海角大神

Venezuela is in a state of economic freefall, with hyper-inflation pushing over 70 percent of the country鈥檚 population into poverty.

Frequent blackouts, water outages, and shortages of basic goods including medicines have prompted worries of an聽imminent public health emergency. And with civil discontent and street demonstrations becoming more frequent, the government of Venezuelan President Nicolas Maduro has declared a 60-day state of emergency.

But alongside the growing concern over Venezuela, the country鈥檚 challenges are also having a less visible but widespread impact 鈥� shaking the foundations energy markets in Central America and the Caribbean. For the past 11 years, Venezuela has provided cheap credit to 17 of its poorest neighbors in the form of the聽Petrocaribe oil alliance. Diverse countries like Belize, Cuba, Guyana, Jamaica, Nicaragua, and Suriname are all part of the alliance.

For years the small member states benefitted mightily, paying Venezuela 5 to 70 percent below market rates for oil, and rolling the remaining amount into low-interest, long-term loans. The dream-come-true arrangement proved to be a recipe for debt and dependency.

Now, although low oil prices have cushioned the blow to these nations from Venezuela鈥檚 collapse, that dependence is a kind of economic time bomb 鈥� a reliance on oil-based energy that could explode if oil prices rise. Or to put it more positively, the nations of the Petrocaribe alliance have an impetus to start carving out a future with greater energy diversity, including more reliance on renewable sources.

鈥淣o one wants to get the 3 a.m. call that Venezuela has cut all oil exports and the Petrocaribe countries have no other alternative,鈥� warned Amos Hochstein, special envoy and coordinator for international energy affairs at the US State Department, during聽an event at the Washington-based think tank the Atlantic Council in May. 鈥淲e can鈥檛 just rely on low oil prices as a solution.鈥�

Some responses are under way both by individual governments and among them. These include efforts to downsize the debts, to make the region more attractive for foreign energy investors, and to bring in new power sources from natural gas to solar and geothermal.

Precarious situation

And for now at least, the feared crisis isn鈥檛 happening. Low oil prices have made the Petrocaribe oil alliance less relevant. Many countries can afford to pay market prices for oil. The quantity of overall credit from Venezuela is estimated to have dropped by around half.

But the dependence has failed to dissipate. Countries like Cuba and Haiti are reliant on Venezuelan oil to power their economies. And if oil prices begin to rise, as they have slightly over the past few months, the countries of Petrocaribe could find themselves in desperate need of Venezuelan credit at a time when Venezuela, racked by aging infrastructure, depleted oil wells, and innumerable budgetary problems, is unable to provide it.

鈥淚f the price of oil is so low that these countries are paying at market prices less than what Venezuela used to charge when subsidizing them, then it鈥檚 not a problem,鈥� says Francisco Monaldi, fellow in Latin American energy policy at the Baker Institute and associate in the geopolitics of energy at the Harvard Kennedy School. And if prices really soared, it could allow Venezuela to afford to pay the subsidies again.

鈥淏ut that鈥檚 not a scenario we expect to happen,鈥� Dr. Monaldi says. He sees the $40 to $60 per barrel range as a worry zone.

The economic shock in some scenarios could have widespread humanitarian consequences across the region, experts say. So Venezuela鈥檚 economic demise is putting a premium on the search for a more sustainable regional energy matrix.

The imperative is obvious. Venezuela鈥檚 Maduro government is barely hanging onto power, and 聽it鈥檚 almost certain the country would be unable to subsidize its neighbors if oil prices were to rise substantially.

Venezuela鈥檚 economic woes don鈥檛 stem simply from plunging oil prices in an era of strong global supplies and lower-than-expected demand.

鈥淭he [Hugo Chavez] government was using the state-owned oil company as a tool for foreign policy and a tool for revenue to support its more populist measures, so it鈥檚 kind of like a cash machine,鈥� says Lilian Cl茅a Rodrigues Alves, Latin America analyst for Bloomberg New Energy Finance.

The government ran huge deficits, failed to upgrade its oil infrastructure, and began to see some of its oil fields dry up.

Impetus for change

Even before Venezuela鈥檚 economic collapse, the US began engaging in diplomatic efforts to encourage moves by Central America and the Caribbean away from the Petrocaribe dependence. But the crisis increased the urgency.

In 2014, the Obama administration launched the Caribbean Energy Security Initiative (CESI), spearheaded by Vice President Biden. The aim is to assist the Petrocaribe countries to transition to a cleaner and more secure energy future. 聽

By pushing for a combination of gas and renewable energy sources, experts say, the region could lower carbon emissions, reduce its overall energy bills, and lower the problem of dependence on a single supplier, all in one strategic blow.

Burning fuel oil not only聽tends to be costly as a fuel for electricity, it also聽releases more planet-warming greenhouse gas than natural gas or renewables. And climate change is considered one of the top threats facing the region due to rising sea levels.

Success stories

Across the Caribbean and Central America, some countries are diversifying their energy markets faster than others. Jamaica and the Dominican Republic, for example, are seen by many as regional success stories.

When Venezuela grew desperate for hard currency, the two countries struck a deal that allowed them to pay off their Petrocaribe debts in full. The Dominican Republic paid $1.9 billion to settle around $4.1 billion in debt, and Jamaica provided $1.5 billion to settle its debt of almost $3 billion. They are now the only two Petrocaribe countries that no longer owe large sums to Venezuela.

Also in Jamaica, the government launched new policies to incentivize the Jamaica Public Service Company (JPS), the sole distributor of electricity on the island, to begin using natural gas.

鈥淭he government in Jamaica has promised JPS that if they convert to gas they鈥檒l give them a tariff,鈥� says David Goldwyn, senior Latin America Center energy fellow at the Atlantic Council. 鈥淭hey鈥檒l estimate how much electricity they鈥檒l generate in a year, and if they generate more they鈥檒l get an extra check from the government and if they generate less they have to pay back.鈥�

鈥淵ou have to enable the national utility to function on an economic basis, because if you do that they鈥檒l invest in a transition,鈥� he explains. 聽

Renewables rising

Likewise, Nevis Island successfully implemented legal and regulatory reforms that helped launch the emergence of its own geothermal energy sector. It successfully held an open tender that聽a private consortium won to develop geothermal power on the island. Eventually, the government envisions that the island will be completely run by geothermal power.

Meanwhile, many Caribbean nations have pledged to move forward with low- or no-carbon energy projects. The Caribbean Community (CARICOM) nations set an overall target of聽20 percent renewable energy by 2017. Aruba has a plan to be powered completely by renewable energy by 2020.

Solar and wind technologies are also being developed in places like Jamaica and Nicaragua, while liquified natural gas (LNG) facilities are constructed in聽Panama and El Salvador. Previously, LNG wasn鈥檛 economically viable for small-scale economies, but now that鈥檚 beginning to change with the expansion of the Panama Canal and the beginning of US shipments, experts say.

As the Caribbean and Central American nations seek their energy road map, a core challenge is to bolster the necessary regulatory and legal frameworks to attract private investment, whether in renewables or natural gas infrastructure.

Experts see political will in the region鈥檚 leaders to make this transition, but governments still face obstacles that include corruption and entrenched interests in many public utilities.

How to lure investment

鈥淚nvestors are really interested, but they need a business environment where they can have confidence that they鈥檒l recover their investment,鈥� says Mr. Goldwyn. 鈥淎ll of the parties want to do a deal, it鈥檚 just that the governments will have to make some decisions, and some sacred cows will have to be slaughtered.鈥� 聽

What鈥檚 more, most of the region鈥檚 governments lack the credit to borrow on the public market and fund power plant conversion. Restructuring energy markets so that investors are confident they won鈥檛 lose money will be vital to helping the region diversify its energy mix.

Translation: Countries will need to begin paying market prices for energy and allowing external companies to build power plants and compete with national utilities, experts say.

Meanwhile, many of these countries are too small to easily attract investment. All seven Central American countries, for example, have a combined energy market the size of Maryland.

With this in mind, the US is working to help Central America complete an integrated power grid known as the Central American Electrical Interconnection System (SIEPAC). The idea is that banding together allows companies that invest in one country to gain access to them all.

Following a recent meeting between Vice President Biden and regional leaders, the State Department聽announced it would seek to provide $5 million to boost Central America鈥檚 energy market integration. In January last year, the US provided $20 million in clean energy finance for Central America and the Caribbean.

Many experts say more international financing will be key to securing the region鈥檚 energy future. Some of that support will come from multilateral entities such as the European Union, the Inter-American Development Bank (IDB), and the World Bank.

The region鈥檚 oil dependence is a risk, but many see it also as an opportunity.

鈥淭he US government and some of the multilateral agencies would like to take advantage of this situation, for example through a MOU [memorandum of understanding] between the US DOE [department of energy], the IDB, and the Caribbean Development Bank to foster renewable energy,鈥� says Ms Rodrigues Alves.

The efforts nations have made so far are already starting to set the groundwork for a more diverse, cleaner, and more secure energy future. But there's a long way still to go. 聽聽

鈥淚 think in the long term there should be a concerted effort to help these countries create infrastructure so they aren鈥檛 dependent on oil,鈥� says Monaldi.