Central America Power Sector: Imports And Integration Changing The Landscape
BMI View: Central America's energy sector is fragmented and overly reliant on expensive imported fuels and unreliable hydropower. Plans to change this include the construction of an integrated regional grid (which is almost complete), expanding the type of fuel imports to include liquefied natural gas , conver ting power plants away from oil to coal and introducing ambitious renewable energy targets. These measures should help to improve energy security in the region and reduce the cost of fuels , therefore lessening the burden on their balance of payments.
The high cost of fuel imports in Central America, a region where oil production is minimal and where the ability to refine said oil is even more limited, is encouraging a number of new strategies to cope with growing demand.
Nicaragua is pinning its hopes on a US$6.5bn refinery, whilst at the same time hoping to achieve an ambitious target to reach 94% renewable (including hydropower) targets by 2017 ( see our online service, January 30 , ' Grand Ambitions But Feasibility Questionable ' ) .
In Costa Rica, the plan is to import liquefied natural gas (LNG) to offset oil consumption with what they believe will be cheaper gas. A decree was signed by the e nvironment m inister and President in November 2012, promising to import more LNG over a six - month period . This decision is motivated both by cost and carbon emissions targets. S tate energy company Recope is planning to start imports by May 2013. However, we question the relative cost competitiveness of LNG versus oil imports, at least until the US is able to export LNG from the Gulf Coast, which is not expected until 2015.
In El Salvador , the Cutuco Energy Project is being developed. It is hoped that t he project will enter operations in 2016 ; however , it is yet to secure financing. The project includes an LNG import terminal, re-gasification facility, a desalination plant, power plant, and natural gas and electricity transmission lines linking to the regional grids. As well as supplying Guatemala with natural gas, the company is hoping to transmit natural gas to other countries in the region via a natural gas pipeline. It also hopes to generate electricity through this natural gas , which would then be transmitted to the rest of the region via the Sistema de Interconexión Eléctrica de los Países de América Central ( SIEPAC ) integrate d grid. The project is estimated to cost US$950mn. In order to secure financing, the company is bidding for power plants in Guatemala and El Salvador.
In 2010 , plans were announced for a US$300mn LNG import terminal (and regasification facility) and US$130mn gas power plant in Colon , Panama . The project would be supplied with gas by Pacific Rubiales from its Colombian gas fields. There have been no updates on this project. On a side note, it should be kept in mind that following the expansion of the Panama canal, LNG tankers will be able to travel through , which could have significant implications for the LNG market dynami cs in the region (and beyond).
Financing for LNG projects being developed by independent companies (rather than the state utility) will depend on securing contracts for natural gas, either from the utility company, other utility companies across the region, or nat ural gas Independent Power Producers ( IPPs ) .
|Power Mix Changing?|
|Central America Electricity By Capacity, MW, 2012e|
New Capacity Supports Growing Demand
The changing nature of fuel imports could see the Central America region's power mix change significantly. The region is one of the greenest globally, due to its heavy reliance on hydropower for electricity generation. However, if successful in securing natural gas supplies, we could see this fuel make significant inroads in the power mix.
Presently, however, we see only a small project pipeline for new thermal power plants, and proposed projects are unlikely to move forward until gas supply can be guaranteed. The vast majority of planned new electricity capacity comes from hydropower, with a large number of wind projects and a few geothermal.
|Power Projects, Planned And Underway, By Source, MW|
Natural Gas Projects:
In Costa Rica, there are plans to expand imports of natural gas through LNG and subsequently convert power plants to run on natural gas versus current oil capacity. The diesel-fired Moin power plant is one that could be converted, as well as the 200-megawatt (MW) diesel-fired Garabito power plant (at an estimated cost of US$20mn each).
In 2011, El Salvador banned the construction of new thermal power plants in La Union and Conchagua. In May 2012, this was lifted in La Union to allow natural gas power plants. Bids have been submitted for a natural gas power plant in the city.
525MW gas power plant planned in La Union, El Salvador, as part of the Cutuco Energy Project - an integrated LNG/power project (see below).
In 2010, plans were announced for a US$130mn natural gas power plant, which would be located by a planned LNG import terminal. There have been no updates on this project since.
In addition to increasing gas supplies, coal is also looking like it may see an increase in use as a source of electricity generation. The relatively cheap cost of coal as feedstock, is motivating a number of smaller plants to switch to coal.
In Panama, there is a 300MW coal-fired power plant under construction at Inmet Mining's Paco copper mine; the power plant will supply electricity to the mine.
Also in support of mining demand, APR Energy (which provides temporary power solutions) announced a contract to develop an off grid electricity unit to supply power to the Escobal Silver mine in Guatemala in January 2013. Whilst not explicitly stated, this power plant is likely to run on diesel.
There is also a 300MW coal-fired power plant under construction in Guatemala - the Jaguar power plant - which is being built by the local subsidiary of AEI.
In 2011, there were announcements that a number of sugar mills in Guatemala were to be converted from running on bunker fuel to coal and, perhaps eventually, to natural gas. During harvest season, the electricity for the sugar mills is generated via biomass; however, outside of this season, the plants run on bunker fuel, in an effort to capitalise on cheaper thermal coal prices, we have seen a number of plants plan conversion projects.
Grid Investments Strengthen Sector
In order to support the development of new power plants, connect more people to the network and balance out electricity generation better across the region, investment into transmission grids has been taking place.
Electrification rates vary across the region, from almost universal access to electricity in Costa Rica, to more than a quarter of the population without electricity in the worst cases. Honduras and Nicaragua have the lowest electrification rates in the region, with 2.2mn and 1.6mn people without electricity access respectively in each country.
|Investing To Fill The Gaps|
|Access To Electricity, % Of Population|
Nicaragua has a number of programmes in place to develop its transmission network and boost electrification. In late 2011, congress approved a Central American Bank of Economic Integration (BCIE) loan for US$77mn, which followed two Inter-American Development Bank (IADB) loans for US$50.5mn, all of which would be put toward financing the National Sustainable Electrification and Renewable Energy Programme (NPHS), which hopes to increase electrification rates to 85%. The four-year programme aims to add 117,390 users (equal to 702,000 people) in 3,666 rural communities. The programme will also normalise service for 164,000 households (984,000 people) that currently have illegal connections. The project includes the construction of 219km of new transmission lines to connect renewable capacity to the grid.
Honduras is also looking to address the problem of insufficient grid infrastructure. The government announced a US$472mn grid improvement programme in late 2011. The state-owned National Electricity Company will oversee construction of 1,000km of transmission lines and 16 substations.
Across the region, grid investment has been made in order to support the 1,799km SIEPAC - Central America integrated electricity grid. The project is being developed by Costa Rica's Empresa Propietaria De La Red. The grid is due to be completed in mid 2013, and as of the end of 2012 was over 90% complete. The final stretch to be finished is Parrita - Palmar Norte (Costa Rica).
Once complete, it will vastly boost regional integration. The main 300MW line could boost Central America's electricity transmission capacity to nearly eight times its original level and provide the member countries of the shared system with more stable and efficient access to electricity. We also note that the new grid system is likely to benefit the development and connection of the renewables projects that have emerged in the area.
A treaty to create a single regional energy market with one joint regulator has already been approved by all participating governments, and a regional agency governed by a board with members from each country will operate the line. Plans for a second phase of the project, which would double capacity to 600MW, have been considered.
|Country||Section||Length, km||Total length for country, km|
|Guatemala||Aguacapa - Frontera El Salvador||99||283|
|Guate Norte - Panaluya||110|
|Panaluya - Frontera Honduras||74|
|El Salvador||Frontera Guatemala - Ahuachapán||19||286|
|Ahuachapán - Nejapa||89|
|Nejapa - 15 Septiembre||85|
|15 Septiembre - Frontera Honduras||93|
|Honduras||Frontera El Salvador - Agua Caliente||52||270|
|Agua Caliente - Frontera Nicaragua||62|
|Torre "T" - Río Lindo||13|
|Río Lindo - Frontera Guatemala||142|
|Nicaragua||Frontera Honduras - Sandino||116||307|
|Sandino - Ticuantepe||65|
|Ticuantepe - Frontera Costa Rica||126|
|Costa Rica||Frontera Nicaragua - Cañas||129||493|
|Cañas - Parrita||159|
|Parrita - Palmar Norte||131|
|Palmar Norte - Río Claro||51|
|Río Claro - Frontera Panamá||23|
|Panama||Frontera Costa Rica - Veladero||150||150|