A NEW MIX

Panama 2018 | ENERGY | REVIEW

With a new national energy plan recently put into action, Panama is set to see its energy sector transform.

For several years Panama has been one of the fastest-growing economies in not only the region but around the world, with GDP growth as high as 11% in recent years. Such rapid growth can only mean one thing: a growth in demand for nearly everything, especially energy. The country is expected to maintain annual growth of around 5.5% for the coming years, and the demand for energy is not far behind, projected to grow at 4.5-5% per annum.

The government is working to meet the country's growing energy needs by building a dependable and affordable energy matrix that is well diversified. In keeping up with the country's demand, the amount the government spends on energy subsidies has increased in tandem, to the tune of USD400 million in 2014, according to a report by the Institute of the Americas. The government has benefitted from the current low price of oil, which has allowed it to progressively decrease support for some of Panama's largest consumers. This has in turn saved the government over USD130 million in just the last half of 2015.

In March 2016, the government approved the country's first long-term energy plan after a long and tedious planning stage that saw the involvement of the public sector, private sector, civil society, and indigenous communities. The National Energy Plan provides general and conceptual guidelines for the future of energy in a market environment and will also act as a basis for energy policy, which will see universal access to energy, a significant reduction of carbon-based energy sources from the national energy matrix, increased energy efficiency and smarter consumption, and energy security.

According to the plan, the country should see no less than 70% of its energy matrix derived from renewable sources by 2050, with a special emphasis on wind and solar energy. The plan also stipulates the government should develop an equitable land management program in terms of the placement of generation plants, rigorously promote renewable energy, ensure transparency and fair competition in the energy sector and fair prices for the end user, strengthen energy institutions, and build a civic culture strongly aware of the importance of smarter energy consumption.

Though the plan is ambitious and comprehensive, the country still has some significant challenges to overcome, and at the center is Panamanians having a better understanding of energy sources and their role in efficiency. Many aspects of the National Energy Plan will take several years to come to fruition.

Panama has an energy matrix much like those of its neighbors in Central America. Hydropower represents a significant portion of the mix, the remainder of which is provided by carbon-based energy sources. The days of hydropower's dominance may be numbered. However, not only have social movements made large-scale hydropower projects more difficult to complete, climate change threatens the required resource, water. Despite this, the government is determined to further reduce its dependence on oil, as not only does it contribute to climate change but it keeps the country attached to the unpredictable oil market.

The country has traditionally been reluctant to set specific energy targets, stating instead that consumers will be best served when the market is allowed to balance the energy matrix. However, the government is still steadfast in its efforts to promote unconventional renewable sources in addition to natural gas. A significant aspect of the National Energy Plan is efficiency, which can be hard to achieve and sustain with a highly diversified energy matrix. Energy efficiency is important at both the household and industrial levels. The government could benefit from introducing an energy efficiency market, like those in the US and Europe, that would include an efficiency certification, which would align the country with global standards.

Panama's renewable energy sector is strong, but it is looking to further diversify it, especially with non-conventional renewable products. According to the Institute of the Americas, the country's current renewable energy mix consists of 36% thermal, 56% hydro, 8% wind, and solar registering less than 1%. Among the lesser utilized resources like solar and wind, the numbers are expected to rise considerably; the government recently issued wind licenses totaling to more than 800MW, and the country's very first solar auction saw more than 125MW awarded in solar contracts.

The country has the most potential for solar energy in its interior, and more with household use than with large industrial solar farms. Some challenges still remain in terms of solar, particularly in terms of energy storage and batteries. A solar PV system for a household would not be able to power an AC unit to the level it is commonly used in Panama, a tropical country. Many of the country's current challenges will be overcome as the sector develops both inside and outside the country. Estimates suggest Panama can add an additional 500MW of renewable energy following current laws.

There are many opportunities for Panama to develop its own renewable energy technology. Panama has a unique geography and climate, and thus has options for developing energy sources not common elsewhere in the world. These include primarily capturing the power from river currents and the ocean. Though products like these are far from commercial sale, the country has the opportunity to be a forerunner in the field.

The use of natural gas will also be on the rise, as the country recently held an auction for 350MW that attracted 27 companies. The winner, Gas Natural Atlántico, a subsidiary of the American AES Corporation, is expected to spend just under USD1 billion on the project, which will see LNG imported from a terminal in the US to not only Panama, but also the Dominican Republic. Gas Natural Atlántico has a major presence in Panama. In recent years, it has supplied as much as 21% of the country's gross power generation. With the new project, the government will also have to consider building relevant transport infrastructure for LNG, potentially a major attraction for investors, in order for Panama to reap all the benefits LNG offers.

With all the changes the country is anticipating, coupled with its fantastic growth projections, Panama is emerging as one of the top markets for the energy industry. Recent projections made by the General Secretariat of Energy suggest that, over the next 35 years, some USD35 billion in investment will be required in new energy projects to meet the expected 5% per annum increase in demand. The secretariat also projected an additional USD3 billion would be needed over the same period of time to replace transmission lines that are either now obsolete or will become so in the near future.

The National Energy Secretariat has calculated the increasing energy demand to equate to an additional 100MW per year. This growth in demand will require investments in distribution and generation systems of around USD400 million per year. The investments the country is anticipating in the coming years are representative of just how much Panama has transformed in recent years. Over the past 18 years, the private sector has invested between just USD4 and 5 billion in distribution and generation systems, significantly lower than the USD35 billion projected for the next 35 years.