International Financial Corporation Securities Regulatory Commission World Bank Group on Changing the Energy Landscape in Central America

Central American residents pay nearly twice as much to keep their lights on as do their neighbors in South America. The high energy costs hurt the region’s businesses and its residents, hampering job creation and making it harder for people to improve their lives.

Soaring electricity rates have long burdened Central America, as the region is highly dependent on imported fossil fuel and at the mercy of fluctuating oil prices. At the same time, rising demand is putting pressure on the region to expand its capacity to generate electricity. It is crucial that the region develop alternate power sources to lower costs, ease the reliance on fuel imports, and reduce carbon emissions.

To tackle this challenge, IFC has supported private sector developers and financed a series of projects in the region—building on our decades of experience in supporting electricity generation, transmission, and distribution upgrades in developing countries.

The latest one is AES Colón—Central America’s first integrated plant that generates power from liquefied natural gas. In July, we completed a $150 million financing package for the construction and operation of the 380-megawatt plant, which will help mitigate the risk of electricity shortages while introducing a clean, cost-effective, and reliable energy source

CUTTING CARBON EMISSIONS

Natural gas—a cheaper and cleaner alternative to fossil fuels—holds great potential as a source of energy in Central America. The region currently relies on heavy fuel oil and diesel for over 40 percent of its installed generation capacity.

Over the past decade, Central America struggled to get natural gas projects off the ground. These plants demand large investment, and the energy markets in the region were not big enough to attract investors. As a whole, Central America has roughly the same capacity to generate electricity as Colombia, further south.

IFC is helping to change that. Located on Panama’s Atlantic coast, AES Colón includes an onshore terminal where liquefied natural gas is regasified to feed the power plant. The facility is sponsored by AES Corporation and Panama-based Motta Group.

By its third year of operation, AES Colón is expected to generate 2,100 gigawatt hours of power which would otherwise be produced using heavy fuel and diesel. This will represent a reduction of about 1 million tons of carbon dioxide emissions each year—the equivalent of taking more than 200,000 cars off the road. Once operational, the project is expected to reduce Panama’s carbon dioxide emissions by about 4 percent.

In addition to reducing carbon emissions, natural gas complements renewable energy by ensuring a steady supply of clean power that is able to balance the inherent variability of wind and solar energy.

POWER FOR SUSTAINABLE GROWTH

Since 2010, IFC has supported the implementation of over 900 MW of new renewable energy capacity in Central America, including 215 MW of wind and 215 megawatt-peak of solar photovoltaic projects, helping offset a slowdown in the construction of hydropower projects in the region.

In Panama, we have provided a $300 million financing package for the Penonome wind power plant, the largest wind farm in Central America. The project is expected to generate the equivalent to 5 percent of the country’s total energy demand. In Honduras, we have recently supported three of the first large-scale grid-connected solar projects in the country.

In Costa Rica, the Reventazón 305-MW hydropower plant we are supporting will bring light to half a million homes. In recent years, we have also financed a 72-MW geothermal plant in Nicaragua and 123 MW of run-of-the-river hydroelectricity projects in Panama and Honduras—where little or no water storage is necessary.

From Panama to Costa Rica through Nicaragua and on to Honduras, new renewable and clean-energy projects are helping transform Central America’s energy landscape and demonstrate that the region can develop the power infrastructure it needs to grow sustainably.