A recent article in Central America Today explains how in the past, political squabbles and confusing patchwork of overlapping regional, state and private networks hampered efforts to modernize Central American energy systems. As a result, investors often refrained from building new power plants or spending more of their cash flow on energy efficiency or grid automation.
But according to the article, this environment has changed rapidly in the last months as a result of new legislation to create attractive incentives for investors. “The governments in the region are now updating their energy laws, providing greater incentives for an industry that is neither completely regulated nor fully deregulated, but somewhere uncomfortably in the middle.”
Some excerpts (note that some interesting statistics on currently installed energy capacity are also included in the article):
- Today, Central American economies require more energy for every dollar of economic output than ever before. In the years prior to DR-CAFTA´s implementation, the region began diversifying its economy toward manufacturing and tourism, two sectors particularly vulnerable to rising energy costs.
- There are several proposals now on the table to diversify the region´s energy grid and revamp its outdated electro-mechanical distribution network. The main challenge, though, is how quickly Central America can turn around its underutilized geothermal and hydroelectric potential, move to newer generation technologies, and add to the 20 or so wind-powered parks now under construction across the region.
- As energy demands in the region are expected to climb by 6% in the next six years, new investment opportunities for multinational power companies as well as local investors are expected to open up. In a recent study, the Inter-American Development Bank (IDB) suggested that this increased demand represents an investment potential of approximately $7 billion. By 2014, the Central American Commission on Environment and Development (Comisión Centroamericana de Ambiente y Desarrollo, CCAD) estimates that due to the projected growth in demand for energy, between 5,000 to 5,700 MW (58,600 gigawatt hours) generated from wind, hydro or geothermal power will be added at an estimated cost of $1,500 per installed kW, or the total equivalent of $89.6 billion—a significant investment opportunity.
- What role will renewable energy play in Central America´s future? It depends on who you ask. According to the UN´s Solar and Wind Energy Resource Assessment (SWERA), Central America has some of the best wind power potential in Latin America, and more should be invested in the technology. But according to the Organización Latinoamericana de Energía (OLADE), it might not make a difference considering that fossil fuels are expected to comprise 75 percent of the world energy grid through 2030.
The article’s author, Ricardo Castillo Argüello, concludes: “Whether it´s wind, gas, or oil, whatever technology Central America chooses to avert an energy catastrophe will need to be coupled with greater efficiency, much higher generation capacity, and significant amounts of distributed local generation from renewable sources.”
Other articles that might be interesting in this context:
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