Electricity Reform could Improve The Bahamas’ Growth and Narrow Current Account Deficit

The Bahamas is taking bold steps to transform its electricity sector and build resilience to climate change.

The modernization of electricity grids and the increase of solar energy and liquified natural gas (LNG) in electricity production can yield significant macroeconomic benefits in The Bahamas.

Over the medium term, such transformations could reduce fossil fuel imports, decrease the country’s vulnerability to volatile global fuel prices, significantly reduce CO2 emissions, and substantially boost national output (eventually increasing long-run growth potential from 1.5 percent to two percent).

An Ambitious Energy Transformation

For years, Bahamians have suffered from frequent power outages. Their reliance on imported fossil fuels—one of the highest in the Caribbean—for electricity generation leaves consumers and businesses vulnerable to high and volatile energy prices.

To address these hardships, the government announced plans in June 2024 to invest in a modern electricity transmission and distribution infrastructure in partnership with the private sector and increase the share of renewable energy in its electricity generation mix. Specifically, the government is taking advantage of the abundance and intensity of solar energy available to The Bahamas all year round by increasing the share of solar energy to 30 percent by 2030.

Investing in solar also minimizes the adverse environmental impact and logistical challenges associated with other forms of energy. A small share of electricity will still be produced using diesel, but much will be replaced with cleaner LNG.

Investing in Resilience

Unfortunately, even with these investments, the threat of climate change is here to stay. IMF analysis suggests that rising sea levels could place up to 41 percent of the land in The Bahamas and 22 percent of its population below sea level by the end of this century. Moreover, the country is positioned within the Atlantic hurricane belt, leaving it at high risk of hurricane damage.

Left unaddressed, more severe natural disasters and slow-moving impacts from climate change could reduce The Bahamas’ national output by up to 11 percent by 2100, with more significant losses in the islands whose economies rely most on hospitality and real estate.

Given these risks, investing in The Bahamas’ capacity to adapt to climate change and preserve its natural capital could increase national output by up to nine percent over the long term, including through sustainable tourism.

Conclusion

The successful implementation of the electricity sector reform can serve as a blueprint for countries to partner with private businesses to finance climate adaptation. Moreover, innovative financing solutions, including refinancing expensive debt with cheaper funding, could free additional public resources to preserve the country’s natural habitats.

FAQs

* What are the benefits of the electricity sector reform in The Bahamas?
+ Reduces fossil fuel imports, decreases vulnerability to volatile global fuel prices, and significantly reduces CO2 emissions.
* What is the goal of the government’s renewable energy plan?
+ To increase the share of solar energy to 30 percent by 2030.
* What is the risk of climate change in The Bahamas?
+ Rising sea levels could place up to 41% of the land and 22% of the population below sea level, and the country is at high risk of hurricane damage.
* How can The Bahamas adapt to climate change?
+ By diversifying away from vulnerable activities, protecting physical assets and natural capital, and investing in climate resilience.