 45 megawatts.
One of the main concerns of the opposition has been that geothermal development on Nevis never went out to bid.
“If this would have gone out to bid, it never would have happened. No one is going to risk all the expense of exploration to take a chance on not getting the bid. Montserrat went out to bid,” Mr. McDonald said. “They sent a tender offer to 40 companies in the geothermal business and got zero response. I’ve been in this business for 35 years and this is the way this is always done everywhere in the world.”
Now that the ordinance has passed, the next step is the power purchase agreement. The power purchase agreement is the real nuts and bolts of how geothermal power will benefit the people of Nevis and how much it will benefit West Indies Power.
Right now Nevlec charges about 38 cents per Kilowatt/hour of electricity. It’s unclear what Nevlec spends to produce one Kilowatt/hour of electricity, but it will cost WIP between three and 10 cents per Kilowatt/hour (Kwh) to produce electricity. The unanswered questions yet to be worked out in the power purchase agreement are: How much is WIP going to charge Nevlec per Kwh?
How long will it take for WIP to recover its development costs?
Will WIP be paid off for the development costs before Nevlec customers see any reduction in their electric bills?
Does transmitting electricity to St. Kitts constitute export or is it considered domestic? The difference being five percent or 10 percent royalties paid to NIA by WIP.
Who will sell the power to St. Kitts, Nevlec or WIP?
To all these questions, Mr. McDonald said it would depend on the Power purchase agreement.
“I have all kind of projections based on different scenarios,” said Mr. McDonald. “Like any good businessman, I would like to recover my money as soon as possible, but until I know the price of (electricity) I can’t begin to speculate about these things.”
As to who are the investors behind WIP, Mr. McDonald would only say “Several European Banks… I couldn’t say even if I wanted to.”