The Electricity Sector in Central America

A Fitch report blames high regulatory risk as the main problem for regional private investment in generation and distribution of electricity.

Tuesday, March 8, 2011

Executive Summary of Fitch´s Special Report on the Power Sector of Central America and the Caribbean:

The electricity sector in Central America and the Caribbean reflects a strong link with regional government’s performance due to socio-economic and regulatory aspects which characterize these countries. While on the medium term the region provides significant investment opportunities to increase power generation, state intervention in the sector is high, considering subsidies, state involvement in the industry´s infrastructure and involvement in the establishment of tariffs, which represent one of the main challenges to attracting private investment.

The matrix of electricity generation of Central America and the Caribbean reveals the region's high exposure to changes in oil prices, taking into account that on average more than half (54%) of the power generated is from thermal sources.

The exposure is much greater when considering the fact that regional countries lack oil reserves and rely on fuel imports to meet the demand from generators. While countries like Costa Rica and Panama generate mainly from hydroelectric sources, this also brings vulnerability to weather events and, in general, demand investments by governments in order to provide system safety margins to avoid shortages in periods of low hydrology.

Given the projected growth by the region and the low margins of oil reserves, large expansion plans are in the works, especially in renewable sources, involving significant investment. The effort to attract the necessary financing for these investments must include the establishment of transparent and stable regulatory frameworks.

In the medium term, the completion of the regional transmission line in Central America (Electric Interconnection System for Central American Countries - SIEPAC) could allow the sale of surplus power among Central American countries, including Colombia and Mexico. In the case of the Dominican Republic, the expansion in capacity and efficiency will be keys to meet the projected demand for energy.

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El Salvador’s Electricity Sector

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