GEOTHERMAL ENERGY ON EVERYONE'S FRONT BURNER IN

C O N F I D E N T I A L BRIDGETOWN 000346 SIPDIS E.O. 12958: DECL: 06/08/2019 TAGS: ENRG PREL EINV KTBD IR XL SUBJECT: GEOTHERMAL ENERGY ON EVERYONE'S FRONT BURNER IN ST. KITTS AND NEVIS Classified By: Charge d'Affaires, a.i. D. Brent Hardt, reasons 1.4 (b). -------------- Summary -------------- ¶1. (C) Having been granted rights to develop a geothermal reservoir by the Government of Nevis, West Indies Power claims it is 18 months away from generating sufficient power to meet the energy needs of Nevis, and more than 2 years away from exporting power to St. Kitts. Large potential customers on St. Kitts, including the American-owned Christophe Harbour development project and the St. Kitts Marriott, strongly support the geothermal project due to expected energy cost savings, and are lobbying the Government of St. Kitts and Nevis in favor the project. However, potential profits from the project are threatening to further undermine the already shaky relationship between St. Kitts (which sees the project as a federal resource) and Nevis (which classifies it as a national Nevisian resource). -------------- Geothermal Power by 2010 -------------- ¶2. (C) Poloffs recently met with executives of West Indies Power (WIP) in St. Kitts and Nevis and discussed the progress of the geothermal energy project. During a tour of the geothermal sites, WIP representatives showcased three completed test wells and the future site of the first power generation station. All the wells have been drilled to a satisfactory depth, and results on all are promising, company officials said. One of the three test wells exceeded expectations and actually spews an abundance of high pressure steam. The WIP drilling manager estimated that in 18 months the site will be producing sufficient power to cover the island of Nevis' needs. There are further plans to run an undersea HVAC transmission cable, at a cost of US$10 million, across the narrows between the islands of St. Kitts and Nevis and to begin supplying power to St. Kitts by late 2011. Nevis spent US$22 million on diesel fuel for power generation in 2008, and, at a cost of 42-45 cents per kilowatt hour, consumers in St. Kitts and Nevis currently pay one of the highest prices for electricity in the world. WIP officials believe that when the geothermal-generated electricity comes online, they will be able to cut that price in half. ¶3. (C) WIP told us that they have negotiated a-25 year concession to develop the geothermal reservoir -- a deal that requires WIP to pay the Nevis government a 5 percent royalty of all gross profits from the sale of any electricity. WIP executives are extremely optimistic about the capacity of the reservoir and now estimate they will be able to generate approximately 300 megawatts of electricity when the resource is fully developed, further increasing their drive to craft an export market for the sale of electrical power (Nevis' needs stand at approximately 10 megawatts, leaving substantial excess capacity). The island in the region with the most need for power is Puerto Rico, over 400 kilometers away, and a transmission cable to Puerto Rico will cost roughly half a billion dollars. The islands of St. Martin and Antigua are closer, and could also benefit. -------------- -------------- Key Business Players on St. Kitts Want Geothermal -------------- -------------- ¶4. (C) Executives from the large Christophe Harbour (CH) development project on the southern peninsula of the island of St. Kitts have a keen interest in the geothermal energy potential from Nevis. CH, an enormous project including a golf course, marina, residential properties and hotels, will require more electricity just for the development than the current capacity on St. Kitts. The island of Nevis is located only three kilometers across the narrows, and this proximity makes the laying of an electrical transmission cable across the narrows convenient for CH. Without the geothermal energy from Nevis, CH will have to construct its own diesel power generation plant on site and a cost of tens of millions dollars. CH executives would prefer to use the clean geothermal electricity both to keep the environment around their massive investment clean and to use as a marketing tool to prospective customers who take the environment into account. In a similar vein, the sprawling Marriott resort complex on St. Kitts has expressed a strong interest in tapping into geothermal-derived energy to lower its energy bill and reduce reliance on private generators. -------------- Who Owns the Geothermal Resource? -------------- ¶5. (C) The CEO of the Christophe Harbour project did express concerns over what he saw as a growing animosity between the islands of St. Kitts and Nevis over the ownership of the geothermal resource, and how this animosity may interfere with the laying of the transmission cable. The government of Nevis sees the geothermal reservoir as a resource of Nevis, while the federal government of St. Kitts and Nevis sees it as a federal resource belonging to both islands. The Nevis Island Administration has already given permission to WIP to lay the transmission cable across their half of the narrows, however the GOSKN, at this point has not. The head of WIP on Nevis did not seem overly concerned that GOSKN would hold up the laying of the cable to spite the island of Nevis. In fact, local press reported some months ago that St. Kitts had already agreed to purchase power form Nevis. Given the symbiotic relationship between the two that would be necessary for any geothermal project to be sustainable, it seems unlikely that the issue would irreparably damage the relationship between St. Kitts and Nevis. -------------- Comment -------------- ¶6. (C) The constitution of St. Kitts and Nevis allows for the island of Nevis to leave the federation whenever the citizens choose, and the prospect of a commercially viable energy export is reviving talk in some Nevis circles on independence. A referendum must be passed in a general vote by two-thirds majority in order for Nevis to split away, though, and while referenda are held on an irregular basis, a two-thirds majority (out of 5,000 citizens) has never threatened. Should the project come to fruition, St. Kitts currently has the only realistic customers for Nevis power in the short term. Even the most optimistic plans of running a line to Puerto Rico would likely require using St. Kitts as a transit point (allowing them to charge transmission fees overland). Thus, while clean energy development could very well produce political sparks in the short term, the objective technical and economic realities are that St. Kitts and Nevis need each other to make geothermal commercially viable, and will ultimately have to craft a modus vivendi. HARDT