An outlook on the impact of renewable energy on the global energy market

By: J.C. BHAGWANDIN, M.Sc.

In the next 20 years, Guyana is poised to earn approximately US$33 billion, or Gy$7.1trillion, (twice/2.1 times) the earnings of the last 20 years. Thus the proposed allocation of US$14 billion, or Gy$3.1 trillion, in cash transfers can certainly fuel inflation: by driving up the import bill on consumption goods and weaken the value of the domestic currency, which has adverse economic consequences.

As such, since Guyana could have almost 2 times’ worth of what it earned in 20 years, it means Guyana would be placed in a position to fast track national development to arrive on par with a country like Singapore today; which is 15 times richer than Guyana on a per capita income basis, and which has accomplished same in 50 years (Singapore US60k vs. Guyana’s US4.5K).

Having said that, today’s article merely presents some considerations for Guyana’s economic transformation; and, more importantly, highlights that oil is just a bonus, and therefore ought to be treated as such.

The global roadmap prepared by the International Renewable Energy Agency (IRENA) suggests that renewable energy can make up 60% or more of many countries’ total final energy consumption. To that end, this report posits that India and China are the largest contributors to the world’s energy demand:

• Renewables are expected to make up 50% of electricity generation by 2050. Oil demand growth slows down substantially and plateaus around 2030-2035;
  • Renewable energy needs to be scaled up at least 6 times faster for the world to begin meeting the goals of the Paris Agreement;
  • By 2050, all countries can substantially increase the proportion of renewable energy in their total energy use;
  • for example, China could increase the share of renewable energy in its energy use from 7% in 2015 to 67% in 2050;
  • The EU share could grow from 17% to over 70%, India and United States could see shares increase to 2/3 or more.
  After the first two decades, the world’s oil market price could become more volatile. With further increases in renewable energies globally, demand could fall by 38% in the first two decades while still remaining stable at US$40-50. OPEC can cut supply to stabilise the price in the first 2 decades — which it does all the time — but after this period, cutting the supply would become more difficult as a mechanism to stabilise the market.
  In Guyana’s context, the US$1 billion cash transfer proposal poses the following risks to the economy:
  • Cash transfer of US$1 billion could induce hyperinflation if used to fuel consumption spending (private consumption is $454 billion/56% of nominal GDP (2018); US$1 billion could drive this up to 82% of nominal GDP).
  • Create a culture of dependency, which would very likely not be sustainable in the long run. We have seen the consequences of a similar situation with the Linden electricity subsidy years ago, which stimulated violence.
  • As a result, Guyana could remain largely underdeveloped despite the development of the oil industry, if put to use in this way; that is: half of the oil revenues into cash transfers, rather than productive use aimed at national development.

Proposed alternative use of oil revenues:

• Free education comes at a cost.
  • Invest in state-of-the-art health care and educational institutions;
  • Expand road networks with a focus on development further south;
  • Consider creating a new capital city, in Region One perhaps, by the end of 20 years, with a view to making it become the new capital city in the next 50 years. We have seen the consequence of climate change recently with the high tides that caused residents and farmers to suffer huge losses, to the tune of millions;
  • Consider a Natural Disaster or Climate Fund to cater for floods and other natural disasters in the coming years. This would serve as a relief for affected persons (I recall a rice farmer having become bankrupt since the 2005 floods, and that farmer is still recovering to this day, 14 years later).
  • Climate change risks necessitate the need for such a fund
  • There is need to develop ports and road networks linking our neighbouring countries, since these can serve to transform Guyana into a regional hub for the transportation of goods through South America;
  • There is need to build railways to move goods internally, as those would help to reduce overall costs in hinterland regions and across the country if we are going to build more cities/towns and shift our development more inland, on higher ground;
  • Create financial market development – Venture Capital Firms/Fund to support the growth of new businesses.

In the first decade, Guyana can earn about US$8.6 billion/Gy$1.8 trillion. In the second decade, earnings could be US$24.6 billion/Gy$5.2 trillion.

In the last four years, Gy$1trillion was spent, compared to Gy$1trillion having been spent in 22 years (1992-2014), and there has been no solid economic transformational project that has improved the economic status of the country to substantiate this massive amount of public expenditure.