Renewable Energy & Offshore Finance

by Larry Smith

On a trip to Florida this past weekend, I picked up several magazines. By chance, three featured stories that were relevant to the Bahamas.

Power from the Ocean
The first was an article in The Futurist about a project by Florida Atlantic University - located just down the road from my hotel - on the Gulf Stream's potential to produce electricity.

The university has a $5 million grant to research technology to generate electricity from the Gulf Stream current that flows from the Caribbean to Greenland - between Florida and the Bahamas - at a top speed of about four knots.

Florida's electricity use is expected to rise by 30 per cent over the next decade, and the state is heavily dependent on imported sources of energy. That's one reason why there has been so much interest in basing liquified natural gas plants at Bimini and Freeport (to pipe imported gas across the Gulf Stream to Florida power stations).

But this new project will use tidal current turbines to generate power in much the same way that land-based windmills do - in the form of an offshore underwater 'wind' farm. Since water is denser than air, even slow-moving currents can exert great force on a turbine, meaning that smaller rotors can be used to keep costs down. The blades turn slowly in the water and do not pose a threat to marine life.

A 9-foot diameter prototype, turning at 30 revolutions per minute, has already been tested, producing 22 kilowatts of power. The goal is to have a field of 3,520 units in place, each about 100 feet in diameter and suspended 200 feet below the ocean’s surface. The entire field will produce 8.44 gigawatts, almost a fifth of the state's present consumption.

The research will examine the cost and logistics of running electrical cable from the turbines to shore - about 10 miles - as well as the impact on coral reefs and fish populations of running the cable ashore.

France already has an active tidal power station off Brittanny that produces 240 megawatts. A $20 million tidal turbine generator is under construction in New York's East River. And the British installed the world's first open-sea tidal turbine off the coast of Devon three years ago. It operates via remote control and will eventually produce 300 megawatts - enough to power 8,000 homes. Experts say 10 tidal power stations around the coast could supply 20 per cent of the UK's electricity needs.

The research grant (FAU is one of six Florida universities that are receiving funds) is provided by the state under the 21st Century Technology, Research and Enhancement Act. FAU is working with a variety of government agencies, power companies, technology companies and marine research groups.

"This funding will lead to the establishment of a world-class centre that will revolutionize future energy production on our planet,” said Dr. Larry F. Lemanski, vice president for research at FAU. “We are very excited about developing these innovative, energy-producing technologies, and we have put together a strong partnership base composed of industrial, academic and government partners."

This is a technology that could power the entire Bahamas at a competitive cost - saving hundreds of millions of dollars in fuel costs alone. And our total power consumption is only a fraction of Florida's.

The State of Solar
Related to this (in some ways) was an article in Solar Today magazine on developments in renewable energy over the past 20 years.

The most startling fact was that by 2050 the additional power needed to satisfy global demand will consume the entire production of 20,000 new large electric power plants - each generating 1,000 megawatts.

Obviously, this magazine is in favour of using solar power to meet this rapidly rising demand. And it reports that the cost of solar electricity has dropped in the US from several dollars to less than 25 cents per kilowatt-hour over the past 20 years. Through better manufacturing, more efficient devices and new materials, the industry expects to cut that cost to less than 6 cents within the next two decades.

The current cost of electricity in Nassau is about 27 cents per kilowatt-hour, but solar equipment remains expensive to import and install. The government is working on an energy policy that may introduce incentives to make such installations more cost-effective.

Concentrating solar power, which uses special mirrors to focus the sun's energy on piped water to produce steam that turns a turbine to generate electricity, currently costs about 11 cents per kilowatt-hour in the US. It is used in utility-scale plants in several American states, which are supplemented by natural gas that generates a quarter of the output.

Projects are now underway in the Middle East, North Africa, Europe and Latin America. Spain hopes to generate 500 megawatts from concentrating solar power by 2010, and China is considering a 1000 megawatt plant that could cost more than $2 billion.

The magazine also reported that the cost to produce wind energy has dropped from 40 to as little as 4 cents per kilowatt-hour at the best sites. The challenge here, experts say, is transmission since most people don't live in the windiest places. So researchers are developing lower-speed turbines and looking at ways to place wind farms offshore.

"Much remains to be accomplished before renewable electricity (can form) a significant part of our energy supply," the magazine concluded. "More than ever, policy makers, industry interests and renewable energy advocates must work together to create the equitable policies and robust markets that will make them available to serve every house and building."

Perhaps the best recent example of such collaboration is California Governor Arnold Schwarzenegger's 10-year, $3.2 billion, solar incentive programme, which has the goal of installing 3,000 megawatts of photovoltaic power on the equivalent of a million roofs around the state. This requires the industry to increase the current installed capacity six-fold.

The programme includes financial incentives and marketing campaigns as well as writing solar technology into the state's energy code. The tax and cash incentives can cover up to half of the cost of a solar system.

We should be so lucky in the Bahamas.

OFCs - Good for the Global Economy?
The Economist featured a 14-page special report on offshore finance - in which the single reference to the Bahamas was as one of a group of tax havens that were blacklisted by the OECD in 2000.

Meanwhile, competitors like the Cayman Islands, Bermuda, Jersey, Singapore and Dubai were cited for diversifying into more sophisticated businesses - focusing on hedge funds, captive insurance, derivatives and other forms of structured finance.

The magazine identified three big problems for today's globalised economy:

"Money moving instantly and anonymously across borders can benefit terrorists, drug traffickers and rogue nations in need of cash.

"Footloose capital transmits not just tainted money but financial crises too, (because) it is increasingly difficult to understand where financial risk lies.

"Highly mobile financial flows may take tax revenues with them, (which) is particularly serious for rich countries with aging populations that they will have to support in retirement."

So - since the 1990s - the countries that control the world's banking system have been pushing for a stronger regulatory regime to guard against the undesirable effects of financial globalisation: "The idea is to prod financial centres worldwide to adopt best practice on bank supervision, the collection of financial information and the enforcement of money-laundering rules."

That's why we had to pass all those financial laws in a big rush seven years ago. The alternative was to be shut out of the international banking system.

And recently, Barack Obama, the African-American Democratic presidential candidate, introduced a Bill to prevent tax havens like the Bahamas from draining the US Treasury of $100 billion a year - a third of the US budget deficit.

But The Economist thinks tax competition is healthy because, like all monopolies, governments tend to become bloated and competition encourages high-spending governments to change. And after the regulatory pressures of the past decade, supervision in most offshore centres is as good as it is onshore, the magazine says.

While some offshore centres continue to be mainly repositories of the cash of large companies, rich individuals and rogues, others (like Jersey, Bermuda and Cayman) have become sophisticated, well-run financial centres in their own right, with expertise in niches like structured finance and insurance, according to The Economist.

"Although international initiatives aimed at reducing financial crime are welcome, the broader concern over OFCs is overblown. Well-run jurisdictions of all sorts, whether nominally on- or offshore, are good for the global financial system."

Well, that's good news for the Bahamas Financial Services Board. Now if our lawyers, accountants and bankers could only provide the kind of sophisticated services offered by smaller competitors like Bermuda and Cayman things would really be looking up.

Comments

[EB Christen]

Does anyone who makes policy ever read this website or are they too busy extricating themselves from Anna Nicole? A fresh wind!!!

[Offshore Investment Opportunities]

This article might be a year old but it is still timely. We are moving too slow in catching up with the rest of the world with the different products we offer in the world of finance. We need to stop catching up and be trendsetters.