High electricity costs are a critical impediment to economic growth and competitiveness in Central America and the Caribbean, but efforts to expand energy integration and increase the use of new energy sources are advancing, according to a panel at the Inter-American Dialogue in Washington.
Central American and Caribbean countries on average pay very high electricity costs and rely heavily on diesel and fuel oil for power generation, which makes them vulnerable to fluctuations in international oil prices.
While in the United States, electricity costs are around 10 cents per kilowatt hour, Central American countries pay on average twice that amount and Caribbean countries pay three or four times that much, said Robin Dunnigan, Deputy Assistant Secretary for Energy Diplomacy at the US State Department. In Central America, the poorest countries – Nicaragua and Honduras – pay the highest costs, she added.
Central America and the Caribbean can reduce this oil dependence and cut costs by introducing alternative generation sources, such as renewable energy or natural gas. Last year, the Obama administration launched the Caribbean Energy Security Initiative, under which the US Overseas Private Investment Corporation dedicates resources to facilitate deals in the Caribbean that match US government financing with energy projects. And last month, in Jamaica, President Obama announced $20 million in financing for private investment in Caribbean clean energy projects.
However, there are still many barriers to accessing finance and attracting investment to expand energy infrastructure. Michael Cummings, Special Advisor on Climate and Renewables at OPIC, noted that the main barrier to investment is the lack of bankable projects. To address this issue, OPIC is partnering with USAID to provide developers in the region with project preparatory assistance, feasibility studies and legal document preparation, he said. High transmission costs, the small size of the markets and widespread electricity theft also impede investment, according to Ricaurte Vasquez, Chief Executive Officer of GE Central America and the Caribbean.
The Inter-American Development Bank (IDB) has also increased lending to energy projects in Central America and the Caribbean and has played a critical role in providing technical assistance to governments to further integrate their electricity grids. Last year, the IDB presented a pre-feasibility study that showed that a combination of natural gas, renewables and energy efficiency can reduce electricity costs in the region. Recent technological developments have made the transportation of smaller volumes of liquefied or compressed natural gas economically viable, the speakers noted.
Furthering energy integration to take advantage of economies of scale would also improve energy security and affordability. Central America’s regional electricity grid, known as SIEPAC, was completed last year. However, there are further opportunities to expand the transmission line to connect with Colombia to the south and Mexico to the north, noted Ramon Espinasa, Lead Oil and Gas Specialist at the IDB. Mexico is already selling electricity to Guatemala, but the transmission line is not connected to SIEPAC, he explained.
Overall, given recent progress in energy integration, technological developments and financial and technical assistance, the speakers were optimistic that Central America and the Caribbean could find solutions to reducing power costs and improving energy security.