AN eventual increase in electricity tariffs remains justified and important for Fiji’s future despite short-term inflationary pressures, Westpac Fiji stated in its latest Westpac Wave, which provides its latest assessment on Fiji’s economy.
“The global AI revolution is driving large scale investment into energy supply, grid systems and supporting infrastructure to meet electricity intensive digital demand,” it stated.
“In larger economies, deep capital markets and competitive pricing frameworks support this transition.
“Fiji, however, faces different realities. Electricity supply in Fiji is a natural monopoly.
“Generation and grid systems require large, long lived up-front investments that cannot be efficiently duplicated in a small market.
“When tariffs are held below the cost of reliable supply, investment is delayed, outage risks rise, and the system becomes increasingly reliant on ad hoc public support, an approach that becomes more problematic when fiscal pressures are rising due to higher global fuel and import costs linked to conflicts such as those in the Middle East.”
With hyperscale projects coming to Fiji, such as Google’s major ICT facility in Natadola adding to current power demands, sustained investment in energy infrastructure is being seen as crucial.
“EFL has reported electricity demand growth of around nine per cent in 2024 and expects annual demand growth of about five per cent,” the bank stated.
“At current tariff levels, EFL has indicated it would be unable to adequately fund new generation capacity, transmission upgrades and system wide resilience, increasing the risk of future power disruptions.
“Financing these investments cannot rely on syndicated banking alone. Small Island Developing States face high capital costs, limited economies of scale and long payback periods, making energy projects less attractive to private financiers, particularly when tariffs are tightly constrained. EFL has stated that tariff revenue is the only stable and predictable cash flow available to service debt and unlock long term financing. While higher electricity tariffs will have a measurable short term impact on inflation, the effect is likely to be smaller than feared and should ease over time.
“The longer term benefits including reduced diesel imports, lower exposure to global energy price shocks, and stronger energy security are especially valuable during periods of geopolitical instability. Higher tariffs may also encourage greater uptake of rooftop solar, strengthening energy independence further.”
