Page 12 - Luce 2022

Point of View

Renewables

in the Pacific

– is there a

solution?

The Pacific Islands are
home to some of the
world’s most picturesque nations, islands, beaches and
coral reefs. But they are also on the frontline of climate
change – exposed to rising sea levels and ocean temperatures
increasing three times faster than the global average.

Perhaps surprisingly, Pacific Island Countries are also
massively diesel-dependent economies. From 2011-2015,
Pacific Island Countries committed as much as 28% of GDP
to petroleum imports annually; a debilitating financial impost
impairing already cash-strapped government services vital for
development, and chaining their economies to the volatilities
of global crude oil prices. Pacific Leaders Forum, 2019

Sourcing 70-80% of electricity from diesel, Pacific Island however is simply a lack of people power, a lack of
Countries have some of the most expensive and emissions- capacity (to use ‘development’ speak). Myriad regional
intensive electricity generation anywhere in the world. The and international advisory bodies have been established
fuel-only cost of diesel generation in the Pacific costs on specifically to assist countries, like those in the Pacific, to
average eight times more than small-scale solar in Australia. make the transition to renewables. But this support misses
The combination of unstable oil prices and volatile foreign the mark. Energy departments – if they exist at all – and
exchange rates further compounds the challenges for these utilities are so short-staffed that personnel struggle to simply
vulnerable island nations. keep up with their ‘day jobs’; forget overlaying the significant
additional burden of countless, costly meetings with these
Yet these same countries also have some of the world’s most advisory bodies, preparing and responding to cumbersome
aggressive renewable energy targets, with commitments under Q&A processes, preparing and running a complex tender
the Paris Agreement demanding 2,000 MegaWatts (MW) process, evaluating proposals, negotiating, awarding and
of new renewable energy generation by 2030, representing monitoring the performance of contracts, etc.
US$3-5 billion in capital investment.
This limited capacity goes further, creating significant donor
Expensive diesel-based electricity generation, aggressive dependency; resulting in poorly sited and/or maintained
and cost-effective renewable energy targets, support from assets with limited utility and economic life – a short-sighted,
development banks and international and regional advisory expensive and grossly inefficient model.
groups… but what has been the Pacific Island Countries’
progress to date? From 2015 to 2021, Pacific Island Countries The few developers operating in the Pacific tend to be
installed just 25 MW of new renewable energy resources, little small and poorly capitalised and, in the absence of private
more than 1% of their renewable energy needs. Worse, that sector investors, they are compelled to pursue protracted,
incremental advance was more than wiped-out by 65 MW bureaucratic financing options with behemoth multilateral
of new diesel and gas-fired generation. In short, in terms of development banks like the Asian Development Bank or the
renewables, the Pacific Islands are going backwards! If they International Finance Corporation. Furthermore, without
are to have any hope of achieving their targets, Pacific Islands the private sector to buy-out their existing operating assets,
need to roll-out renewables 70 times faster. Business-as-usual developers are forced to adopt a cash-depleting ‘buy and
won’t do; a new model is needed. hold’ operating model, further impairing their limited financial
ability to pursue new renewable energy opportunities.
So what are the challenges hindering the roll-out of
renewables across the Pacific Islands? In brief, there are And for private sector investors; historically, they’ve viewed
many: land ownership risk, foreign exchange risk, currency the Pacific as ‘too small, too risky, too far away’. But that’s
convertibility risk, counterparty risk, a lack of scale, a view that’s starting to change for a number of reasons:
geographic and regulatory diversity, a lack of liquidity, and so the size of the opportunity has become apparent; the cost
on. But these and other risks can be addressed. advantage of renewables has become overwhelming; and the
risk-adjusted returns look increasingly attractive, particularly
The fundamental challenge for Pacific Island Countries given the New Zealand government’s decision to expand their

12 LUCE Number 21 2022