How Can the Caribbean Build a More Secure Energy Future?

The Caribbean’s economic future, like that of all regions, will increasingly depend on energy. To be sure, the region has made major progress in expanding access to electricity. In many countries, access is now nearly universal. As a result, the energy agenda is increasingly moving beyond access itself to the question of whether electricity can become more affordable, reliable, and secure.

Addressing that challenge will require more than investment in new capacity. It will also call for more efficient energy systems, stronger institutions and regulation, and greater private sector participation. The good news is that there has never been a better backdrop for such an effort.

That is the central message of the latest Caribbean Economics Quarterly report, The Price of Power: How the Caribbean Can Build a More Secure Energy System. This analysis by the Inter-American Development Bank (IDB) shows that Caribbean countries are at a pivotal moment: high costs and reliability challenges continue to weigh on households, businesses, and public finances, and the next phase of growth will depend on how power is produced, priced, and delivered.

Three Priorities for the Caribbean’s Energy Future

At the heart of this challenge are three priorities that can help drive the required policies, reforms, and investments. Taken together, they provide a roadmap for building a more secure and sustainable energy future.

1. Lower Energy Costs and Stronger Price Signals

One of the starkest findings is that electricity costs in the Caribbean are among the highest in the Western Hemisphere (Figure 1). Part of this is structural. Small and fragmented grids, reliance on imported fuels, and vulnerability to natural disasters all raise the cost of generating and delivering power.

Policy choices also matter. In Suriname and Trinidad and Tobago, electricity prices are kept low through subsidies. This can ease short-term pressure on households, but if subsidies are not well targeted, they can create long-term problems: weaker utility finances, lower incentives for energy efficiency, pressure on public budgets, and overconsumption. Vehicle fuel subsidies can also contribute to congestion and local pollution. In other countries, high prices reflect real costs, but improved regulatory frameworks to attract investment and diversify energy sources, as discussed below, can help lower those costs. 

2. Accelerating Investment in Renewable Energy

The second identified priority is to accelerate the shift toward renewable energy and greater energy efficiency. Across the Caribbean, electricity generation remains heavily dependent on fossil fuels, primarily oil and natural gas (Figure 2). This dependence keeps costs high and exposes countries to global price volatility.

Advances in technology have driven sharp declines in the cost of renewable energy, particularly solar and wind power, as well as battery storage. For the Caribbean, this creates a major opportunity. Renewable energy, combined with greater energy efficiency, can reduce long-term costs while improving energy security. Once installed, renewable systems rely on free natural resources such as sun, wind, and water, rather than a constant flow of costly imported fuels.

Countries in the region are already moving in this direction, particularly Barbados and, more recently, The Bahamas. Progress, however, remains uneven. Investment in renewables is still constrained by small market size, high upfront costs, regulatory uncertainty, and limited competition.

Overcoming these barriers will require stronger regulatory and policy frameworks, greater private sector participation, and regional approaches such as pooled procurement expertise and harmonized standards. Decentralized solutions, including mini-grids, can also help make costs more manageable and systems more resilient, particularly in remote communities such as The Bahamas’ Family Islands and the interior regions of Suriname and Guyana.

3. Import Dependence and Exposure to External Shocks

The third priority concerns one of the region’s most important vulnerabilities: dependence on imported fuel. When external shocks push oil prices higher, Caribbean countries face higher energy costs, increased inflation, pressure on public finances, and weaker external balances. Recent disruptions in the Strait of Hormuz show how quickly these risks can materialize. Even countries that produce oil are not immune to higher prices, and lower-income households are especially vulnerable across the region.

Reducing reliance on imported fuels is therefore an economic imperative. Unlike fossil fuels, renewable energy sources are not exposed in the same way to global price shocks, and once in place, they can provide a relatively low-cost, stable, and predictable source of power. The average price per unit of energy from renewables and battery storage have also been falling sharply (Figure 3). Energy efficiency measures are equally important, both for energy security and competitiveness. Suriname already benefits from abundant hydroelectric power, while other countries are beginning to expand renewable capacity. That diversification must continue.

From Challenge to Opportunity

The Caribbean’s energy security is at a critical phase. Policies, reforms, and investments made now will affect the region’s long-term development trajectory. If implemented effectively, the three messages that we outline in our report have the potential to help transform the region’s future, including by reducing costs for households, improving competitiveness for businesses, and strengthening economic resilience.

The Caribbean has already achieved what many regions are still striving for: universal access to electricity. The next step is to ensure that this electricity is not only available, but also affordable, reliable, and secure.