On December 1, I attended a conversation on energy and infrastructure in Central America hosted by the Brookings Institution here in Washington, D.C. In many ways, the discussion reaffirmed the case for a socially and environmentally sustainable course of development through renewable energy. José Fernández, Assistant Secretary of State for Economic, Energy and Business Affairs at the U.S. Department of State took part, along with other knowledgeable panelists working on the region. The discussion was highly relevant to a new project here at Worldwatch on the state of renewable energy development in Central America, and the transition to a more sustainable energy future.
Energy economies in Central America vary widely. Costa Rica, for example, generates 90 percent of its energy through sources other than fossil fuels (primarily large hydropower), whereas El Salvador depends on fossil fuels for 80 percent of its electricity. According to Pablo Rodas, Chief Economist at the Central American Bank for Economic Integration (CABEI), the region currently generates 45 percent of its electricity using oil, spending some $7 billion annually on imports. Costa Rica alone spends $2 billion annually on oil. This means that as policy incentives improve and financing increases, while technology costs for new renewables such as wind, biomass, geothermal, and solar go down, market forces due to high oil prices will provide the motivation for countries to look toward these alternative energy sources.
Johanna Mendelson Forman, Senior Associate in the Americas Program at the Center for Strategic and International Studies, discussed the range of barriers to a renewable energy transition. For example, special lending provided through the Petrocaribe agreement to some Central American countries (Honduras and Nicaragua) makes oil imports cheaper than the rate at which the commodity is traded on the global market. Nevertheless, the high cost of thermal generation results in high electricity prices—as much as 20 cents per kilowatt-hour (kWh) in some countries. Electricity prices are likely to increase further as oil prices go up. From an economic production standpoint, the exorbitant cost of electricity is a major disincentive when trying to attract companies to the region, whether foreign or domestic, says Hugo Beteta, Sub-regional Director of the United Nations Economic Commission for Latin America and the Caribbean.
Even in countries with relatively low-cost electricity, such as Costa Rica at 10 cents per kWh, energy issues remain highly problematic. This low electricity cost is largely attributable to the use of hydropower and although locally produced energy provides greater security and allows for reduced dependence on imported fuels, the adverse effects of hydroelectric dams and reservoirs on ecosystems and human communities suggest the need to transition to more sustainable forms of renewable energy.
During his presentation, Alvaro Umaña, Costa Rica’s former minister of energy and environment, reminded the panel that his country’s state-operated utility company ICE was given a mandate some 60 years ago to develop hydropower because of the lack of oil—and they accomplished this with a high degree of success. Umaña underscored the risks of bad planning and urged that similar success can be accomplished with clean renewable energy, “Costa Rica is proof that you can develop renewables if you believe in energy planning.” Indeed, Costa Rica has an ambitious goal: The country wants to be “carbon neutral” by 2021, an aim that is unique even on a global scale.
Two Central American countries—Guatemala and Nicaragua—have Human Development Index ratings below 60. The HDI, compiled by the United Nations Development Programme, measures critical socioeconomic indicators in countries worldwide – including energy access and involvement in energy related public services – and in many ways distributed and decentralized forms of renewable energy constitute an enormous opportunity for socioeconomic empowerment in less privileged areas.
Karla Hernández, of the Central American Electrical Interconnection System (SIEPAC), commented on the progress of the regional grid integration effort. The Framework Treaty of the Central American Electricity Market and its related protocol, along with the governments of Guatemala, El Salvador, Honduras, Nicaragua, Costa Rica and Panama, first established the regional institutions responsible for the regulation and operation of the grid in the late 1990’s. Now, by March 2012, SEIPAC is expected to comprise 1,793 kilometers of transmission lines connecting more than 35 million electricity users. The overall cost of the project is estimated at $494 million.
The SIEPAC interconnection is also expecting to double its overall capacity from the current 300 MW to 600 MW by 2014–15, during a second stage of development. This will require up to $157 million in investment. With this expansion, the interconnection system will provide access to electricity for many who do not have it. And Ms. Hernandez spoke very optimistically about how renewable resources will be a large part of this (For more on the grid integration effort, see eprseipac.com; enteoperador.org).
Numerous U.S.-Central America partnerships are currently underway that aim to support regional integration efforts, including the Energy and Climate Partnership of the Americas, which is now two years old and has implemented 40 different projects across the region. But despite some successes, preferential financing and further access to credit for renewable energy investors and developers is needed. Above all, the emphasis must continue to be on the harmonization of regulation within and between countries to support renewable energy.