The benefits of electricity integration: the case of Central America

The Central American electricity interconnection project is 25 years old and is doing so in a global context of sharp increases in electricity consumption prices and disruptions in distribution, aspects that precisely highlight the advantages of regional integration of national markets, as in the case of Central America. The System of Electrical Interconnections of Central American Countries (SIEPAC) recorded record exchanges in 2019; in 2020 the figure fell due to the pandemic, but the imbalances introduced by the pandemic demonstrated the convenience of connections with their neighbours for the countries with the greatest deficits.

In December 1996, six Central American countries (Guatemala, El Salvador, Honduras, Nicaragua, Costa Rica and Panama) signed the Treaty framework of the Central American Electricity Market, an idea that was based on previous binational connections and which in 1987, with the support of the Inter-American Development Bank development (IDB) and especially Spain, began to take serious steps towards its materialisation. The System of Electrical Interconnections of Central American Countries (SIEPAC) allowed the creation of a regional electricalnetwork of 1,800 kilometres, from Guatemala to Panama, which is owned by a consortium of national companies, with the participation of foreign investment; the first section came into operation in 2010 and the last one in 2014.

agreement The system has helped to significantly improve the figures for the region's electricity sector: in fifteen years, installed capacity has doubled (from 9,014 MW in 2005 to 18,507 MW in 2020) and annual generation has grown by 50% (from 34,374 GWh in 2005 to 51,521 GWh in 2020), according to a recent ECLACreport . In that time, the international purchases and sales of the signatory countries of the treaty have increased sixfold: from a total of 1,122 GWh in 2005 (half exports and half imports), by 2020 the transnational movement has increased to 7,130 GWh (exports of 3,095 GWh and imports of 4,034 GWh), mostly in the framework of SIEPAC exchanges.

In its evaluation of the functioning of SIEPAC after 20 years of the Treaty, the IDB highlighted that the economic benefits obtained by the signatory countries as a result of transactions in the regional market had been between June 2013 and December 2015, the period that included the full implementation of the network, of USD 305 million: a net benefit of USD 132 million after discounting the charges and credits associated with the energy flows transferred to cover or remunerate the transmission service and the costs of investment, maintenance and operation of the infrastructure. Previous simulations had indicated that SIEPAC would have a positive effect on regional GDP of around 0.3% compared to a scenario without integration. The IDB pointed out, however, that the benefit of project would only occur "as Degree integration increases, determined by the level of coordination of generation expansion planning and regional operation, with the greatest benefits occurring in the case of high demand growth".

Drought and pandemic

The benefits of regional market integration have been evident in several years, as in the case of the last two years, when electricity generation suffered some difficulties in the six SIEPAC countries as a whole. In 2019, production grew by only 2%, to 54,075 GWh, due to the substantial decrease in rainfall due to the effects of El Niño, accompanied by some drought situations, which conditioned hydroelectric capacity, which is the main source of generation source . In 2020, the pandemic disrupted production, paralysed the growth of installed capacity and reduced industrial and service consumption, although consumption in the residential sector increased. Production fell by 4.7% to 51,522 GWh, while consumption fell from 54,414 GWh in 2019 to 52,382 GWh in 2020.

This contraction in the growth of electricity magnitudes could be adapted to the energy needs of each country thanks to the regional interconnection, whose flow in 2019 increased by 16% and reached a record exchange of 6,162 GWh. In 2020, the exchange decreased by 7.7% compared to 2019, to 5,683 GWh, but this was higher than in previous years.

Exports from SIEPAC's agreement reached the highest figure in 2019, with 3,073 GWh, in a dynamic driven mainly by Guatemala, which accounted for more than half of this amount, and to a lesser extent by El Salvador, Costa Rica and Panama. Imports were also the highest that year, with 3,088 GWh, benefiting mainly El Salvador, Honduras and Nicaragua.

In 2020, total exports on SIEPAC's framework dropped to 2,820 GWh, due to a sharp reduction in international sales from Guatemala and, to a lesser extent, El Salvador, which were partly offset by increased sales from Panama and Costa Rica. As for imports, which amounted to 2,863 GWh, El Salvador continued to be the main operator, although it reduced its purchases.

In addition to these regional flows, it should be noted that Guatemala has had an electricity agreement exchange with Mexico since 2010. Until 2016, Guatemala was a net importer, and since then electricity has travelled in both directions. In 2020, Guatemala imported 1,000 GWh from Mexico and exported 100 GWh to Mexico. For its part, Mexico has a similar agreement with Belize, the only Central American country that for now is not part of SIEPEC (its late incorporation into the organisations of the Central American Integration System is still incomplete). The connection between Panama and Colombia is under construction.

Renewables

An important aspect of SIEPEC is the high component of renewable sources in shared electricity. Across the six countries that make up the system, renewable electricity generation accounted for 75% of the total in 2018; it dropped to 66% in 2019 due to the lower hydro component, due to lower rainfall, and reached 78% in 2020. In terms of specific sources, in 2020, 51.7% of the total electricity produced was hydroelectric generation, 8.6% geothermal, 7% wind, 6.2% biomass 6.2%, 4.7% solar and 21.6% conventional thermal. Costa Rica is the country with the highest development share of renewable sources, with 98.8% of its production coming from renewable sources.

Finally, it should be noted that the national networks of the Central American countries suffer significant transmission losses, close to 20% of the national average. The values are lower in the case of Costa Rica and El Salvador, and intermediate in the case of Guatemala and Panama; in Honduras and Nicaragua, on the other hand, this is a serious problem: losses reach 33% in the first of these two countries, and 22.7% in the second.