Bonaire in business: Energy to do business

Blog

15 July 2016

For every entrepreneur a reliable water and electricity supply is of crucial importance. This is less self-evident in Bonaire than in other parts of the world. Unlike, for instance, the European Netherlands, Bonaire has a ‘stand alone’ system, with no links to networks on the mainland. This means that both electricity and drinking water must be produced locally. In Bonaire, there’s just a single distributor and a relatively small number of connections. Consequently, we’re dealing with ‘scale disadvantages’ rather than ‘economies of scale’. As a result, the costs of electricity and drinking water for both households and businesses are higher than in, for example, the European Netherlands.

The new Electricity and Drinking Water Act, which is expected to take effect (in full or in part) on 1 July 2016, provides a new regulatory framework for the production and distribution of electricity and drinking water. In the new act, the possibilities for sustainable generation of electricity are explicitly defined. This will have some consequences for entrepreneurs. They can now choose for themselves how they want to meet their energy needs, for instance. In this article I will inform you about the structure of the new act and discuss several points of attention that are important for entrepreneurs on the BES islands.

Production

Under the new act, multiple producers can apply for a production license. A license is required if the electricity or drinking water is produced for purposes other than your own use. If renewable electricity is generated (for example by solar panels), you’re allowed to ‘return’ it to the grid and a license is only required if the generated renewable electricity is not produced primarily for your own use.

This can make it interesting for entrepreneurs to generate renewable electricity themselves. First of all, less electricity would have to be taken from the grid. In addition, an entrepreneur can return a surplus to the grid. For the surplus of electricity that is returned to the grid, the entrepreneur will then receive a fee. The height of this feed-in tariff is yet to be determined, but according to the latest reports it will be between USD 0.02 and USD 0.05 per kWh (depending on the connection’s capacity). However, a ceiling applies to the amount of energy that is eligible for a feed-in tariff, which is equal to the amount that you consume for your own use. In other words: if more than twice as much electricity is generated as that which is for one’s own use, and therefore more than half of the total amount of the generated electricity is returned to the grid, the entrepreneur will only be paid for the surplus part that is equal to the amount that he uses himself. Based on these basic principles that are stipulated in the act, an entrepreneur will be able to assess whether it is interesting to invest in the generation of renewable electricity, for example by purchasing solar panels. In any case, purchasing renewable electricity in an amount that exceeds twice the amount of one’s own use is discouraged by this set-up.

Production licenses

It will not be easy to get a production license. An important condition that is included in the draft regulation with the act is that the producer must be able to show an agreement with the electricity distributor. In Bonaire this will most likely be WEB. It is not known yet whether WEB is willing to enter into agreements with producers and if so, which conditions would apply. Moreover, the production license will contain stipulations about the minimum amount of electricity or drinking water that is produced per unit of time. This means that a production license is not free of obligation and that a producer must comply with these and other requirements.

Distribution

On each BES island, one distributor will be appointed. The shares of the distributor must be owned directly or indirectly by the public body and the distributor must own the distribution network. It is expected that WEB will be named the distributor in Bonaire.

The distributor will be given a considerable portfolio of tasks that includes, among other things, connecting customers, transporting water and electricity, installing, managing and reading the meters and invoicing customers.

Entrepreneurs can file complaints with the distributor, who must set up a procedure for handling them. The act even includes an option for a compensation scheme if malfunctions occur. However, it is not clear if the legislator will use this option.

 Tariffs

The legislator has emphasized that the provision of electricity and drinking water is a primary necessity of life and that there is basically little competition due to the small size of the market. On these grounds, it was decided that customers must be protected through tariff regulation.

The Netherlands Authority for Consumers and Markets (ACM) will therefore set the following tariffs: the connection tariff, the fixed and variable user tariff for electricity and the road transport tariff for drinking water. To determine them, the ACM will use the ‘price cap’ system and base the tariff on the ‘efficient costs’ plus a reasonable return for the producers and the distributor, respectively. The ACM can thus ‘stimulate’ producers and the distributor to work more efficiently and to keep the tariffs as low as possible.

Pagabon

It will still be possible to use Pagabon. For customers with a heavy connection who want to go ‘off-grid’, a special provision has been included. It entails that a customer who has such a connection at the time that the law comes into force (July 1st, 2016) must continue to pay the fixed user tariff for the following five years. These customers are thus legally obliged to keep on contributing to the costs of the network, because the legislator is of the opinion that the grid has already been set up for their use and the costs for this have already been incurred.

Conclusion

The Electricity and Drinking Water Act is expected to come into effect on 1 July 2016. It creates the opportunity for entrepreneurs to decide for themselves how they want to meet their energy needs. It may even be possible to become a producer. Setting the tariffs will be left to the ACM.

Tom Peeters is an experienced and specialized real estate lawyer and head of our Bonaire office. He regularly publishes about project development, sustainable energy projects, cooperative structures and (public) procurement. Via this blog he shares his knowledge about these and other legal topics that concern entrepreneurs in Bonaire.