Renewable Energy a Business Opportunity for the Private Sector in the Dominican Republic, 2007

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Renewable Energy: A Business Opportunity for the Private Sector in the Dominican Republic

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Renewable Energy: A Business

Opportunity for the Private Sector

in the Dominican Republic

High Employment A ffordable Energy Climate Neutrality Strong Economy

A Vision for 2030

A Ca ll for National Private

Leadership on Climate


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About Romana Sostenible

Romana Sostenible is a non-profit organization founded in 2007 with the

mission of advancing sustainable development in the Dominican

Republic. The organizations strategy is to increase awareness and buildcapacity within the population, work with the governments and the

private sector to incentivize sustainable practices and technologies, and

build grassroots support for long-term sustainability.

The author of this report, Carlos Rymer, is the Renewable Energy

Director and leads the Renewable Energy Committee. Rymer is a student

at Cornell University studying sustainable development, a leader of the

global youth climate movement, and a native of La Romana, Dominican

Republic.

To learn more about Romana Sostenible, please visit

www.romanasostenible.org.

Authors Contact:

Carlos Rymer

US: 551-556-0189

DR: 809-272-2101

E-mail: [email protected]


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Table of Contents

Summary.. 3

Renewable Energy Resolution. 4

Climate Change Risks.. 6

The Global Renewable Energy Markets.. 9

1. Biodiesel... 102. Biomass.... 113. Ethanol. 124. Hydro... 135. Solar. 146. Wind. 16

Government Incentives and Regulatory Framework.. 18

1. Renewable Electricity.. 182. Renewable Fuels.. 19

Status of the Private Sectors....... 20

Costs and Benefits of Climate Neutral Target 21

The Business Opportunity: Repeating History 26

Acting Now To Secure 2030 Vision 27

1. Renewable Energy Capital Fund... 272. Public-Private Training Program.. 28

3. Renewable Energy Land-Use Assessment 28

Conclusion 29


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Summary

In the 21st century, perhaps the biggest challenge the world faces is

climate change. While climate change impacts are projected to continue

and become more severe, the Dominican Republic has the opportunity to

become independent of imported energy sources and to secure a

renewable energy economy that creates jobs, shows international

leadership, and promotes strong economic growth.

Recently, the government has made clear its support for a

renewable energy economy with passage of ground-breaking legislation

that provides incentives for a national shift towards secure, homegrown,renewable energy sources. With these incentives, the private sector has

modestly begun to invest in this arena, securing long-term profits and

stability in energy prices. Now, the domestic and international private

sectors have a lucrative business opportunity.

This is a chance to enjoy of the incentives dominant sectors, such

as tourism, have had in the past, this time by joining the race to supply

the nations total demand with renewable energy. Using funds collectedfrom their total annual revenues and investment capital, the private

sectors can lead the nation into a climate neutral status by 2030 or earlier

with significant investments in renewable energy. The benefits of such

an opportunity far outweigh the costs, both to the private sectors and the

nation. This is a chance to secure strong job growth, lower and stable

energy prices, and a vibrant, growing Dominican economy.


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Resolution In Support of Renewable Energy

Investments

PREAMBLE

Renewable energies have an economic benefit and offer a unique opportunity forcountries like the Dominican Republic. Considering that their use benefits theeconomy in the form of fossil fuel independence, reduced and stable energy prices,and job creation, renewable energies should be promoted as much as possible.With the global challenge of climate change, which can dramatically affect thenations economy, the nations private sectors need to become lead by creating andstrengthening a renewable energy sector to help solve climate change and promoteeconomic growth.

CONSIDERING That climate change is a global problem that may pose dangerousconsequences for Dominican Republics economy, especially because of the risksassociated with dramatic sea level rise and increased storm damage risk;

CONSIDERING That climate change requires developed countries to lead globallyto reduce greenhouse gas emissions to levels at or below those that will prevent

warming above current projections, or the threshold level of 2C;

CONSIDERING That renewable energies have economic and environmentaladvantages in the Dominican Republic, and that their development would benefitthe nations economy;

CONSIDERING That a renewable energy industry in the Dominican Republicrequires incentives and investments for its efficient, rapid development;

CONSIDERING That the Law for Incentives for the Development of RenewableEnergy Sources and their Special Regimes establishes incentives for thedevelopment of renewable energies in the country;

CONSIDERING That the tourism, mining, manufacturing, and agricultural sectors

of the Dominican Republic are the most economically important and significantlycontribute to the nations economy;

CONSIDERING That the Hospitality sector depends on the stabilization of theincrease in the average global temperature to secure its continued growth;


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CONSIDERING That strong action taken by developing countries serve assignificant examples for developed countries, some of which still do not showsignificant commitment to preventing dangerous climate change; and

CONSIDERING That the private sector can and should lead in the fight against

climate change;

BE IT THEREFORE RESOLVED THAT:

The associations, companies, and non-profit organizations that undersign thisresolution call on the Dominican Republics private sectors to:

1. Recognize and affirm their responsibility to show leadership in the fightagainst climate change and in the sustainable development of the DominicanRepublic;

2. Commit to allocating enough investments in renewable energies, beginningin 2010, to help achieve coordinated goals of 50% renewable energy use by2020 and climate neutrality by 2030.

BE IT FURTHER RESOLVED THAT:

This action will serve as a significant incentive for the rest of the world, especiallycountries that contribute the most to climate change, to set similar targets toprevent dangerous climate change;

This action will create a renewable energy industry in the Dominican Republic thatwill provide significant economic benefits and hundreds of thousands of new jobs;and

This action will, in the medium- to long-term, benefit the private sector, theDominican Republic, and the rest of the world.

Approved and Signed By:

Federacin Nacional de Constructores (FENACO), HERSANCA C. Por A.,

HERVILL S.A., H.V. GLOBE C. Por A., ISOFOTON, ISOTECSOL S.A.,

Romana Sostenible, Tcnicas Energticas Solares S.A.


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Climate Change Risks

The science is now conclusive.

Climate change is largely caused by man-

made fossil fuel emissions and the

consequences of inaction will be severe to

the global economy, if not catastrophic. The

Intergovernmental Panel on Climate Change,

the worlds authority on climate science, has

affirmed in its Fourth Assessment Report

that the increase in the global mean

temperature observed over the last few

decades is a main result of the increasing atmospheric concentration of greenhouse

gases resulting from fossil fuel combustion, agriculture, deforestation, and other

human activities. The observed increase in the global mean temperature of about

0.7C has already affected major biophysical systems, including glaciers, the

polar ice caps and ice sheets, mountain ecosystems, agricultural systems, oceansystems, storms, and forests.1

The projections for the 21st century by the Intergovernmental Panel on

Climate Change include a rise in the global mean temperature of 1.8-4.0C; a rise

in sea level of 0.18-0.59cm; significantly lower snow cover; a dramatic decrease in

sea ice extent and complete disappearance during the summer months; significant

increases in thaw depths in permafrost regions; an increase in the frequency of hot

extremes, heat waves, and heavy precipitation; an increase in tropical storm

1 IPCC. 2007. Summary for Policymakers of the Synthesis Report of the IPCC Fourth Assessment Report.UNFCCC.

Warming of the climate

system is unequivocal, as

is now evident from

observations of increases

in global average air and

ocean temperatures,

widespread melting of

snow and ice, and rising

global average sea level.

- IPCC 2007


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intensity; precipitation increase in high latitudes and decrease in subtropical

regions; lower water availability in dry and semi-arid regions of the tropics and

mid-latitudes; and dramatically increased species extinction levels. These

biophysical impacts are expected to severely impact human health, agriculture,

coastal activities and infrastructure, and necessary natural resources.

More recent observations

have increased the likelihood of

significantly higher sea level rise.

In the summer of 2007, the U.S.

Snow and Ice Data Center

concluded that Arctic sea ice

extent was about 20% lower than

2006, increasing the likelihood

that Arctic summer sea ice could

disappear by 2020. Observations

from the Arctic Climate ImpactAssessment team also showed that the melting of the Greenland ice sheet was

accelerating and that crevasses were opening up, allowing water to drain to the

bottom of the ice sheet and lubricating it, which speeds up its movement towards

the ocean. The same was observed in the West Antarctic ice sheet by the British

Antarctic Survey. Together, these ice sheets have enough water to raise sea levels

by 12 meters. These new observations have outpaced the most recent predictions

and raised the possibility of sea level rising by up to 4 meters globally this

century.2

2 Brown, Lester R. 2007. Plan B 3.0: Mobilizing To Save Civilization. Norton, W. W. & Company, Inc.

Source: NASA


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In the Dominican Republic, as well as in other areas with significant coastal

tourism and cities, and agriculture, the impacts of sea level rise, increased storm

intensity, and drought will be very severe under moderate business-as-usual

greenhouse gas emissions scenarios. The countrys main tourist destinations are

mostly coastal (Boca Chica, Juan Dolio, Bayahibe, Bavaro, Punta Cana, Samana,

Las Galeras, Las Terrenas, Cabarete, Sosua, and Puerto Plata). Significant

agricultural and mining areas are highly vulnerable to heavy precipitation and

intense storms, as was seen recently with Tropical Storm Noel.

High sea level rise would severely damage the major tourism areas and cities

like Santo Domingo, San Pedro de Macoris, La Romana, Puerto Plata, and

Montecristi, and increased storm intensity would cause major agricultural failures

and mining problems in vulnerable areas. According to conservative estimates, the

world economy will likely suffer a loss of 15% of GDP per year by the end of the

century as a result of climate change.3 In the Dominican Republic, which is

expected to be severely impacted by sea level rise, more severe drought, and more

intense storms, the cost of climate change to the economy could be higher due tothe countrys particularly high vulnerability.

Climate change is likely the largest threat the Dominican economy faces

over the long term. Adapting to the effects of climate change to which were

already committed is important, but more important is ensuring that we minimize

the risks associated with climate change impacts on the economy. The only way to

accomplish that goal is to eliminate man-made greenhouse gas emissions.Fortunately, the solutions to these are becoming mainstream around the world.

33 Stern, Nicholas. 2006. The Stern Review on the Economics of Climate Change. UK Treasury.


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The Global Renewable Energy Markets

The renewable energy sector is one of the fastest growing globally. Interest

in renewable energy technologies have attracted increasing investments, which in2007 reached over $100 billion from less than $40 billion in 2005.4 Technological

development, increased manufacturing of these technologies, and emerging

markets have allowed for strong growth in this industry, which comprises start-up

companies that lead the exchange markets for energy with the large number of

these that request an initial public offering every year.5 Not only are renewable

energy technologies being seen as the solutions to dangerous climate change, but

theyre also being perceived as excellent investment opportunities, job creators,

and drivers of economic growth. The graph below shows the tremendous growth in

renewable energy investments over the last decade.

Source: Renewable Energy Policy Network for the 21st Century

4 Renewable Energy Policy Network for the 21st Century. 2007.Renewables 2007: Global Status Report.WorldWatch Institute.5 Floyd, Nancy. 2007. Speech at the 2007 Renewable Energy Financial Forum Wall Street. American Council onRenewable Energy. Available at: http://www.acore.org/reff/2007/txt/d1s5_floyd.php.


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Biodiesel

Biodiesel is an alternative fuel produced from a renewable resource

vegetable oil and with little price fluctuations as compared to petrodiesel, the

petroleum-derived product widely used around the world. Biodiesel can be blended

in any quantity with petrodiesel and used in any diesel-compatible engine. A blend

of 5% or 20% is typically used initially to ensure proper performance. However,

studies have confirmed that 100% biodiesel is perfectly usable as a full substitute

to petrodiesel.6

Biodiesel also reduces carbon dioxide and other polluting emissions by more

than 70%, according to a study conducted by the U.S. Departments of Agriculture

and Energy. The fuel has also been found to improve engine performance and

lifetime, giving significant benefits to users.7 Today, it is typically produced from

corn, palm oil, rapeseed, and soybean, but new feedstocks are increasingly being

used as well, including algae, Jatropha, and waste cooking oil. The production

costs range from a low of $1.00 per gallon to a high of over $3.00 per gallon.

Globally, approximately 2 billion gallons of biodiesel was produced in 2007.

Almost 85% of biodiesel in the world is both produced and consumed within the

European Union, which is due to legislation that requires that region to consume

increasing amounts of renewable fuels to meet the targets of the Kyoto Protocol, an

international treaty binding most industrialized nations to reducing their

greenhouse gas emissions. Currently, only about 7% of the worlds biodiesel is

produced outside of either the European Union or the United States, leaving very

6 Canadian Renewable Fuels Association.Biodiesel FAQ. http://www.greenfuels.org/biofaq.php. Last Accessed:September 16, 2007.7 National Biodiesel Board. 2007. Biodiesel Basics. http://www.biodiesel.org/resources/biodiesel_basics/. Last

Accessed: November 12, 2007.


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biomass accounts for more than half, with a large portion not going to

transportation or electricity generation. Global biomass use is not expected to grow

significantly over the next decade.9

Ethanol

Ethanol is an automotive fuel derived from several plant products and other

materials. It is an alternative to petroleum-derived gasoline and is increasingly

being used around the world. It is typically derived from such feedstocks as sugar

cane, corn, soybeans, and plant cellulose. Ethanol can be blended with gasoline

and run on flex-fuel vehicles, which run on both gasoline and ethanol. Total world

output of ethanol is growing rapidly due to particularly high oil prices.

Globally, Brazil has led ethanol production since the 1970s, when the

government began pushing large-scale production in response to high oil prices.10

The United States, which recently passed legislation that requires ethanol output

increases rapidly, is also a major ethanol producer, although its market is

experiencing criticisms due to food substitution for fuel and market price

fluctuations due to an oversupply. The graph below shows the total ethanol output

globally and by major ethanol producers. In 2007, about 44 billion liters of ethanol

were produced globally with prices in the range of $1.50 and $3.00.11

9 Karekezi, Stephen; Lata, Kusum, Coelho, Suani T. 2004. Traditional Biomass Energy: Improving its Use andMoving to Modern Energy Use. International Conference for Renewable Energies, Bonn.10 Moreira, Jose R. y Goldemberg, Jose. 1999.El Programa de Alcohol. Energy Policy 27: 229-245.11 Renewable Energy Policy Network for the 21st Century. 2007.


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Source: Renewable Energy Policy Network for the 21st

Century

Hydro

Hydropower is electricity derived directly from the force of running water.

Most of the worlds major rivers have been dammed to produce electricity fromhydropower. Historically, it has been a very important source of electricity. Many

regions of the world greatly depend on hydropower, both small- and large-scale, to

meet its energy needs. While large hydropower has significant negative

externalities (flooding, change in water flow dynamics, and other impacts), small

hydropower has large potential for growth and is an important contributor to

meeting energy needs.


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In 2005, hydropower represented

87% of all renewable power production

globally. Most of that capacity comes from

large hydro. As shown in the graph to the

right, there is still a lot of potential for

expanded hydropower capacity, particularly

in Asia, where large hydropower projects

have been developed or are currently in the

planning or construction stages.12 The

future of generating power from sustainable

hydro is bright, but considerable efforts and appropriate policies to reduce

environmental and human impacts are

required.

Solar

Solar energy is one of the most

promising sources of energy due to its

abundance. Solar energy specifically relates

to energy converted from sunlight to

electricity or heat for human use. There are

various solar energy technologies, prominent

among them solar photovoltaic, solar thermal heating, and solar thermal power.

According to the World Energy Assessment, published by the World EnergyCouncil and divisions of the United Nations, there is enough solar energy to power

12 Zupanc, N. et al. 2007. 2007 Survey of Energy Resources. World Energy Council.

Id put my money on the

sun and solar energy.

What a source of power! I

hope we dont have towait until oil and coal run

out before we tackle that.

- Thomas Edison,

1931

Source: World Ener Council, 2007


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the world several times over. Appropriate technological development could spur

solar energy to become the main source of energy for society.

In 2007 alone, the total installed capacity grew from 7.5GW to 11.6GW. The

market for solar photovoltaic is growing at 50-60% per year, and emerging markets

are opening up opportunities for further growth.13 Countries of strong development

include California and other U.S. states, Germany, Japan, and most recently China

and Spain. In terms of prices for solar electricity, they range between $0.15-0.30

per kW-hr, with some new technologies and improved market structure promising

to cut costs by 40-60% within the next few years.14 The graph below shows the

growth in total installed capacity globally for solar photovoltaic.


13 Renewable Energy Policy Network for the 21st Century. 2007.14 Division of Energy Efficiency and Renewable Energy. 2006.DOE Solar Energy Technologies Program:Overview and Highlights. U.S. Department of Energy.


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Solar thermal heating is also on the rise. In 2007, it grew from 103 in 2006

to 121 GWth, particularly with the expanding Chinese market.15 Solar thermal

power has been growing more slowly, but may prove to be much more promising.

Emerging companies are developing manufacturing plants and improving the

technology to quickly deploy solar thermal power. In the United States, for

example, companies are working to build large solar thermal power plants in the

sunny deserts to generate over 1GW of capacity over the next few years at current

market prices.16

Wind

Wind energy is electricity generated from the wind using modern

technology. Wind turbines, both onshore and offshore, convert the force of wind

into electricity that can be distributed to consumers. This technology has more than

20 years in development and its market is growing rapidly around the world. Since

its use in Europe for extracting underground water, wind technology has improved

dramatically in terms of efficiency and cost.17

By large, wind energy receives the largest share of investments in renewable

energy annually, growing at a rate of around 30% per year. In 2007, the total

installed global capacity increased to 93GW from 74GW, with costs ranging from

$0.04-0.08 per kW-hr.18,19 As with all other renewable energy technologies, wind is

enjoying of an emergence of new markets that are providing key incentives for its

deployment. It is widely expected that wind energy will meet a substantial portion

15 Renewable Energy Policy Network for the 21st Century. 2007.16 Press Release. 2007. FPL Group plans to boost U.S. solar energy production. Available at:http://www.fplgroup.com/news/contents/2007/092607.shtml.17 Teske, Sven, y Zervos, Arthouros. 2006. Global Wind Energy Outlook 2006. Global Wind Energy Council.18Renewable Energy Policy Network for the 21st Century. 2007.19 UN Development Program. 2004. World Energy Assessment. United Nations.


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of global electricity demand by mid-century just with current incentives. The graph

below shows the increasing growth of global installed capacity for wind energy.



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Government Incentives and Regulatory Framework

In May 2007, the Dominican government passed the Law for Renewable

Energy Incentives and Special Regimes, the first of its kind in all of LatinAmerica. The law makes the Dominican Republic a hotspot for renewable energy

investments, and hopes to alleviate the countrys energy problems over the long

term. Among the main provisions are a feed-in tariff modeled after Germanys and

the exemption from all taxes.

Renewable Electricity

The renewable energy law creates the appropriate regulatory framework and

incentive opportunities for the deployment of large-scale renewable energy

technologies that generate electricity. Below are the key provisions of the law for

companies, cooperatives, associations, and any other body wishing to invest in

renewable electricity production within the country:20

Exemption from all taxes on imported equipment, sales (including

equipment), and total income;

A reduction of the tax on interest payments to 5% for all foreign finances;

A tax credit of up to 75% of income tax on all autoproducers, including

commercial and industrial;

Low-interest financing for up to 75% of the total cost of community or

cooperative renewable energy projects;

20 El Congreso Nacional. 2007.Ley No. 57-07 de Incentivo a las Energias Renovables y Regimenes Especiales.Republica Dominicana.


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Status of the Private Sectors

In the Dominican Republic, agriculture has largely been the dominant sector

in the country for a long time. In the 20

th

century, however, the economydiversified dramatically to include mining, manufacturing (including local),

tourism, and other services. Together, these sectors make up virtually 100% of the

gross domestic product (GDP).

In 2006, tourism and travel in the Dominican Republic generated an

estimated demand of about $8.14 billion and may grow over the next decade by

4.2% per year. The sector contributed about 21.3% to GDP in 2006 and wasresponsible for 656,000 total jobs, which was about 18.4% of total employment. It

also was responsible for 37.9% of total exports and $1.4 billion, or 42%, in total

capital investments.21 Other services, including transportation and

telecommunications, contributed 38.5% to GDP.

The industry sector, which includes sugar refining, pharmaceuticals, cement,

construction, mining, free zone textile manufacturing, and other exports,contributed 28.6% to the GDP in 2006, while agriculture contributed 11.6%. In

total, these sectors employ about 84% of the total labor force and accounted for

over $3.3 billion in investments in 2006.22 The performance of these sectors,

particularly telecommunications and tourism, has led the countrys economy to

grow at very high rates in the last few years.

21 2006.Dominican Republic: Tourism and Travel Economic Research Team. World Travel and Tourism Council.22 World Factbook. 2007. CIA. Available at: http://www.cia.gov.


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Costs and Benefits of Carbon Neutral Target

According to the National Commission on Energy (CNE), there are over $2

billion in investments for renewable energies in projects under review totalingsome 1600MW of electric capacity and several ethanol plants that will produce

millions of gallons annually. The Dominican government also has plans to install

over 700MW of hydro capacity in the next few years, which will generate over

14,000 new jobs.23 These investments already make the carbon neutral target,

where national greenhouse gas emissions are zero or negative, much more feasible.

A relatively quick transition to a renewable energy based economy willclearly take substantial investments to study where to best tap into renewable

resources of energy, design and begin new ventures and financial mechanisms, and

deploy the various renewable energy technologies. Under any scenario, of course,

there will be a mix of sources to power the country fully. These will largely be

biodiesel, ethanol, hydro, solar, and wind (as well as some storage technologies).

Any other technologies, such as tidal and ocean energy, may come into use if they

are further developed. Here, we use conservative estimates for the investment costs

of these various technologies under two different mix scenarios and the benefits to

consumers and investors given the current government incentives.

In the next two decades, demand will grow substantially due to economic

growth. By the year 2030, it is assumed that total electricity demand will grow at

the historical rate of 500 GW-hr per year to about 25,000 GW-hrs.24 By the same

year, it is assumed that total fuel demand for transportation and other non-grid uses

23 Empresa de Generacion Hidroelectrica Dominicana. 2006. Plan de Expansion 2006-2012. CDEEE.24 From 1990 to 2005, total electricity demand grew by about 7,500 GW-hrs, according to the CorporacionDominicana de Empresas Electricas Estatales. Total demand in 2007 was about 13,500 GW-hrs.


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will grow at the same historical rate for electricity of about 3% per year to 1.9

billion gallons.25 The table below summarizes these values.

Projected Energy Demand

26

Electricity Demand (GW-hrs) Fuel Demand (gallons)

2007 13,500 950,000,000

2030 25,000 1,900,000,000

In the first scenario, the mix of electricity sources is as follows: 40% solar

thermal power; 30% onshore wind, 20% hydro, and 10% solar photovoltaic. The

mix for fuel sources is as follows: 100% ethanol as a gasoline substitute and 100%

biodiesel as a petrodiesel substitute. In the second scenario, the mix of electricity

sources is as follows: 40% solar thermal power, 20% onshore wind, 20% hydro,

10% photovoltaic, 5% offshore wind, and 5% marine. Ethanol and biodiesel shares

remain equal. The difference in these scenarios is the application of offshore wind

and marine energy technologies, which are still in development but are very

promising. The tables below summarize the capacity factors for these technologies,

their required installed capacities under each scenario, the estimated revenues

under actual production costs, and the required investments.

25 This is the future value of demand at a growth rate of 3% (for electricity sector) and with a present value of 620million gallons of fuel. This includes diesel, gasoline, and liquefied petroleum gas.26 These estimates exclude any significant efforts to dramatically increase energy efficiency and reduce demand.


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Capacity

Factor (%)27

Scenario 1 Capacity Scenario 2 Capacity

Biodiesel N/A 650,000,000 gallons 650,000,000 gallons

Ethanol N/A 1,250,000,000 gallons 1,250,000,000 gallons

Hydro28

55 1.04GW 1.04GWMarine Energy 30-70 N/A 285MW

Solar

Photovoltaic

25 1.2GW 1.2GW

Solar Thermal 3029 3.8GW 3.8GW

Storage N/A 1GW 1GW

Wind 30 2.9GW 2.4GW

EstimatedInvestment

Average Cost perUnit

Annual MarketRevenues

30(2030)

Biodiesel $500 million $1.0-1.6/gallon $850 million

Ethanol $4.5 billion31 $1.2-1.6/gallon $1.75 billion

Marine Energy $870 million $0.04-0.10/kW-hr $87.5 million

Offshore Wind32 $550 million $0.03-0.05/kW-hr $50 million

Onshore Wind $3.4 billion $0.04-0.08/kW-hr $450 million

Solar

Photovoltaic

$2.4 billion $0.05-0.15/kW-hr $250 million

Solar Thermal $7.6 billion $0.05-0.10/kW-hr $750 millionStorage $1 billion

33 0.02/kW-hr Variable

Sources: World Energy Council, Intellexi S.A., U.S. Department of Energy, U.S.National Renewable Energy Laboratory, Electric Power Research Institute,

Australian Institute of Energy

27

World Energy Council. 2004. World Energy Assessment: 2004 Update. UNDP and World Energy Council.28 There is a total installed capacity of 460MW today, with 750MW in the pipeline.29 With new, cheaper storage technologies, the capacity factor for some companies has doubled.30 Given potential future costs and an absence of government incentives.31 Based on a recent investment made in the Dominican Republic by Infinity Bioenergy.32 Capacity factor for offshore wind is about 45%.33 Better energy storage is currently in development, so costs are expected to decrease. In addition, this is anestimated capacity, not a confirmed capacity based on intermittency. Government support may supply storage in thefuture if necessary.


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As the tables above show, by 2030 the Dominican Republic will require a

total installed renewable energy capacity of nearly 6GW, will likely need some

capacity for energy storage, and will need to supply about 650 million gallons of

biodiesel and 1.25 billion gallons of ethanol annually.34

This will require a total

investment of about $18 billion over 20 years beginning in 2010 ($900 million per

year, or 27% of 2006 total investments), excluding energy storage investment

costs. This investment will directly represent 7% of gross domestic product in 2030

under a constant 5% growth rate. On the other hand, the economic benefits to both

consumers and producers will be substantial. The tables below show the potential

consumer savings, economic profits (in terms of return on investment rates), and

jobs created due to these investments.

Consumer SavingsElectricity Fuels

Renewable Energy Market

Price35

(2030)

$0.09/kW-hr $1.4/gallon

Business-as Usual Market

Price36

(2030)

$0.15/kW-hr $3/gallon37

Total Annual Savings (2030) $1.5 billion $3 billionTotal Accumulated Savings

(2020-2030)38

$12.4 billion $24.75 billion39

34 According to the National Energy Commission, about 550,000 hectares of land is available for sugarcaneproduction (350,000 existing). At a conservative estimate of 7000 liters/hectare, this is enough to produce 1.4 billiongallons of ethanol. Issues related to sugar production will be present, however, requiring improvements in vehicleefficiency and public transportation to reduce ethanol and biodiesel demand.35 To distributors.36 Excludes increasing oil and natural gas prices and new coal without CO2 capture and storage.37 Assumes 40% petroleum liquid gas, 34% diesel, 20% gasoline, and 6% premium gasoline, given a push for highernatural gas and diesel use.38 Assuming incentives expire in 2020.


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Unit Margin

(no incentives)40

ROI New Unit

Margin (with

incentives)

41

New

ROI

Jobs Created by

203042

Biodiesel $0.10/gallon 13% $1.8/gallon 230% 325,000

Ethanol $0.45/gallon 13% $1.6/gallon 44% 300,000

Onshore

Wind

$0.05/kW-hr 10% $0.20/kW-hr 45% 6,000

Solar

Photovoltaic

$0.09/kW-hr 9.5% $0.20/kW-hr 21% 84,000

Solar

Thermal

0.06/kW-hr 8% $0.20/kW-hr 26% 266,000

Sources: Industry Statistics for Brazil, Canada, and the EU

As these graphs show, consumers would potentially save a total of $37

billion as compared to business-as-usual by 2030 as a result of private investments

made to reach carbon neutrality. This large sum of savings would flow across the

economy to produce more goods and services, increasing the economic growth rate

substantially. In addition, investors would enjoy of return on investment rates of

between 25-45%, with substantially higher rates for biodiesel investors (up to

230%), at least until 2020. These elevated rates of return would allow for high

growth rates in new businesses, incentivizing innovation and regional technology

exports, which would further create economic value to the country. Attaining this

goal would ultimately result in the creation or protection of nearly 1 million jobs,

with a significant portion of these being high-paying jobs. There is no doubt that

40 According to the U.S. Department of Energy and Industry Associations, O&M costs are about $0.01-0.015/kW-hr,$1.2/gallon, and $0.85/gallon for renewable electricity, biodiesel, and ethanol.41 The compensation values for each renewable energy technology have not yet been issues by the NationalCommission of Energy. However, to be conservative, 50% of the average premium given in Germany to renewableenergies was given here to each renewable energy technology. For the fuels, no premium values were set.42 A large portion, sometimes up to 50% of these jobs are protected rather than created. Numbers are based onBrazilian, Canadian, and European industry statistics.


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deploying these proven technologies under the regulatory framework offered by

the Dominican government will result in a private-public win-win outcome.

The Business Opportunity: Repeating History

In the late 1960s, tourism in the Dominican Republic took off with the

passage of legislation that gave tourism businesses tax breaks and other

government incentives in the form of infrastructure.43 Tourism investments

increased dramatically, making the country a key destination for tourists from

many regions around the world. Today, tourism hotspots like Casa de Campo,

Punta Cana, Las Terrenas, Boca Chica, and Puerto Plata are well-knowninternationally and contribute greatly to employment and economic activities.

Similarly, the free trade zones experienced significant growth after

legislation in 1990 eliminated all taxes and a foreign investment law was enacted

in 1995. Investments in Dominican free trades increased, making the nation 5 th in

Latin America in free trade zones exports. Today, there are 53 industrial parks with

more than 500 companies. The free trade zones contribute 200,000 permanent jobsand in 2002 had exports valued at $4.6 billion. Clearly, government incentives in

this sector led its growth and success.44

In the first decade of the 21st century, we face the challenges of climate

change and energy security. Weve long been dependent on foreign sources of

energy, and now the energy bill is becoming larger year by year, with serious

effects to economic growth. The Dominican Republic has shown its capacity to

create dynamic economic sectors. Now, with landmark renewable energy

43 El Congreso Nacional. 1966.Ley No. 541 Organica de Turismo de la Republica Dominicana. RepublicaDominicana.44 Asociacion Dominicana de Zonas Francas. 2003. Website available at: http://www.adozona.org/esp/default.asp.


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legislation, it is time to create a dynamic renewable energy industry that will create

and protect jobs, reduce and stabilize energy prices, strengthen economic growth,

and show real leadership on climate change through carbon neutrality.

Acting Now To Secure 2030 Vision

At a time of high energy insecurity due to international oil prices and of

increasing climate change impacts, the creation of a renewable energy industry is

essential. With no taxes, a feed-in tariff, and a blossoming global renewable energy

industry, the Dominican Republic is suddenly highly attractive for renewable

energy investments. By 2030, we can achieve carbon neutrality, have lower andstable energy prices, employ nearly 1 million citizens in a strong, competitive

industry, and greatly improve the quality of life of all Dominicans and citizens of

the Caribbean region. This is the need of our time the business opportunity.

Renewable Energy Capital Fund

Currently, investments in renewable energies are flowing into the

Dominican Republic by foreign companies or investors. Typically, these

investments are specialized to a certain technology, leaving behind any potential in

other technologies in which teams of experts or smaller businesses may have an

advantage. For the purpose of quickly pooling the required capital to rapidly

deploy renewable energy technologies, a private equity fund is ideal.

Such a fund is managed by recognized capital fund entrepreneurs, and

typically locks in investments for a long period of time (5-10) years or until a goal

is achieved, such as an initial public offering or a leveraged buyout or a merger.

The advantages of private equity funds involve high return rates (up to 40%, and

even over 200% for biodiesel in this case) and the pooling of enough capital to


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fund businesses that will be highly successful in this field. Therefore, a Renewable

Energy Capital Fund based on private equity could potentially generate the

investment capital over the years to produce a strong renewable energy industry.

One excellent example of a private equity fund is the Englefield Renewable

Energy Fund. Recently founded in Western Europe, the fund focuses on wind

energy and manages $200 million. Already a co-owner of the largest portfolio of

wind farms in the United Kingdom, the Englefield Renewable Energy Fund will

help finance wind projects in Western Europe with proven technologies.45 Such

funds exist around the world. Many are large and highly diversified, while others

are small and very specific. With expected average return rates of 30%, an initial

Renewable Energy Capital Fund should begin with capital worth some $3 billion.46

Public-Private Training Program

In order to maximize labor productivity, a training program will be required

for the new, high-tech jobs that will be created. The private companies investing in

renewable energies must set up a partnership with the Dominican government to

create training centers and curricula at the nations universities and institutes with

the goal of ensuring that Dominicans are ready to enter this new industry.

Renewable Energy Land-Use Assessment

Finally, to avoid conflicts with land acquisition and potential competition for

land use, the private sector must work with the government to assess all the areas

where renewable energy technologies can be deployed and feedstocks for biofuels

can be grown. This information would be best put to use if it were publicly

45 Renewable Energy Stocks. 2007. Available at:http://www.renewableenergystocks.com/Companies/RenewableEnergy/Funds-and-Venture-Capital-Investing.asp.46 With $900 million required in investments per year and return rates of 30%, $3 billion is the necessary initialamount of capital required to sustain continued investments.


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available and if land under private ownership but open to use were also placed on a

geographic information system based tool. Ideally, this would be accompanied

with a database of government and private contacts for available lands.

Conclusion

Climate change is perhaps the most significant long-term threat to the

Dominican Republics economy. Avoiding catastrophic climate change will

require the rapid elimination of greenhouse gas emissions to reduce the chances of

tipping points in the Earths climate system. The world now has the necessary

technologies, human capital, and institutional capacity to rapidly deploy renewableenergy technologies. Real leadership must come from the developed world, but the

problems of energy security, the prospects of job creation and economic growth,

and the need for public and private pressure are key aspects of developing a

renewable energy industry that will make the Dominican Republic and perhaps the

greater Caribbean region carbon neutral.

With landmark legislation that removes taxes, puts in place a feed-in tariff,and provides other lucrative incentives, a renewable energy industry is set to

explode in the Dominican Republic. Current incentives are set to last at least 10

years, providing annual return on investment rates of between 20-45%, and higher

rates in some cases. The potential to develop high-growth business is clearly

present. In order to reach the goal of carbon neutrality, an investment of $18 billion

may be required by 2030. Consequently, consumers will potentially save over $30

billion by 2030, economic growth will be significantly bolstered, and nearly 1

million jobs will be created or permanently protected.


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A renewable energy capital fund or several private equity funds would

ideally help quickly deploy renewable energy technologies. Finally, a private-

public partnership to provide extensive trainings for new jobs and a comprehensive

land-use assessment would aid the creation of new renewable energy businesses.

Renewable energy is now the business opportunity. Lets seize it!

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Renewable Energy a Business Opportunity for the Private Sector in the Dominican Republic, 2007

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