While most Americans think that they pay high rates for electricity, in reality, prices are much higher in Costa Rica. Compared to a cost of 10¢ to 12¢ per kilowatt-hour in the United States, the cost in Costa Rica hovers at about 15¢ per kwh. In Nicaragua and Honduras, two of the poorest countries in Central America, the rates are even higher.
The Search for Lower Cost Energy Solutions
Recently; however, officials have begun to look at ways in which energy costs can be reduced through the introduction of alternative energy sources, such as renewable energy and natural gas, rather than relying so heavily on fuel oil and diesel for power generation. Thanks to the introduction of new methods for transporting natural gas, it is now possible to bring down the cost of energy considerably.
Currently, the Central American Electrical Interconnection System (SIEPAC) has already linked millions of people in Costa Rica as well as Honduras, Panama, Guatemala, El Salvador, and Nicaragua together. SIEPAC features a transmission line spanning approximately 1,790 kilometers and has worked diligently to make improvements to existing systems. Without proposed interconnections with Panama, Belize, and Mexico, the system cost $320 million.
Involving eight countries, including Mexico and Colombia, the interconnection treaty between Canada and the United States took three decades to negotiate. Over the course of the last two years, SIEPAC has successfully tripled electricity trade. Even so, there is still work to be done, such as resolving technical disruptions, increasing capacity, and further refining the necessary regulatory structure. The final piece of the puzzle is connecting to Colombia and Mexico.
Partnering to Reduce the Cost of Energy
Recently, approximately 150 people attended the Inter-American Dialogue conference. Among those in attendance was Román Macaya, Costa Rica’s ambassador to the United States. Representatives from the embassies of Brazil, Austria, Colombia, Canada, El Salvador, Mexico, Guatemala, Jamaica, Spain, Panama, Netherlands, Venezuela, and Trinidad & Tobago were also in attendance.
The event occurred shortly after President Obama visited Jamaica and offered millions of dollars in funding to finance private investment in clean energy projects in the region. Late last year, the White House also launched an alternative to the Petrocaribe program in Venezuela. The Caribbean Energy Security Initiative dedicates resources for the purposes of facilitating deals in the region that will match government financing from the U.S. government for energy projects.
Over the last year, the exchange of electricity in the region has grown at an exponential rate, particularly in Guatemala and other southern areas. Contributing heavily to such growth is the $150 million contributed by the Inter-American Development Bank to SIEPAC. Mexico has already begun to sell electricity to Guatemala even though the transmission line has not yet been connected to SIEPAC.
Challenges for Clean Energy Solutions Remain
Among the available options, natural gas is currently the best choice, but at least at this point in time, countries in Central America has not become heavily gasified. One of the biggest reasons for such a delay in development is the need for generators that are able to operate on gas. Additionally, pipelines would need to be constructed and ports would need to be dug deep enough to allow LNG tankers.
Such a move might not be that far off into the future, given that the cost for implementing an LNG terminal has declined from a cost of about $1 billion to approximately $300 million. Shipping compressed natural gas to the region is entirely possible. In fact, natural gas from the Florida region could conceivably be shipped as far as Jamaica.
Currently, the primary obstacle to expanding the energy infrastructure in the Caribbean and Central America is a dearth of bankable projects. In an effort to address this situation, efforts are now being made to partner with the U.S. Agency for International Development to provide feasibility studies, project assistance, and legal document preparation to local developers.
Still, the situation in Central America remains complicated, largely because the energy market in Costa Rica is completely state owned, featuring little participation from the private sector, while the energy market in Guatemala and Panama is privatized.
English-speaking countries in the Caribbean region tend to have markets that are more state oriented. Even in areas where private institutions are present, prices in those regions typically do not reflect the actual cost of energy. This can make it quite challenging to complete projects, due to heavy government subsidies.
Yet another prominent issue in the region is theft. In some areas, the theft of produced electricity is rampant. For instance, approximately 35 percent of the electricity produced in the Dominican Republic is stolen. It is not uncommon for such theft to occur at the institutional level.
While the demand for energy in the region is certainly present, solutions for such challenges are vital to future progress. Although gas could represent a viable solution, it would need to be a long-term solution. Geothermal also has potential, but the research required is expensive.
One thing is certain; the need for a clean energy solution is very much in demand in the region and partners in the area are now actively looking for such a solution.