Guest Editorial
by Brad Johnson
Countries around the world are urgently seeking ways to address the climate crisis. This is especially true for Island nations where climate change represents a clear and present danger to their populations. Nations need to respond with innovative policies and creative solutions.
In the mix of emerging government ideas, President Luis Abinader has advanced an innovative initiative, Decree 158-23, that shows great promise and should be replicated internationally. It requires all public facility managers to develop an annual energy consumption profile and recommendations for reductions in energy use. This is the most advanced policy initiative of its kind and can serve as a great model for other nations.
Why focus on government facilities? Because in virtually every country, the government collectively is the single largest consumer of energy. This includes schools, hospitals, water systems, and other government administrative facilities.
In the U.S. for example, the national government implements over US$1 B in energy efficiency (EE) and renewable energy (RE) projects annually. This level of investment does not require the U.S. government to make up-front payments or borrow funds. Under the U.S. system, energy services companies (ESCOs) implement projects and provide guaranteed reductions in energy consumption for every project. To qualify for funding, ESCO projects must provide sufficient guaranteed energy savings to cover all financing costs. As such, lenders look to the ESCO for payments if necessary.
This performance-based contracting puts the risk of successful implementation on the private sector, not the government. It is the most advanced and successful form of performance-based contracting in developed countries.
The President’s decree will focus government attention on reductions in energy costs and develop a pipeline of projects to attract investors. Investors are needed because the government lacks sufficient funds to implement EE and RE projects. Scare government resources, however, do not need to be allocated to this program, the private sector will finance and implement each project through the ESCO model without government expenditure or additional debt.
The President’s Decree creates the policy framework for the implementation of hundreds of projects. It is the critical first step and is already in place. The next step is to build a financial program to support the President’s vision without cost to the government. Conservative estimates suggest that an active EE program for water utilities in the D.R. could reduce water bills by more than US$35 M over five years.
The ESCO model has been successfully introduced in Jamaica on a smaller scale for select water utility projects. The D.R. has a much broader and expansive policy initiative covering all government facilities.
Combining a financial program with Decree 158-23 will produce demonstrable results for the citizens of the Dominican Republic, establish a model deserving of rapid deployment in other countries, and allow the Dominican Republic to reduce carbon emissions and government expenditures.
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Brad Johnson is a lawyer and President of RMA, an international firm focused on implementing green energy projects in developing countries. He received the Bloomberg New Energy Finance Award for his work on innovative finance programs in the Caribbean.