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15.4 Recommended Changes to the Legal, Institutional, and Regulatory Framework The government will need to make significant changes to the legal, institutional, and regulatory framework to allow for geothermal development and to implement the National Energy Policy. Some of the changes may be difficult to implement because LUCELEC is privately owned and has an exclusive license to generate, transmit, distribute, and sell electricity. As a result, issuing a license to a geothermal developer would require the support of LUCELEC or would require that the government amend the ESA. At a minimum, we recommend the following changes to the legal, institutional, and regulatory framework to allow for the successful implementation of the geothermal project: • Establish a process for the geothermal power plant to obtain a license. As mentioned above, the ESA of 1994 provides LUCELEC an exclusive right to generate electricity and provides it with the power to issue sublicenses. If the government wants to issue a license to the geothermal power plant directly, it would need to amend the ESA. Otherwise, it would need to obtain support from LUCELEC, which may want to be compensated for allowing another entity to generate electricity. Regardless of who grants the licenses, there would need to be a process in place to apply for and to obtain a license. • Ensure tariffs reflect the cost of producing electricity with geothermal generation. The tariffs in Saint Lucia are set through a formula established in the ESA. The tariffs only allow LUCELEC to recover the cost of generating with diesel. The government would need to review and amend this formula to ensure that the tariff allows LUCELEC to recover the full cost of providing service at least-cost, regardless of the technology or fuel in use, and also that it reflects any reductions in the costs of electricity generation. The government and LUCELEC would need to agree on the adjusted tariff formula before project agreements are signed. • Establish a clear framework governing geothermal resources. Saint Lucia would need a legal framework that assigns ownership of geothermal resources, establishes a process for granting licenses to develop geothermal resources, and assigns responsibility for monitoring geothermal resources to a government body. One possible way to establish this framework is to approve the draft Geothermal Resources Development Bill of 2011, which was developed with funding from the Caribbean Sustainable Energy Program. • Establish a regulator. We recommend the government proceed with its plan of establishing the National Utilities Regulatory Commission. The commission would be responsible for some of the regulatory functions addressed above as well as other responsibilities. For example, the commission would set and regulate LUCELEC’s rates. As such, the commission would be responsible for ensuring that LUCELEC is able to recover its cost of service with geothermal generation. The commission could also be responsible for monitoring the geothermal resource, although environmental regulation is not always within the jurisdiction of the economic regulator. Establishing a regulator responsible for these functions is one way to centralize these responsibilities. If the commission has sufficient autonomy from other government agencies and has the resources to carry out its work, centralizing these functions will ensure these functions are executed capably. Drafting, reviewing, and approving the laws and regulations that would address these changes takes time to implement. The first draft of the Geothermal Bill was prepared in 2011 and by November 2015 had yet to be approved (see Section 15.1.2). Another way to address some of these changes is to establish regulation through contracts. For example, to ensure that tariffs for end customers reflect the (lower) costs of producing electricity through geothermal generation, the PPA that the SPV signs with LUCELEC could establish the formula used to determine the tariffs LUCELEC charges customers. Similarly, the agreements between the government and the private partners could include obligations that ensure the protection and sustainable development of the geothermal resource. For example, the agreement can mandate that an independent expert carry out periodic evaluations to monitor the environmental impact of the power plant. Since regulatory functions in Saint Lucia are spread across various government agencies, if a regulator is not established a committee could be formed to monitor the SPV’s compliance with contractual obligations. Any dispute arising from failure to adhere to contract obligations could be handled by a regular court, an administrative court, or a special expert panel as applicable. Establishing regulation through contracts would only serve as a short-term solution to prevent delays in project implementation. There are some regulatory functions that cannot be covered through contracts and for which regulations and laws will need to be established. For example, the government will still need to develop the process through which licenses to establish a geothermal plant are obtained. 186PDF Image | Unlocking Geothermal Power Eastern Caribbean Powerhouse
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