St. Vincent Electricity Services Limited (VINLEC), the vertically integrated electric utility serving Saint Vincent and the Grenadines, sought to implement a revised electricity tariff structure that would support the sustainable growth of renewable energy, particularly distributed solar PV, while maintaining the financial viability of the utility. VINLEC had developed a preliminary internal model to test the viability of a new tariff structure capable of accommodating significantly more renewable energy on its network, and sought an independent consultant to develop a separate model to assess and validate the outcomes of that internal model. VINLEC engaged K&M to build a robust, transparent, and defensible Microsoft Excel model that would allow decision makers to interrogate the impact of proposed revisions to the tariff structure, focusing on the cost of electricity to VINLEC’s customers and the financial impact on VINLEC’s operations, and to develop a charge to recover the cost of providing supporting grid services to customers using battery storage.
K&M developed an independent tariff model and carried out a cost-of-service study to support VINLEC’s rate restructuring. Following a virtual kick-off meeting and inception report, K&M reviewed and assessed VINLEC’s historical financial, commercial, and operational performance over five years, working closely with VINLEC’s Senior Management to validate its understanding of the utility’s finances, operations, and rate structure. K&M built a robust, transparent, and defensible Microsoft Excel model incorporating VINLEC’s historical performance and key assumptions — demand, solar PV penetration, operating efficiency, CAPEX and CAPEX financing, and the international price of oil — that projected VINLEC’s customer base, energy and capacity balance, fuel costs, and financial statements over five years and enabled complex scenario and sensitivity analysis of alternative tariff structures. K&M carried out a cost-of-service study that calculated VINLEC’s actual cost of service on an EC$-per-kWh basis across the cost of energy, other operating expenses, depreciation, and return on assets, and allocated those costs to the average customer in each customer category. Drawing on the cost-of-service results, K&M proposed a monthly charge to recover the cost of maintaining grid supply to customers using solar-battery storage systems, and used the model to assess the impact of the proposed rate-structure changes — including removing fuel-related and renewable energy costs from the base rate and replacing the fuel surcharge with a new recovery mechanism — on VINLEC’s financials and on customer bills and affordability. K&M traveled to Saint Vincent to refine the scenario and sensitivity analysis with VINLEC’s management, prepared final recommendations on base tariffs and the solar-battery grid-support charge, and delivered an Inception Report, an Interim Report and preliminary model, and a Final Report and final model.