High Employment • Affordable Energy • Climate Neutrality Dominican Republic • Strong Economy Renewable Energy: A Business Opportunity for

the Private Sector in the A Vision for 2030

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

A Call for National Private Leadership on Climate Change

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

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 organization’s strategy is to increase awareness and build capacity 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 www.romanasostenible.org. Romana Sostenible, please visit

Author’s Contact: Carlos Rymer US: 551-556-0189 DR: 809-272-2101 E-mail: carlos.rymer@gmail.com

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

Table of Contents
Summary…………………………………………………………………….. 3 Renewable Energy Resolution………………………………………………. 4 Climate Change Risks……………………………………………………….. 6 The Global Renewable Energy Markets…………..………………………… 9 1. 2. 3. 4. 5. 6. Biodiesel……………………………………………………………... 10 Biomass…………………………………………………………….... 11 Ethanol………………………………………………………………. 12 Hydro………………………………………………………………... 13 Solar…………………………………………………………………. 14 Wind…………………………………………………………………. 16

Government Incentives and Regulatory Framework……………………….. 18 1. Renewable Electricity……………………………………………….. 18 2. 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……………………………………... 27 2. Public-Private Training Program…………………………………….. 28 3. Renewable Energy Land-Use Assessment…………………………… 28 Conclusion…………………………………………………………………… 29

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

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 nation’s total demand with renewable energy. Using funds collected from 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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Renewable Energy: A Business Opportunity for the Private Sector in the Dominican Republic

Resolution In Support of Renewable Energy Investments
PREAMBLE Renewable energies have an economic benefit and offer a unique opportunity for countries like the Dominican Republic. Considering that their use benefits the economy 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 the nation’s economy, the nation’s private sectors need to become lead by creating and strengthening a renewable energy sector to help solve climate change and promote economic growth. CONSIDERING That climate change is a global problem that may pose dangerous consequences for Dominican Republic’s economy, especially because of the risks associated with dramatic sea level rise and increased storm damage risk; CONSIDERING That climate change requires developed countries to lead globally to 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 environmental advantages in the Dominican Republic, and that their development would benefit the nation’s economy; CONSIDERING That a renewable energy industry in the Dominican Republic requires incentives and investments for its efficient, rapid development; CONSIDERING That the Law for Incentives for the Development of Renewable Energy Sources and their Special Regimes establishes incentives for the development 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 significantly contribute to the nation’s economy; CONSIDERING That the Hospitality sector depends on the stabilization of the increase in the average global temperature to secure its continued growth;
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Renewable Energy: A Business Opportunity for the Private Sector in the Dominican Republic

CONSIDERING That strong action taken by developing countries serve as significant examples for developed countries, some of which still do not show significant 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 this resolution call on the Dominican Republic’s private sectors to: 1. Recognize and affirm their responsibility to show leadership in the fight against climate change and in the sustainable development of the Dominican Republic; 2. Commit to allocating enough investments in renewable energies, beginning in 2010, to help achieve coordinated goals of 50% renewable energy use by 2020 and climate neutrality by 2030. BE IT FURTHER RESOLVED THAT: This action will serve as a significant incentive for the rest of the world, especially countries that contribute the most to climate change, to set similar targets to prevent dangerous climate change; This action will create a renewable energy industry in the Dominican Republic that will 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, the Dominican Republic, and the rest of the world.

Approved and Signed By: Federación Nacional de Constructores (FENACO), HERSANCA C. Por A., HERVILL S.A., H.V. GLOBE C. Por A., ISOFOTON, ISOTECSOL S.A., Romana Sostenible, Técnicas Energéticas Solares S.A.

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

Climate Change Risks
The science is now conclusive. “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 Climate change is largely caused by manmade 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 world’s 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, ocean systems, 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.

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

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 Impact
Source: NASA

Assessment 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.

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

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 country’s 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 to the country’s 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 we’re 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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Renewable Energy: A Business Opportunity for the Private Sector in the Dominican Republic

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 in 2007 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 they’re 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
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 on Renewable Energy. Available at: http://www.acore.org/reff/2007/txt/d1s5_floyd.php.
4

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

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

little competition in the developing world.8 The figure below shows the growth in biodiesel production in the period 2000-2005:

Source: Renewable Energy Policy Network for the 21st Century

Biomass Biomass is a primary source of energy for over 2 billion people around the world. It is easily available for the world’s poor and meets critical cooking and heating needs. In the best cases, biomass can be harvested sustainably to secure long-term supply and jobs. Biomass is derived from plant products, and can readily be used as a source of energy when burned or can be collected in large amounts for large-scale power production. In 2001, biomass energy accounted for 11% of the world’s total energy consumption, according to 2003 International Energy Agency’s energy status report. The regions with a large share of energy consumption derived from biomass are Africa, Asia, and Latin America. As a share of total renewable energy use,
8

Renewable Energy Policy Network for the 21st Century. 2007.

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

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 and Moving 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 21 st Century. 2007.

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

Source: Renewable Energy Policy Network for the 21st Century

Hydro Hydropower is electricity derived directly from the force of running water. Most of the world’s major rivers have been dammed to produce electricity from hydropower. 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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Renewable Energy: A Business Opportunity for the Private Sector in the Dominican Republic

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 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 Energy Council and divisions of the United Nations, there is enough solar energy to power “I’d put my money on the sun and solar energy. What a source of power! I hope we don’t have to wait until oil and coal run out before we tackle that.” - Thomas Edison, 1931 and human impacts are
Source: World Energy Council, 2007

12

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

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

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.

Source: Renewable Energy Policy Network for the 21st Century

13 14

Renewable Energy Policy Network for the 21st Century. 2007. 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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Renewable Energy: A Business Opportunity for the Private Sector in the Dominican Republic

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 16

Renewable Energy Policy Network for the 21st Century. 2007. 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. 18 Renewable Energy Policy Network for the 21st Century. 2007. 19 UN Development Program. 2004. World Energy Assessment. United Nations.

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

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.

Source: Renewable Energy Policy Network for the 21st Century

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

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 Latin America. The law makes the Dominican Republic a hotspot for renewable energy investments, and hopes to alleviate the country’s energy problems over the long term. Among the main provisions are a feed-in tariff modeled after Germany’s 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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Renewable Energy: A Business Opportunity for the Private Sector in the Dominican Republic

 A feed-in tariff based on the marginal cost of distribution and the positive externalities of the specific renewable energy technologies; and  A requirement that at least 10% of the electricity demand is met renewable sources by 2010 and that at least 25% of electricity demand is met by renewable sources by 2025. Renewable Fuels Similarly, the renewable energy law creates the appropriate regulatory framework and incentive opportunities for all biofuels. Below are the key provisions of the law pertaining specifically to the development of a biofuels industry:  Exemption from all taxes as with electricity, except for such cases where biofuels are exported but not produced using local resources. Tax exemptions will also expire and be subject to renewal once biofuels meet 20% of national demand in each of the different biofuel markets;  A feed-in tariff similar to the one used for electricity producers; and  A requirement that all petrofuels vendors take any biofuel produced within the country for sales.

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

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 20th century, however, the economy diversified 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 was responsible 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 country’s economy to grow at very high rates in the last few years.

21 22

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

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

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 totaling some 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 will clearly 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 24

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

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

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 Demand26
Electricity Demand (GW-hrs) 2007 2030 13,500 25,000 Fuel Demand (gallons) 950,000,000 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 620 million 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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Renewable Energy: A Business Opportunity for the Private Sector in the Dominican Republic

Capacity Factor (%)27 N/A Biodiesel N/A Ethanol 28 55 Hydro 30-70 Marine Energy 25 Solar Photovoltaic 3029 Solar Thermal N/A Storage 30 Wind

Scenario 1 Capacity 650,000,000 gallons 1,250,000,000 gallons 1.04GW N/A 1.2GW 3.8GW 1GW 2.9GW

Scenario 2 Capacity 650,000,000 gallons 1,250,000,000 gallons 1.04GW 285MW 1.2GW 3.8GW 1GW 2.4GW

Biodiesel Ethanol Marine Energy Offshore Wind32 Onshore Wind Solar Photovoltaic Solar Thermal Storage

Estimated Investment $500 million $4.5 billion31 $870 million $550 million $3.4 billion $2.4 billion $7.6 billion $1 billion33

Average Cost per Annual Market Unit Revenues30 (2030) $1.0-1.6/gallon $850 million $1.2-1.6/gallon $1.75 billion $0.04-0.10/kW-hr $87.5 million $0.03-0.05/kW-hr $50 million $0.04-0.08/kW-hr $450 million $0.05-0.15/kW-hr $250 million $0.05-0.10/kW-hr 0.02/kW-hr $750 million 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 28

World Energy Council. 2004. World Energy Assessment: 2004 Update. UNDP and World Energy Council. 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 an estimated capacity, not a confirmed capacity based on intermittency. Government support may supply storage in the future if necessary.

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

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 Savings
Renewable Energy Market Price35 (2030) Business-as Usual Market Price36 (2030) Total Annual Savings (2030) Total Accumulated Savings (2020-2030)38 Electricity $0.09/kW-hr $0.15/kW-hr $1.5 billion $12.4 billion Fuels $1.4/gallon $3/gallon37 $3 billion $24.75 billion39

34

According to the National Energy Commission, about 550,000 hectares of land is available for sugarcane production (350,000 existing). At a conservative estimate of 7000 liters/hectare, this is enough to produce 1.4 billion gallons of ethanol. Issues related to sugar production will be present, however, requiring improvements in vehicle efficiency 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 higher natural gas and diesel use.
38

Assuming incentives expire in 2020.

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

Unit Margin ROI 40 (no incentives)

$0.10/gallon 13% Biodiesel 230% $0.45/gallon 13% Ethanol 44% $0.05/kW-hr 10% Onshore 45% Wind $0.09/kW-hr 9.5% $0.20/kW-hr Solar 21% Photovoltaic 0.06/kW-hr 8% $0.20/kW-hr Solar 26% Thermal Sources: Industry Statistics for Brazil, Canada, and the EU

New Unit Margin (with incentives)41 $1.8/gallon $1.6/gallon $0.20/kW-hr

New ROI

Jobs Created by 203042 325,000 300,000 6,000 84,000 266,000

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

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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 National Commission of Energy. However, to be conservative, 50% of the average premium given in Germany to renewable energies 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 on Brazilian, Canadian, and European industry statistics.

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

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-known internationally 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 5th 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 jobs and 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. We’ve 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. Republica Dominicana. 44 Asociacion Dominicana de Zonas Francas. 2003. Website available at: http://www.adozona.org/esp/default.asp.

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

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

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 nation’s 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
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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 initial amount of capital required to sustain continued investments.

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

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 Republic’s economy. Avoiding catastrophic climate change will require the rapid elimination of greenhouse gas emissions to reduce the chances of tipping points in the Earth’s climate system. The world now has the necessary technologies, human capital, and institutional capacity to rapidly deploy renewable energy 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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Renewable Energy: A Business Opportunity for the Private Sector in the Dominican Republic

A renewable energy capital fund or several private equity funds would ideally help quickly deploy renewable energy technologies. Finally, a privatepublic 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. Let’s seize it!

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