The security provided to generators in signing long-term contracts means lower electricity rates to end users.
An article in Elmundo.com.sv states that "The entry into force in January, of two new long-term contracts to provide power for two years to distributors, will prevent a further increase in the new energy prices which will be valid from April 15, according to the company DELSUR. "
While in other Central American countries there is a boom in projects for clean energy generation, in the past three years El Salvador has not registered any.
According to data from Bloomberg, for the past three years, El Salvador has not recorded any investment in clean or renewable energy, its last investment was made in 2007, when it invested $45 million.
The Congress of El Salvador is evaluating implementing a tax which would in principle would apply only to LaGeo, a subsidiary of the Italian company Enel.
Against the backdrop of the dispute between the Government and the Italian company Enel over the capitalization of the geothermal LaGeo, "...an ad-hoc committee of the Legislature which is studying the LaGeo concession, the only cmpany with state permission to exploit subterranean heat sources, has proposed a series of amendments to the Electricity Law, including a tax that would be incurred by the activity of the geothermal company. "
Distributors have under contract only 60% of demand, forcing them to buy at expensive spot prices.
An article in Elsalvador.com reports that "The distributor’s failure to purchase power from generators under short, medium and long term contracts means that the bill continues to be passed on to consumers, who have still not yet received the benefits of this legislation which will come into full effect on February 1 next year. "
An editorial in Nacion.com describes the limitation imposed by the law on the investment of private capital in electricity generation as "a cap on development" .
Private companies are not allowed to build plants of over 50 MW of capacity. When an investment is made with a view to exploiting the plant for its entire lifetime, without a transfer to state power company ICE, the limit drops to 20 MW.
Since litigation began in 2008 regarding the funding of LaGeo, investment plans in El Salvador have ben stalled, but are now coming back into effect.
An article in Laprensagrafica reports that the company Enel will invest $127 million in El Salvador next year as part of the original plan which was based on an agreement with shareholders that the Italian company would provide more capital, in exchange for just over 50% of the shares of the geothermal company LaGeo. This investment plan has been frozen since 2008 after ENEL began arbitration proceedings against ENEL Investment Energy (INE) and the Lempa River Hydroelectric Executive (CEL) because they wouldnt allow the funding.
At least 10 companies have already acquired the bidding rules ready to present bids on 28 October.
Among the companies interested in bidding is Centrans Energy which operates a wind farm in the Pacaya volcano area, which generates 50 MW and represents an investment of $125 million.
An article in Elperiodico.comgt states "The bidding rules require that at least 60 percent of the 800 MW must be generated by renewable power plants (hydroelectric, wind, solar, etc.) and a maximum of 40 percent for existing plants (bunker, diesel and coal) The traditional power plants can bid for contracts of up to 5 years, compared to the renewables whose contracts can be up to 15 years long."
Enel Green Power announced the start of construction of a new hydroelectric power plant between Alajuela and San José.
The new plant, called Chucas, would have an installed capacity of 50 MW and once operational it will generate about 219 million kWh/year, the equivalent annual consumption of over 81 thousand homes.
Enel Green Power, owned by Enel Group which focuses on renewable energy, hopes to complete the plant by mid-2013, increasing their installed capacity in Costa Rica to 105 MW.