Panama moves to boost power generation

Efforts to meet rising demand for power in Panama took a key step forward in January, with news that state-owned Empresa de Transmisión Eléctrica (ETESA) would be seeking bids to supply 700 MW of thermal energy.

The tenders form part of a broader move to diversify the energy mix and boost capacity in one of Latin America’s fastest-growing economies with ambitious investment plans – from both public and private sources – being rolled out across the utility spectrum. Panama plans to make available two separate contracts, each for the supply of 350 MW of thermal energy. Contractors will be given 90 days to prepare bids for the first project – a 10-year contract commencing July 2017 – while a deadline of 180 days has been set for a second, 15-year contract, scheduled for launch in January 2019.

ETESA’s general manager, Iván Barría, said that with interest among industry players high, he was confident competition around pricing for the projects would be aggressive. Barría also explained Panama’s shift in focus towards thermal energy, saying: “...we have hard energy needs, having contracted significant renewable energy in the past: now we need to complement that.”

Boosting capacity

In a separate development, the World Bank’s financing arm, the IFC, announced in January that a $300m financing package for constructing the second and third phases of the Penonome wind farm project had been finalised. Once completed, the project will offer 215 MW of installed capacity, making it the largest grid-connected wind farm in Central America. The wind farm, which will house 86 turbines, is expected to generate around 448 GWh of energy annually, equivalent to about 5% of total electricity demand.

Panama is also looking to boost the role of hydroelectric power in meeting rising demand for electricity. Its $1bn Chan II hydroelectric project, earmarked for the western province of Bocas del Toro, will add around 214 MW of capacity once operational, which is expected to provide up to 9% of total demand.

The country is currently struggling to keep up with soaring demand for power. Electricity consumption is expected to grow at around 8% annually, according to government forecasts, with the cost of putting in place the additional power-generating capacity required to meet demand over the next decade estimated at around $3bn. More than a third of the country’s electricity comes from burning fossil fuels, which, until the recent slump in oil prices, have been costly, and bring environmental risks.

Harnessing the elements

While Panama’s hydroelectric plants, which account for around half of total supply, provide cleaner, renewable energy, they remain vulnerable to the effects of the dry season.

The risks of the large share of water in the energy mix were highlighted at the start of 2013 when, due to a prolonged summer, reservoir water had fallen to such low levels that generation capacity was being compromised at the same time that peak demand reached a record 1445 MW. As a result, the government implemented emergency measures to reduce national energy consumption, particularly in the month of May when the water levels reached one of their lowest points in history.

However, the dry season is also traditionally marked by stronger winds, which Panama is keen to harness through its Penonome project, as a means of offsetting the drop in hydro capacity. The Penonome wind farm initiative is operated by a subsidiary of regional player InterEnergy Holdings, while construction of the Chan II dam was awarded to Brazilian civil engineering company Odebrecht. Work is expected to begin in December and Panama hopes to start generating electricity at the site in 2019.

Addressing the challenges

However, there are concerns that the project could run into opposition from local communities. The site lies to the west of lands occupied by the Ngobe Bugle indigenous community, which has protested against mining and hydro projects there. Protests have also been held over the Barro Blanco hydro project to the south in Chiriquí province.

Panama additionally faces challenges at the opposite end of the power chain. Distribution companies Ensa and Gas Natural Fenosa have both highlighted the problem of electricity theft, with combined costs to the two players over the past five years estimated at the equivalent of $125m. Ensa put its losses from theft at $80m, while Gas Natural Fenosa’s manager, Vivian Pineda, said the firm believed the number of households in Panama stealing electricity stood at around 40,000, costing the provider some $45m.

Broadening the energy mix will certainly strengthen Panama’s efforts to keep pace with rising demand for power and support economic growth. However, rumblings of discontent among local communities, alongside concerns about electricity theft, highlight the importance of carefully managing the sector’s development.

 

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