Panama: Energy Resources

Extend network

There is a great potential for growth in the Panamanian electric power sector.  20% of Panamanians still do not have access to electricity, especially in the rural areas.  Panama is interconnected with the Central American electricity schemes through Costa Rica.

Following the sector's privatization, Panama went from being a net importer of electricity to a net exporter. In July 2006, the Sistema de Interconexión Eléctrica Centroamericano – SIEPAC (Central America Electrical Interconnection System) started to be expanded in order to create a wholesale electricity market to bring down the cost of energy and enhance the reliability of the Central American electricity grid.  In early 2007, a project for electricity interconnection between Colombia and Panama was under consideration.

Energy procedure

According to the Ministerio de Economía and Finanzas (MEF), more than 90 new hydropower projects are currently in the development or construction stage. 17 wind projects have been issued temporary licenses. Energía y Servicios de Panamá, S.A. (ESEPSA), a subsidiary of Unión Fenosa, increased its hydroelectric capacity by 10 MW.

The Universidad Tecnológica de Panamá has conducted studies and research on energy efficiency issues and serves on various technical committees. Its short-term, plans include the creation of a laboratory to undertake trials for equipment certification in lighting, air conditioning, refrigeration, and electric motors, which would require a USD 2 million investment. The Autoridad Nacional del Ambiente (ANAM) undertakes activities to promote energy efficiency measures as a climate change strategy.

Energy debates

In its first major step towards promoting renewables, President Ricardo Martinelli's government will hold wind-power-only tenders.  But wind will only be allowed to represent up to 5% of Panama's total energy supply, according to the new law.

For some analysts, this limit is far too restrictive to be of much use, an industry source tells. As energy demand is currently about 1.2GW, it would allow only 60MW of wind capacity to be developed.

Yet developers have already applied for government licensing for at least 560MW of wind projects — many of which are for large projects.  "We don't really believe that the law promotes new wind farm developments," says one developer, who declines to be named. He says it would benefit only those importing equipment or who had already built wind farms — if there were any. "So it really doesn't benefit anybody."

Energy sources

Total installed electricity capacity (2009): 1,789 MW Hydro-electric: 49% Thermal: 51%.

Between 2000 and 2009, a series of small hydro capacities were regularly installed, while thermal power units were decommissioned and replaced.  As expected, given the large share of hydro capacity, electricity production is rather strongly influenced by fluctuations in precipitation levels. 

Electricity demand is dominated by the commercial sector, followed by the residential, Governmental and industrial sectors. The peak load is estimated to be around 1100 MW; therefore, Panama possesses a considerable reserve margin for export purposes. In dry years the capacity of thermal power plants is sufficient to make up for the lower output of hydro facilities, while imports are broadly marginal. The reserve margin (the difference between installed capacity and peak load) is considerable.

Panama has no proven reserves of oil, gas or coal. Its energy balance is dominated by oil products, which comprised 75% of total primary energy supply in 2008.

Total primary energy supply (2007): 2,824 ktoe Petroleum products: 75.7% Comb. Renew. and Waste: 13.5% Hydro-electric: 11.2 Electricity exports: -0.4%.

Regulatory roles

ASEP approves retail electricity tariffs and requested rate changes by the distribution companies, sets transmission tariffs and approves requests for changes by ETESA, grants concessions and approves modifications to concessions, and approves the expansion plans for the system proposed by ETESA. For the generation sector, ASEP approves the initial water concessions for hydropower facilities or generating licenses for thermal generators.

Competition

The privatization of the IRHE was part of a broader sectoral reform program that involved establishing a new regulatory framework, introducing a wholesale electricity market, and adopting a new tariff regulation. Panama liberalized and partly privatized the electricity sector in 1998-1999, but the State still kept its monopoly of energy transmission as well as a large holding in the major generating and distribution companies. The state-owned ETESA (www.etesa.com.pa) has responsibility for providing transmission services, providing central dispatch services nationwide for generators on an economic dispatch basis, and providing a monthly “clearinghouse” report of the transactions performed on the system, recording hourly dispatch of each generator, sales to and from the spot market, and sales and purchases by distributors.

Energy efficiency

The Government has started the implementation of EE programs in public utilities. Primary energy demand per capita stands at 0.85 toe. The transport sector contributes most to energy demand in the country, suggesting the need for energy efficiency programs in the sector. Government officials have been educated in energy efficiency techniques and measures, in an effort to promote the sustainable use of energy in public buildings.

Capacity concerns

Over the past decade, Panama has systematically raised its electricity coverage indicators, and is now the Central American country with the second highest coverage rate (88%). Nonetheless, during the same period, generating capacity expanded on the basis of fossil fuel sources, with the result that the thermo-electric share of the power generation mix grew from 30% in 1999 to 48% in 2008. Although this process made it possible to meet the urgent need to expand installed capacity, it also made the sector more vulnerable to rising oil prices and helped raise the average power generation price.

Moreover, the transmission network has not been adapted to the expansion of new generating capacity, while demand in the central zone of the country has been favoured to the detriment of the other provinces, which has created bottlenecks with repercussions on energy prices for consumers.

Government agencies

The regulatory framework for electric power services (Marco Regulatorio y Institucional para la Prestación del Servicio Público de Electricidad, Law No. 6, 1997) created the Energy Policy Commission (Comisión de Política Energética, COPE), to formulate overall energy sector policy and define its strategy. The environmental law establishes that the State will promote and give priority to non-polluting energy projects and establishes that the policy for developing electrical industry activities will be set by COPE, along with the National Environmental Authority (Autoridad Nacional del Medio Ambiente ANAM) in terms of its impact on the environment and natural resources.

Energy regulation role

The creation of the SNE in 2008 represents a step toward the consolidation of authority to make policy on energy issues, including energy efficiency, and management of programs in the area. Under its predecessor, COPE, which was created at the time of the restructuring of the electric sector in 1997, the Government had conducted numerous studies and assessments but did not establish a legal framework for energy efficiency or, as far as the documentary evidence suggests, implement any meaningful demonstration projects, audit programs, or similar initiatives.  SNE is now overseeing the preparation of a draft energy efficiency law with support from the IDB.

Ownership

In 1998, the privatization of the vertically integrated electricity utility IRHE, Instituto de Recursos Hidráulicos y de Electrificación, was part of a broader sectoral reform program that involved establishing a new regulatory framework, introducing a wholesale electricity market, and adopting a new tariff regulation.

IRHE was restructured into four generation companies (Bayano, 192 MW; Bahia las Minas, 292 MW; Fortuna, 300 MW; and Chiriqui, 222 MW); three distribution companies (Metro-Oeste, 195,000 customers; Noreste, 148,000 customers; and Chiriqui, 65,000 customers); and one transmission company that would remain in state hands.

Degree of independence

ASEP is fully independent of the Government of Panama, in terms of authority and financing.

Energy debates

SIEPAC (Sistema de Interconexion Eléctrica para America Central or Central American Electrical Interconnection System) is a planned interconnection of the power grids of six Central American nations. Central America, where few electrical interconnections currently exist, and with those that do are often being old and unreliable, has been discussing plans to link the region's electricity grids since 1987. The proposed project entails the construction of transmission lines connecting 37 million consumers in Panama, Costa Rica, Honduras, Nicaragua, El Salvador, and Guatemala. It is not clear if Belize, which buys much of its power from Mexico, will also be included. SIEPAC would cost about US$320 million without the interconnections with Mexico (US$ 40m), Belize (US$ 30m) and Panama (US$ 200m). Back in 2003, the project was scheduled for completion in 2006. More recently, it has been estimated for completion in 2010.

Energy framework

National Energy Plan 2009–2023 The National Energy Plan released by the National Energy Secretariat in 2009 established as a generation plan the installation of an additional 1299.80 MW by 2023 via the following energy sources:

   706.30 MW from hydropower
   473.50 MW from thermal power
   120 MW from wind power.

The National Energy Plan also recognized the possibility of a positive contribution from efficient energy use as an energy-planning alternative. It proposed demand-side energy planning to reduce energy requirements without compromising need or neglecting environmental issues. A draft was expected in late 2010, and it would address the need to achieve improvements in efficiency in buildings and appliances as well as promote public education.

Reliance

All fuels are imported, mainly from Argentina, Chile, Colombia, Curacao, the United States, and Venezuela. There are promising developments in petroleum exploration activities in the east, with likelihood of resources shared with Colombia.

Role of the government

The Government is responsible for policy-making and regulation, acting through the various line ministries. These are coordinated through the recently created National Energy Secretariat (SNE), which also coordinates the functions of the Energy Policy Commission (COPE), the National Hydrocarbons and Alternative Energies Department (DNHAE) of the Ministry of Trade and Industry (MICI) and the National Energy Saving Commission (CONAE). The power sector is regulated by the Public Services Authority (ASEP).

Regulatory framework

The main legislation regarding RES is contained in article 55 of Law No. 6 of 1997 establishing that it is in the State’s interest to promote the use of RES; to diversify energy sources, mitigate adverse environmental effects and reduce the country’s dependency on traditional fuels. For these effects, a 5% discount on the evaluated price is granted to RES, in each of the competitions or auctions carried out to buy energy and power.

COPE issued two resolutions in 2004 (4001 and 4002) to promote the construction of hydroelectric and wind generation plants. For stations up to 10 MW, there is no distribution or transmission charge, import tax exemption for equipment and spare parts for construction and operation, and tax exemption of up to 25% on the income tax regarding direct costs of the project during the first ten years of commercial operation. For stations of 10 to 20 MW, there is a transmission charge exemption of transmission for first 10 MW in first 10 years of the operation, no allowance to contract directly with the distribution company, and a fiscal incentive of up to 25% of direct cost based on CO2 emissions reduction is only applicable to 50% of tax income (not 100%). Above 20 MW, stations benefit from the same incentives as 10–20 MW stations but must pay the transmission charge. Panama also provides subsidies to finance up to 5% of direct costs of all projects foreseen to be of public use, an allowance to sell up to 15% of electricity to any distribution company independently from the location of the plant, and an allowance to sell electricity on the spot market.

Under law, tenders cannot discriminate between generation technologies. It is not clear how the Government is going to address this issue in targeted procurements.

The National Assembly of Panama recently approved two renewable energy incentive laws. The incentive laws include import-tax and other tax exemptions on equipment, as well as a credit equal to 5% of the value of civil works that are considered to be for public use. In a different development, the government announced the start of a process that will award 150 MW of wind energy contracts. Finally, all wind developers are now able to take advantage of an existing law, under which they are eligible for a 25% repayment of their investment based on carbon credits. Until now, this has been limited to projects under 10MW and large hydropower schemes.

The second new law will mandate an ethanol blend in fuel, starting at 2% by April 2013 and rising to 10% by April 2016. It also prioritises electricity sales to Etesa from biomass energy — primarily from agricultural waste and residues from ethanol feedstock — with a provision that distributors are obliged to purchase all biomass power supplied to the grid.

Regulatory barriers

SNE will need further technical and institutional strengthening to ensure the fulfilment of an energy efficiency policy. While the Government has implemented a variety of energy efficiency programs targeting Government agencies starting in the early 1980s, some have failed due to a lack of monitoring, control, evaluation, and feedback.

In the absence of special provisions for the purchase of energy from intermittent generation from wind, non-conventional renewable generation would not be able to participate effectively in the marketplace.

Energy regulator

Until 2006, the Panama's Regulatory Entity (Ente Regulador de los Servicios Públicos, el Ente) oversaw the operation of the sector, being responsible for formulating and enforcing policy.  However, private industries long complained of its slowness in responding to competitive concerns or requests for information. In February 2006, the Government enacted by Decree Law the elimination of the Ente Regulador and the creation of a new National Public Services Authority (Autoridad de Servicios Públicos Nacional, ASEP, http://www.asep.gob.pa/), with the aim to provide more effective sector management by separating administrative and regulatory functions related to electricity providers.

Renewable energy

The share of hydropower and non-conventional renewable generation in Panama’s total output has remained at relatively high levels due exclusively to the country’s significant hydropower capacity. Panama does not yet have non-conventional renewable generation in place, due to some structural biases that have favoured fossil generation.

Solar energy With an average horizontal irradiance of 5.0-5.5 kWh/m2/d, Panama has good potential for solar energy uptake. No large-scale operations with the technology have begun yet, although distributed small solar systems are being investigated as a solution to rural electrification.

Wind energy Panama has proven, unexploited wind resources. Two companies are currently developing wind fields in Panama, one of which will be used to power the community of Los Pozos, the first 100% renewables-powered settlement in the country.

Hydropower There is a large potential for hydroelectric power in the country, and a law has been proposed to promote mini-hydroelectric projects as a way to reduce oil imports required by thermal plants.  However, Panama’s ability to continue to expand its hydropower capacity may face greater opposition in the future due to:

   Community opposition to hydropower projects. As elsewhere in the region, large-scale hydropower projects have encountered considerable local opposition.  Particularly, there has been considerable opposition to the concentration of hydropower development occurring in the province of Chiriquí in western Panama. Opponents of the projects include indigenous communities from the region.
   Competitive pressures. The spot market in Panama prices transactions involving energy based on variable cost or short-run marginal cost, with the value for hydropower dependent on values calculated by the Centro Nacional de Despacho
   Transmission limitations. Panama’s transmission network is still relatively weak in terms of capacity to deliver power from the western and eastern extremities of the country toward the centre.
   Failure of tendering processes. During the middle part of the decade (2002–2008), the public tenders issued by the distribution companies for new hydropower generation capacity were not well received. The primary reason for the lack of interest was that the contracts were too short to ensure an adequate return, but other conditions, such as maximum prices, were also not acceptable.

Biomass energy/Biofuels Panama has shown interest in biofuels technologies, particularly as an export for US consumption. In a 2007 meeting, the President declared the country's interest in performing extensive biofuels research.

Geothermal energy Panama holds a potential 400 MW of geothermal resource. However, movement to exploit this resource is slow, with private-sector companies in the country being more interested in wind power, and the Government focusing on hydro-electricity.