For years, Central America has sought to achieve energy security in a variety of manners. Countries have looked to a wide range of alternatives to replace imported oil including the possibility for natural gas and an enhanced role for renewable energy beyond hydroelectricity. Indeed, guaranteeing sufficient supplies at reasonable costs has been at the center of many debates focused on boosting the region’s economic competitiveness. In terms of the broader renewable energy outlook, long-term auctions across Latin America have resulted in record costs and made clear that renewables are a competitive source of the supply mix in emerging markets.
More recently, Central America has not been immune to the global energy transformation underway. Many of the elements of the energy transition are being assessed at varying levels in countries of the region. Indeed, long dependent on imported energy sources, Central America has increasingly embraced the role for domestic sources of renewable energy in their power mix. Incorporating wind and solar energy to support the region’s important hydroelectric capacity has seen important results and in many cases reduced exposure to volatile international oil prices, as well as lessening exposure to climate change and improving resiliency. In addition, the economic goals inherent in regional interconnection, and ultimately integration, of the nations’ six power markets is an important policy option for increased energy security and reducing costs.
Costa Rica, in particular, has garnered international attention for its consecutive days of electricity generated from renewable sources – over 300 days in 2017. The country has long been known for its commitment to sustainability across all segments of the economy and has burnished its reputation with its clean energy milestone last year. Meanwhile, Panama and El Salvador have made great strides as well guiding their countries toward increasingly competitive electric markets while diversifying their energy matrices; Panama will soon commission Central America’s first natural gas-fired power plant and plans are on tap for LNG in El Salvador next year. Honduras and Nicaragua despite grave security and political challenges have been hugely successful with incorporating renewable energy into to their power mix. Indeed, electric market reforms in Honduras have fostered the region’s most competitive solar market.
But, the nations of Central America must continue to insure that developments in the energy sector will support economic competitiveness. Indeed, the role of government in setting and managing policy, as well as regulating private sector economic activity, is a long-standing element for discussion. But with rapidly evolving global energy markets, it deserves renewed attention as government officials, investors and regulators alike must make decisions in the context of the new reality for competition, energy sources, how energy is consumed and the role of the consumer.
Beyond the critical intersection of energy and economic development in Central America, there are other questions surrounding the ability to fully finance, deliver projects on time, and at the prices won at auction. Moreover, the rise of renewables is simultaneously boosting the potential for distributed generation and net metering. In many cases, these changes are already forcing utilities to become far more flexible and nimble in the way they manage their grids. Additionally, decarbonization of transportation in Central America is an increasingly urgent matter for discussion. Finally, Costa Rica has rightfully ignited a robust debate over the feasibility of a 100% renewable power mix for a country, a question that would have been discarded as pure fantasy only a few short years ago