Fact not fiction vaporises Belco’s LNG argument

  • Sir John Swan, a businessman, was the former Premier of Bermuda between 1982 and 1995, and a former Belco board member

    Sir John Swan, a businessman, was the former Premier of Bermuda between 1982 and 1995, and a former Belco board member

  • Michael Murphy, a former attorney for American International Group, was the chairman of the Association of Bermuda Insurers and Reinsurers between 1985 and 2005

    Michael Murphy, a former attorney for American International Group, was the chairman of the Association of Bermuda Insurers and Reinsurers between 1985 and 2005

  • Bill Jewell

    Bill Jewell


Having benefited from the expertise and history that Bill Jewell’s letter to The Royal Gazette dated May 7 provided on the complex subject of the past and future of Bermuda’s electricity supply and the need for maximising use of renewables in our rapidly changing world, Sir John Swan and Michael Murphy took advantage of Mr Jewell’s holiday visit to the island to discuss with him further many questions, history and disclosure of facts still needed to provide clear answers to the public on this most important subject. Mr Jewell, a retired former senior managing engineer of Belco with a varied lifetime experience in all aspects of power-generation transmission and delivery prepared the commentary hereinafter, building on the discussions

As widely publicised, Belco launched an intensive propaganda campaign in 2013 to promote a transition from fuel oil to liquefied natural gas. This message appeared in its annual reports and press articles. The previous government was seemingly influenced by this initiative, despite no valid justification being provided and a refusal to discuss any aspects of this with the public. Various unanswered challenges were raised, since LNG is generally recognised as being unsuitable for a small and remote island utility such as Bermuda, with similar jurisdictions focusing on energy conservation and renewable-energy solutions to reduce emissions and dependence on fossil fuels.

This extreme change of direction resulted in the Government’s 2011 White Paper being ignored, and its ambitious demand side management and renewable energy targets not acted on.

The public were assured that they would be given the opportunity to participate in achieving the best energy solution for Bermuda after the Regulatory Authority of Bermuda was established and the Electricity Act 2016 passed. This would be achieved by the requirement for Belco to provide a comprehensive Integrated Resource Plan that would meet the stringent requirements of section 40 of the Electricity Act.

These IRP study requirements included consideration of all possible resources, with a range of renewable energy and efficient generation options. The basis of selection is to include least cost solution and environmental impact, with expectation of study being carried out in an unbiased and transparent manner with opportunity for invited feedback from the public and other interested parties after its submission to the RA.

So what could go wrong?

It was not a promising start when Belco boldly stated in its 2013 annual report that it had commenced preparation of an IRP and it would demonstrate natural gas — LNG — as the favoured choice. This gave the appearance of being a biased one-horse race. So Belco appointed its consultant Leidos to prepare the IRP that was eventually submitted to the RA in early 2018.

This voluminous report was several hundred pages long and included numerous computer printouts. Its executive summary stated it had made a case in favour of LNG, albeit by a slim margin and with an evaluation process that factored in a very subjective qualitative assessment element. Needless to say this was heralded with press releases claiming LNG was shown to be the way forward for Bermuda’s next 20-year energy-planning scenario.

It is unlikely that members of the public were inclined to read the whole of this massive report, and would be tempted to settle for the contents of its executive summary.

I was intrigued as to how a case favouring LNG could possibly be made, with its obvious disadvantages of extremely high capital cost, major safety concerns — with particular reference to citing of a very hazardous regasification plant — and supply problems with mismatch of available LNG tanker sizes owing to Bermuda’s relatively small consumption. I was particularly interested to see how it could outrank obvious choices such as renewable solar PV and offshore wind options, together with the fallback of LPG — LPG/propane is already on island and avoids LNG problems.

So how can the winning odds be improved?

The best method of improving winning odds is to eliminate likely contenders wherever possible.

So offshore wind was immediately dismissed, with the excuse of the need for a more detailed study. Similarly no ambitious solar PV and energy efficiency options were considered. Bearing in mind Belco commenced offshore wind studies in 2000, and the Bren Bermuda offshore wind energy study was carried out in 2014 with promising results, there was ample opportunity for Belco to have included the additional offshore wind studies within the IRP study brief, with probable commitment of one year and costs of about $250,000. The IRP was under preparation for five years at a cost of more than $2 million.

So this still left LPG (propane) as a very serious contender that we expected to rank above LNG.

While I had reservations that inadequate capital costs were assigned to the LNG case, I conducted a thorough analysis review of the IRP based on the Leidos study data provided. Its quantitative results clearly show the LNG scenario as the most expensive of all options in levellised cost ($/MWh) terms, which was no surprise.

I then scrutinised its qualitative scoring assessment against the alternative propane fuel case, and immediately identified extreme bias and fudged results. For example, one of the five factors it evaluated was “logistics” defined as “evaluate the degree to which the asset provides ease of logistics and implementation”.

It scored ten for the LNG case and only five for the partial conversion to propane, whereas clearly a transition to LNG is a far more challenging case. Similarly, it scored LNG higher for “economic development” — defined as contribution to the economic development of Bermuda with focus on job creation. The propane case was assigned a lower score, whereas in reality the lower-cost propane option would both focus on local spending and facilitate future investment on renewable options to benefit Bermuda.

My reassessment of these qualitative factors dramatically change the scoring from its results favouring LNG over LPG to a clear demonstration that LNG ranks the lowest by a large margin.

Since it is vitally important that Bermuda’s 20-year energy development plan is based on the best possible and reliable information, the RA commissioned an independent consultant, Oxera, to carry out a review of the IRP proposals’ compliance with the guidelines. Its report was issued to the RA on May 1, 2018 and was posted for inspection by the public.

Its review expressed considerable concerns, with particular reference to a very subjective qualitative assessment having a large influence on selecting the preferred scenario. These concerns were heightened since the qualitative influence on results was magnified by the small dispersions of the quantitative analysis results.

It was clearly not convinced by the qualitative scoring procedure and allocations provided by Belco’s consultant, Leidos. Oxera gave an example of the very high capital cost favouring the LNG project by providing more employment. (I would further suggest this would principally consist of overseas specialist labour, whereas the low-cost alternatives would provide a higher percentage of local labour and also allow funding of other projects to benefit Bermuda such as renewables.)

Oxera’s reservations in its closing statement:

“We recommend that the Authority undertakes further detailed analysis of the IRP proposal in order to determine whether the proposal represents the least cost capacity expansion plan for the electricity market of Bermuda”

In response to the RA’s invitation for feedback on the IRP, I submitted a 12-page detailed analysis on May 17, 2018, in my capacity as both a minor Belco shareholder and a professional engineer with extensive international power engineering consultancy experience. This independent analysis clearly demonstrated that the LNG option should be reassigned the lowest, and not highest, ranking.

Should further steps be taken such as the apparent need to significantly increase the study capital cost assigned to the LNG case, or introduce new qualitative scoring factors such as “safety implications”, then the LNG case would score even lower in any unbiased analysis.

Hence, there is very strong evidence that any reference to LNG being the favoured choice should be deleted with immediate effect.

The RA has not replied to my independent detailed analysis submission, nor has it provided any evidence of the independent IRP analysis review stated as a requirement by its independent consultant, Oxera.

After receipt of more than 900 invited feedback comments on the IRP, the RA is mindful that the vast majority of participants wanted to see far more emphasis on renewables and less use of fossil fuels. Belco has been liaising with the RA over the past few months to finalise a revised IRP by the end of June 2019 that demonstrates more emphasis on renewables. However the RA has already stated it will allow offshore wind to be omitted at this stage since the follow-up detailed offshore wind study has not yet been carried out.

Imminent important decisions and actions to be taken by the RA and government ministers will require the provision of full and accurate information in this vital process. Hence, the aforementioned independent IRP analysis review(s), as recommended by RA consultant Oxera will be an absolute requirement. The Electricity Act 2016, Section 40, and RA procedures purport that Bermuda’s energy-planning decisions will be conducted in a transparent manner with opportunities for the public and interested parties to participate with feedback on the IRP. Access to the independent IRP analysis review would be welcomed since full disclosure is considered essential for the public to view.

Based on the foregoing comments, the public will have lost confidence in the process, but will still be expecting delivery of a viable and validated IRP that reflects a different and unbiased mindset. This crucial decision-making process that will shape Bermuda’s energy future needs to comply with a plan that is in the absolute best interests of Bermuda as a whole and reflects the feedback already received and reported on.

It is crucially important to disregard any unsubstantiated, flawed or erroneously derived claims that support LNG. It is expected that, with the deletion of LNG, Bermuda’s energy plans will thereby revert to resembling the earlier 2011 White Paper on energy.

A detailed explanation is required on how it will be possible to select from the bidders a purchaser of Belco in the near future in the absence of a viable IRP. Full transparency is also required on the potential purchaser’s experience in renewable-energy installations and demonstration of a track record of reducing reliance on fossil fuels.

Sir John Swan, a businessman, was the former Premier of Bermuda between 1982 and 1995, and a former Belco board member. Michael Murphy, a former attorney for American International Group, was the chairman of the Association of Bermuda Insurers and Reinsurers between 1985 and 2005. Bill Jewell, a chartered engineer, is a retired former Senior Manager, Engineering and Planning, at Belco. The former international consultant held the position for 11 years, with the final two spent developing renewable and new technology and business opportunities

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Published Jun 3, 2019 at 8:00 am (Updated Jun 3, 2019 at 11:01 am)

Fact not fiction vaporises Belco’s LNG argument

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