Energy Security in the Dominican Republic and the Pacto Eléctrico

The Dominican Republic is poised for an energy transformation. Proposed electric sector reforms, known as the pacto eléctrico promise to increase the nation’s competitiveness and improve Dominicans’ standard of living. The measures are part of the government’s broader, developing energy vision for the nation’s energy security. The proposal intends to complement diversification efforts that have seen a rise in natural gas, greater deployment of renewables and biomass, and even domestic hydrocarbon production. Overall, a sense of optimism surrounds the nation’s energy potential not just to meet needs at home but also as a possible regional energy hub.

Energy Security in the Dominican Republic and the Pacto Eléctrico

Energy in the Dominican Republic: All Eyes on the Pacto Eléctrico

Energy in the Dominican Republic: All Eyes on the Pacto Eléctrico

The Dominican Republic is poised for an energy transformation. Proposed electric sector reforms, known as the Pacto Eléctrico promise to increase the nation’s competitiveness and improve Dominicans’ standard of living. The measures are part of the government’s broader, developing energy vision for the nation’s energy security. The proposal intends to complement diversification efforts that have seen a rise in prominence for natural gas and a larger role for renewables, biomass, and hopes for domestic hydrocarbon production. Overall, a sense of optimism surrounds the nation’s energy potential not just to meet needs at home but also as a potential regional energy hub. The Dominican Republic will need to increase both imported and domestic sources if it is to meet the National Energy Commission’s projected doubling of electricity demand by 2030.

All eyes are on the developments of the Pacto Eléctrico and it was no surprise that the topic cut through all of the discussions as government and business leaders came together at the Institute of the Americas’ Dominican Republic Energy Roundtable in Santo Domingo on February 12.

Across the board, experts agree that the reform proposals present a rare opportunity to catalyze and sustain economic development in the country, and to finally provide all Dominican consumers with consistent, high-quality power. Questions remain over tariffs and subsidies, and how to balance prices that promote private sector investment and competitiveness while guaranteeing affordability for consumers.

Public and private sectors recognize the necessity of change, but differences emerge when discussing its execution. In particular, an important debate has emerged around the role of the State as both implementer and regulator of the proposed reforms.

The latest pact is not the first effort in the Dominican Republic to reform the electric sector. Indeed, one of the ideas is to undo the fragmentation brought about by the reforms of the late 1990s and return to a vertically integrated model of generation, transmission, and distribution.

Not everyone in the private sector agrees. In discussing the Pacto eléctrico, the director of the Dominican Electric Industry Association (ADIE) channeled a famous sarcastic riposte from Ronald Reagan: “I’m from the government and I’m here to help.” The ADIE cautions that government intervention in the power sector in the past often caused greater problems.

The role of the State, the private sector, and public-private partnerships under this new model is one of the more controversial areas of the proposal, and will require deft management by all involved in order to bring the pact to fruition. Creating the conditions for operational efficiency while recovering costs incurred remains a significant hurdle for both the public and private sectors.

A broader issue is the need for unambiguous rules and transparency in both the reform proposals and implementation. There is a fear that the layers of bureaucracy and government entities overseeing the energy sector could complicate the policy’s application. Or at the very least, add a level of unnecessary confusion. A clear delineation of roles and responsibilities ascribed to the myriad governing bodies would help avoid this problem and eventually improve the efficiency and efficacy of the reforms in the long run.

Like many nations in the region, the Dominican Republic is attempting to reduce its reliance on imported petroleum products by switching to natural gas. As one of the early and most successful adopters, the Dominican case has become has become a model for the region. Since the inauguration of the AES Andres LNG Terminal in 2003, natural gas use has grown from virtually nothing to comprise over a 30 percent of the country’s electricity supply today.

On the back of its natural gas infrastructure, the Dominican government aspires to become a regional energy hub, distributing natural gas to the greater Caribbean and Central America. Proponents argue that by taking advantage of the AES LNG infrastructure, this hub-and-spoke model would overcome many of the hurdles of cost and scale that have made switching to natural gas difficult for nations in the region.

The political will has never been greater for the Dominican Republic to enact critical electric sector reforms. The government is garnering wide ranging input from private companies and consumers and should continue to seize the momentum it has created. The opportunity and optimism for meaningful — and possibly long lasting — reform should not be wasted.

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