Panama’s portfolio policies and technology-specific auctions are promoting diversification of the country’s energy matrix through contracts awarded to wind and solar plants. The country specifies premium prices for energy generated from renewable sources, while supporting small-scale projects through a range of tax incentives.
Panama experienced a prolonged drought in 2014, which restrained its typically plentiful hydro generation and required it to depend on thermoelectric sources and electricity imports to meet its power needs. In 2015, Panama generated 53.5% of its total 9.5TWh from large hydro plants, with small hydro accounting for another 12.3%. Thermoelectric plants fuelled by oil, diesel and natural gas accounted for 32.3%, and 1.9% came from wind and solar. Last year’s return to hydroelectric abundance allowed Panama to export power to the Central American Regional Market. Still, the 2014 drought was not forgotten as the government announced it intends to develop non-hydro renewable sources to diversify the country’s energy matrix.
State-owned Empresa de Transmissión Eléctrica (ETESA) is Panama’s sole transmission company and electricity buyer. The 1997 electricity regulations mandate a 5% premium on the price paid for electricity generated from renewable sources, which includes biomass, geothermal, small hydro (up to 3MW), solar and wind.
Following the example of other Latin American countries, Panama has adopted auctions to contract renewable capacity. Utility regulator Autoridad Nacional de los Servicios Publicos sets tender guidelines and ETESA conducts the auction. Panama held its first wind auction in 2011, awarding contracts for 158MW of projects. As of March 2015, none of these had come online. A second wind auction, held in 2013, awarded a total capacity of 125MW, which is scheduled to come online by 2019. The wind sector receives exclusive incentives, such as accelerated depreciation for relevant equipment and a 15-year tax exemption for Panama-based companies manufacturing wind equipment. Panama held its first solar auction in 2014, awarding five projects with a total estimated output of 90GWh per year. The projects were expected to be commissioned by 2017. However, as of April 2016, ETESA had only signed power purchase agreements with two out of five companies and none of the projects had started construction.
For small projects of up to 0.5MW, the Panama government offers value added and import tax exemptions. Another benefit for smaller renewable energy projects is exemption from transmission and distribution taxes for projects up to 10MW in size. Projects of 10MW to 20MW receive exemption on their first 10MW capacity.
The country established in 2011 an ethanol blending mandate in conventional gasoline of 10% by 2016. However, the mandatory ethanol blending mandate was suspended in August 2014 due to lack of ethanol supply in the market. Despite the blending mandate suspension, the government still offers a tax credit of $0.60 per gallon to fuel blenders purchasing biofuels.
In June 2012, net metering was adopted by the country. Under the regulation, retail electricity consumers who have renewable energy installations up to 500kW will be able to connect to the national grid, deliver surplus generation and get paid for the excess electricity provided. In April 2016, the government of Panama submitted its Nationally Determined Contributions NDC to the United Nations. The NDC establishes a renewable energy generation target of 15% for 2030 and 30% for 2050.
Panama scored 1.62 in Climatescope 2016, an increase of 0.31 on its tally in the 2015 survey. The country climbed six places to rank 15th overall, and its highest position by far was on Enabling Framework Parameter I.
It placed 3rd globally on Parameter I (behind Uruguay and Rwanda) on a score of 2.32, up from 1.48 the previous year. This was largely a reflection of the country’s 546MW of renewable energy installed capacity, mainly small hydro and wind.
Panama fell eleven places to 17th on Clean Energy Investment and Climate Financing Parameter II. Its score was supported by a high level of investment ($1.4bn) between 2011 and 2015, and a quite low (7.46%) average cost of debt in 2015.
On Low-Carbon Business & Clean Energy Value Chains Parameter III, the country scored 1.27 and was placed 39th.
On Greenhouse Gas Management Activities Parameter IV, Panama placed 39th. It has not adopted any carbon policies, but is engaged in a small number of carbon offsetting projects.
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