Panama: Coming together in energy
Over the past year, Panama’s energy sector has undergone several changes that may significantly alter the future of its energy mix for the better. The discovery of oil resources in August 2011 could see Panama reduce its reliance on the importation of fossil fuels, while the recent energy law amendment will see renewable resources given preferential treatment on the national energy grid.
However, perhaps most important to long-term energy security is the impending integration of Central American energy markets, which will likely result in Panama and five neighbouring countries – Costa Rica, Honduras, Nicaragua, El Salvador and Guatemala – benefitting from increased economies of scale.
In the meantime, Panama’s thirst for energy continues to expand alongside its robust economic growth, as consumption of electric power and petroleum products grew 8.62% and 11.5%, respectively, in 2011, according to Vicente Prescott, the secretary of energy.
Panama is a member of the Central American Electrical Interconnection System (Sistema de Interconexión Eléctrica de los Países de América Central, SIEPAC), a regional transmission network designed to integrate the power grids of all six countries. SIEPAC, which is being constructed by Empresa Propietaria de la Línea de Transmisión Eléctrica (EPR), consists of 1970 km of transmission lines and 15 substations. Much of the funding for the $494m project was provided by the Inter-American Development Bank ($240m) and the Central American Bank for Economic Integration ($40m).
After several delays, in part caused by a need to synchronise market regulations, the project is nearing completion. EPR recently announced that project infrastructure was 94% complete, and once finished, the network is expected have a working capacity of 300 MW.
Panama is also seeking to integrate with its southern neighbour through the Panama-Colombia Interconnection (Interconexión Eléctrica Colombia-Panamá, IPC), which could eventually connect SIEPAC to Colombia, whose energy market is roughly equal to all six nations combined in terms of size. The $420m IPC is due to be completed by 2014.
To consolidate all six energy markets, a seventh market was created, known as the Regional Electricity Market (Mercado Eléctrico Regional, MER), as well as two operating agencies – the Regional Electric Interconnection Commission (CRIE) and the Regional Operating Agency (EOR). The CRIE will act as market regulator, while the EOR will function as the system administrator.
Though SIEPAC’s infrastructure is nearing completion, there are still significant obstacles to the overall success of the MER, namely the ability of the six integrated markets, which are already fragmented politically and economically, to fully integrate and cooperate on a regional level. For the MER to be successful, it must make use of increased economies of scale, most likely in the form of larger infrastructure projects that will generate nationalistic concerns, particularly with regard to energy security, social impact and the environment.
On the national level, in early August 2012 the Panamanian National Assembly approved Bill 486, amending articles of Law 6 of February 1997, which dictates regulatory and institutional framework within the electricity sector. Under the new framework, Empresa de Transmisión Eléctrica (ETESA), the national grid operator, will be required to provide a 5% discount in prices for renewable energy sources, including solar, wind, geothermal, biodiesel and up to 3 MW of hydroelectric.
This legislation shows there is indeed political will to diversify the country’s energy mix and increase the utilisation of renewable resources. Currently, Panama relies heavily on hydroelectric power and imports all its fossil fuels for thermoelectric power generation. The discovery of some 900m barrels of oil at two basins in eastern Panama last year could alleviate some of this import pressure. The finds could bring $15bn to the country’s coffers over 20 years, Juan Manuel Urriola, the nation’s energy secretary, said last August.
Electricity demand in Panama is predicted to expand between 5.5% and 6.7% annually from 2011 to 2025, with output expected to increase from 7307 GWh in 2010 to 17,497 GWh in 2025, according to ETESA’s 2011 expansion plan. ETESA calls for a combination of new hydroelectric, gas-fired thermoelectric and renewable wind generation to keep up with rising demand.
Although Panama will likely be able to successfully meet demand increases on its own, if the SIEPAC is successfully integrated across the region, it could significantly reduce the medium to long-term burden of expanding power generation facilities of all countries involved – including Panama.