As Panama continues to enjoy sizable growth in its broader economy, the energy sector will continue to be a key driver of development. The economic health of the country translates into heavy demand growth in the energy sector, and demand is expected to jump between 4.5 and 6% a year until 2030, or 50MW every year. New home construction, large infrastructure projects, the expansion of the Panama Canal, and the metro line are forecast to be the major drivers of demand.
In order to meet this demand, the country has rededicated itself to producing mor
e energy from a diverse range of sources. Stakeholders in both government and private industry are working to ensure that Panama’s energy sector is diversified, stable, affordable, and consistent. The country’s energy matrix relies on three key areas: hydropower, hydrocarbons, and alternative sources. Nearly 63% of Panama’s energy matrix comes from hydropower, while hydrocarbons account for 35% and alternatives roughly 2%. The state-owned company Empresa de Transmissión Eléctrica (ETESA) is the only transmission firm. According to the US government, the net cost to electricity consumers is around USD1.4/kwh.
Panama has been working to bring widespread and easily accessible natural gas to its citizens. The country started construction on Central America’s first gas-powered generation plant in May of 2016. The facility, the construction of which is being overseen by AES Panama, will generate 381MW of power and will incorporate 180,000cbm of storage capacity. The government hopes that this facility will be a the first step towards establishing Panama as a hub for liquified natural gas in the region. In an exclusive interview with TBY, Miguel Bolinga, President of AES Panama, discussed the potential this project has for Panama. “We are in an important position to increase the competitiveness of the country as an energy hub within the region,” said Bolinga. “This new power plant will allow Panama to produce cheap energy that can be sold in Colombia, and once the connection is made, Panama will play an important role in the development of the energy sector, not only on a national scale but regionally as well.”
The project is expected to generate between 1,500 and 2,000 jobs over its course. By locating the project near the canal, AES Panama hopes that the facility will become a key part of not only Panama’s energy sector but the energy market of the entire region. The facility is expected to receive more than a dozen tankers a year. General Electric is a major partner of AES Panama on the project, and the company is supplying core equipment, including state-of-the-art gas turbines that are expected to increase the efficiency and reduce the environmental impact of operations.
With its bountiful supply of waterways and resources, hydropower is a key part of Panama’s energy puzzle, and one that promises to remain in the spotlight for years to come. Large-scale hydro plants generated 53.5%, or 9.5TWh, of the country’s energy while small-scale facilities accounted for 12.3%. The sector is supported by the nation’s 31 dams, but 54 new dams are in the works. The impressive growth has not been without some resistance, however, and environmental groups have voiced their opposition to some of the projects. According to Circle of Blue, Panamanian hydro has added around 100MW of generating capacity every year since 2005.
The heavy reliance of Panama’s energy matrix on hydropower can leave the system susceptible to drought. In 2014, the country experienced a drought that put severe pressure on the generation grid. In response, the government has attempted to expand and diversify its energy portfolio to better insulate itself against such shocks.
Panama’s energy matrix is in the midst of sizable changes, transitioning from an energy network based on hydropower and fossil fuels to one founded on renewables like solar and wind. Panama has become a leader in renewable and alternative energy in the region, and a relatively large percentage of its energy matrix is already derived from these sources. The government hopes to derive 15% of its energy from renewable sources by 2030. The country’s National Energy Plan 2015-2050 pushes that number to 70% by 2050. Between 2011 and 2015 Panama invested roughly USD1.4 billion in clean energy. The country has developed a robust set of incentives aimed at bolstering its alternative energy sector, including a premium payment schedule for alternative-derived energy and tax incentives aimed at supporting small-scale alternative producers. Biomass, hydro up to 3MW, wind, and solar receive a 5% premium. A series of auctions have been held to award contracts for renewable projects, particularly wind, and nearly 400MW of generation infrastructure has been awarded since 2011. Additionally, the wind sector receives 15-year tax exemptions for companies based out of Panama that manufacture equipment necessary for the industry. While multiple contracts for solar generation have been awarded in recent years, few projects have begun construction. Companies with projects of 0.5MW or less receive value added and import tax exemptions, and exemptions from taxes on distribution and transmissions for projects that are 10MW or less. Additionally, net metering was implemented in 2012, and retail consumers with renewable production capabilities of up to 500kW will be allowed to put surplus energy back into the system and be paid for it. This incentive structure, the stable currency system and the country’s strategic location and logistics experience have been key drivers of growth in the renewable energy sector, attracting investors from around the world.
Wind energy has been another exciting area of growth in Panama’s energy sector, and some large-scale projects have gotten close to completion. The country’s first wind farm, located on the Pacific coast, will be capable of generating 55MW of capacity, and it is set to be completed later this year. In 2016, solar energy firms saw a large spike in growth around Panama, and many firms and individuals are beginning to recognize the utility of having renewables as a part of their energy consumption matrix. In addition to highlighting the environmental benefits of renewables, firms in Panama are appealing to the cost-consciousness of business when trying to boost renewable energy production and consumption.
In an exclusive interview with TBY, Jorge Vialette, Director for Central American and the Caribbean for Faro Energy, discussed the value that green energy can have for a company’s bottom line and how his firm is trying to capitalize on this. “We own and operate renewable energy generating plants that provide cheaper energy to the end customer,” said Vialette. “Our value proposition is that businesses can become more profitable by gaining access to lower energy costs from day one, and by consuming solar-generated energy, the customer is doing his part to protect the environment.” Firms of all sizes have begun recognizing the value of including renewable energy sources in their consumption portfolio, and the private sector is turning more and more toward these options.
Greenwood Energy, a leading solar energy firm, has seen growing demand for its products in a wide array of sectors across the Panamanian economy. Supermarkets, hospitals, large and medium-scale manufacturing, agriculture, and animal husbandry have all been identified as potential rich sources for future growth. Efficient and cost-effective battery technology is widely seen as the next crucial step in ensuring that Panama’s wind and solar technology achieve widespread implementation and nationwide ubiquity. Energy firms are branching into this technology in Panama and taking steps to ensure that high-tech batteries become central pieces of the Panamanian energy puzzle.