| Summary: | This Selected Issues paper on St. Kitts and Nevis studies economic benefits from energy transition. Cheaper and more stable energy prices can support macroeconomic stability. In addition to the aforementioned effects, low and stable energy prices can mitigate the adverse impact from terms-of-trade shocks and reduce inflation volatility, thus contributing to smoothing out economic cycles. The energy landscape of St. Kitts and Nevis calls for energy reform. The two islands of St. Kitts and Nevis rely heavily on fossil fuels, primarily diesel, to power their grids without Interconnection. The analysis uses cross-country examples to examine the channels through which the adoption of renewable energy on a large scale can yield numerous long-term economic benefits. Transitioning to domestic renewable energy sources could stabilize domestic energy prices and reduce the volatility of inflation. A sharp reduction in energy costs in St. Kitts and Nevis could promote sectoral diversification. High-energy costs can prohibit economic diversification, particularly into energy intensive industries
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