Central America Set To Partially Integrate Electricity Network

This posting is a guest contribution by Jason Fargo, and is published here courtesy of Energy Intelligence Group

An ongoing effort by Central American countries to connect their electricity grids by mid-2010 could make gas-fired power plants and LNG infrastructure more economically viable in the region. Guatemala, El Salvador, Honduras, Nicaragua, Costa Rica and Panama are cooperating on a $494 million project known as Siepac to build two 230-kilovolt power lines, one traversing the isthmus from southern Guatemala to western Panama, and a shorter one connecting central Guatemala to Honduras. The 1,789 kilometers of power lines would have an initial capacity of 300 megawatts, which might later be doubled. The project was initially mooted in the mid-1990s but stalled partly because national regulators have been reluctant to cede sovereignty. It’s now nearly complete.

Siepac is not a full integration of the region’s electricity grids. Rather, it would create a transnational electricity market in which countries could trade power while continuing to run their own national grids. Over time, however, the Central American states want to harmonize national regulations and create a hemisphere-wide electricity market that would make power supply more reliable and less expensive.

Mexico already shares power with Guatemala, and last year Mexico’s state generator Comision Federal de Electricidad (CFE) joined Siepac. Colombian utility Interconexion Electrica (ISA) is also part of Siepac, and Panama and Colombia are exploring a bilateral interconnection. Even so, cross-border electricity trade covered less than 1% of the 39,241 gigawatt hours of power generated in the region last year, according to the United Nations Economic Commission for Latin America and the Caribbean (Eclac). 

Backers say Siepac would also encourage construction of new power plants. Investment in Central America’s power sector has been hampered by the absence of economies of scale, notes Marcelo Valenzuela, a senior energy specialist at the Inter-American Development Bank (IDB), which is providing much of Siepac’s financing. This has left Central America heavily reliant on inefficient gasoil burning plants. Eclac says these diesel plants account for 31% of the region’s 10,270 megawatts of generating capacity and hydro 41%.

With a larger market, the hope goes, foreign investors would build more efficient gas-fired plants. Already, Spanish utility Endesa owns roughly 11% of EPR, the company building the Siepac lines, and US venture capital firm Cutuco wants to build an $800 million, 525 MW power plant and an LNG terminal in El Salvador. Construction is projected to start in early 2011 and end in 2014. The project would connect to the Siepac line and could export both electricity and gas. 

EPR Administration and Finance Manager Luis Manuel Bujan expects more such projects. He also argues that integration would lead to more efficient use of existing power plants. For example, Costa Rica now fires up outmoded diesel units to meet peak demand. With Siepac in place, he says, the country would instead get power from cleaner thermal facilities in Nicaragua. Similarly, heavy winter rainfall means Costa Rica could export substantial hydro power. The IDB is already helping state utility Instituto Costarricense de Electricidad (ICE) plan a 631 MW hydro project, El Diquis, in the south.

However, many expect investment to remain minor as long no common regulatory regime exists. Eurasia Group energy analyst Will Pearson worries that, in the event of an electricity shortage, countries might tear up regional supply agreements and grab power for domestic use. Until that concern is dispelled, he says, only small projects will be built. As to Cutuco’s LNG and power project, “I don’t think that’s going anywhere,” he says. EPR’s Bujan is more sanguine. He stresses that national governments know they need private investment and that abrogating export contracts would be “the worst signal they could give.”


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