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The Way Forward for Renewable Energy in Central America

Status Assessment | Best Practices | Gap Analysis

By Alexander Ochs | Worldwatch Institute | June 26, 2013

FROM THE EXECUTIVE SUMMARY

Central America is at a crossroads. As the economies of Belize, Costa Rica, El Salvador, Guatemala, Honduras, Nicaragua, and Panama expand, regional use of fossil fuels for transportation and electricity generation is on the rise, while the use of fuelwood, primarily for cooking, continues to be unsustainably high. These developments come at the price of rising greenhouse gas emissions, worsening air and water pollution, and significant health and societal costs.

Central American countries have committed to sustainable energy development to varying degrees; Costa Rica, for example, is leading the world in its ambition to be "carbon neutral" by 2021, with energy as an important element. The region, long a frontrunner in hydropower and geothermal energy, is exploring its potential for expanding these technologies in a more sustainable manner while also developing other renewable energy resources such as wind, solar, biofuels, and agricultural waste.

Key Gaps in Building a Sustainable Energy Future

Despite their sustainable energy ambitions and policy statements, the seven countries of Central America have been unable to comprehensively design, synchronize, and implement the program of work necessary to promote these solutions to their full potential. Governments, energy planners, international cooperation agencies, utilities, and others have undertaken important assessments of the region's technical potential for renewable energy deployment, with positive results, but many of these studies lack the necessary detail regarding specific technologies and geographic areas. Some assessments are outdated, and many are either publicly unavailable, fail to reflect likely future meteorological changes, or, most importantly, are not integrated with the broader energy system and with current and future energy demands.

Socioeconomic assessments of different energy pathways in Central America face similar challenges. Although considerable data are available and important work has been done in evaluating alternative scenarios, the full costs and benefits to society of specific energy development options remain unclear. What is evident, however, is that the region pays an enormous socioeconomic price for its reliance on fuelwood and imported fossil fuels. By integrating into the costs of various energy technologies some key externalities such as health and pollution costs, as well as lost economic opportunities such as job creation, the competitiveness of clean energy solutions becomes much clearer.

Despite the existing information gaps, most Central American countries have been able to greatly improve their investment climate for sustainable energy. Still, powerful financial barriers remain, ranging from the unavailability of capital and the lack of human expertise, to investment insecurity and costly administrative processes. On the policy side, while many countries have set ambitious goals for sustainable energy development, these visions often lack details, obligations, and concrete measures for implementation. Where concrete policies and measures do exist, they often do not work properly, are not fully implemented, and/or compete with counterproductive instruments that encourage conventional, dirty energy practices.

Significant Renewable Energy Potential

Central America has seen promising new investments in renewable energy—both in large-scale and grid- tied technologies such as geothermal, biomass, wind, and solar energy, as well as in household-scale and off-grid technologies. But most countries in the region also have plans for increasing oil imports, and some are exploring greater use of coal and natural gas in their energy mix.

Central America has the potential to meet 100 percent of its electricity needs with renewable energy, provided that the proper policies, incentives, and political support are in place. The region's estimated geothermal power potential is more than 20 times the current installed capacity, and geothermal alone could satisfy nearly twice the region's predicted electricity demand through 2020. Existing regional wind power installations currently use less than 1 percent of the available resource potential, even in conservative estimates, and most Central American countries boast 2–3 times the annual solar radiation of world solar energy leaders such as Germany and Italy. There is also considerable regional potential for small hydropower, waste-to-energy, and bioenergy.

Although some existing research has assessed the role of individual renewable energy sources in the region's electricity sector, detailed resource data are not publicly available in most countries. In addition, there has been limited exploration and communication to address important information needs, including how renewable energy sources, energy efficiency, and smart grid solutions can be best integrated in comprehensive energy planning; how to best use renewable energy sources to provide access to energy in geographic areas far from the grid; what alternatives to the current practice of unsustainable household fuelwood use exist; and how to limit and/or substitute for rapidly growing petroleum use in the transportation sector.

Renewable Energy Targets, Policies, and Governance Structures

Although Central America has come a long way in its support of renewables and is committed to facilitating a further transition to these technologies, existing policies and governance structures are not sufficient to bring the region to its full sustainable energy potential.

To successfully develop their renewable energy resources, countries need policies and measures that are "loud, long, and legal," including effective targets, concrete policies, and well-functioning governance and administrative processes. All Central American countries have targets related to renewables, to varying degrees. Some, particularly Costa Rica and Nicaragua, rank high in their ambition to transition to renewable energy sources. However, many targets in the region lack clarity and are voluntary rather than mandatory.

Most countries in the region have concrete policy mechanisms in place for advancing renewables. Tax incentives are the most ubiquitous, but the region also has positive experience with tendering for renewable energy projects, with these two measures now being used in seven countries (data for Belize are not available). Newer mechanisms such as net metering, feed-in tariffs, and renewable energy production laws are just getting off the ground in Costa Rica, Guatemala, and Panama. Mandates for biofuel blending also exist in three of the seven Central American countries.

These policies and measures, however, are not always sufficient to level the playing field with fossil fuels, which are subsidized (directly and/or indirectly) in all Central American countries. Many policies are not cost efficient, and they are not robust enough to move the region to its full renewable energy potential. Additional mechanisms are necessary in countries like Belize, El Salvador, and Honduras, where newer renewable technologies such as wind and solar have yet to take off. These and other countries can draw from both regional and international experience, as well as from the large toolbox of existing mechanisms worldwide. Policies and measures should be evaluated at the country level, with countries adopting only those tools that work best within the given technical, regulatory, normative, and financial environment.

Governance and administrative efficiency can be improved throughout the region. In most countries, government offices dedicated specifically to new renewable energy technologies have emerged only in the last five years. Many of these institutions have had a steep learning curve and still lack the necessary resources to perform more effectively. The excessive bureaucratic steps that private developers must take to advance renewable energy projects, as well as the lack of transparency, reliability, and accountability of the process, are major barriers that strain scarce financial and time resources. Establishing a "one- window stop" for renewable energy permitting would help enormously, creating a forum where key private stakeholders can communicate their resources and needs with governments, and vice versa.

External Link: The Way Forward for Renewable Energy in Central America

Read More: Business, Development, Energy, Environment, Innovation, Science, Sustainability, Technology, Belize, Costa Rica, El Salvador, Guatemala, Honduras, Nicaragua, Panama, Americas

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