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Diversification of Panama’s energy generation matrix

James Sattin
The legal framework for the Panamanian Energy Sector (Law 6 of 1997) divides the Republic of Panama into three distribution territories. For each territory an exclusive concession is granted to one distribution company. Due to this exclusivity, regulations require these companies to purchase most of the power and energy they need to satisfy customer demand through reverse public auctions (energy bids), initially carried out by the distribution companies and most recently by the grid operator (Etesa).

From their inception in 1997 until 2011, industry regulations prohibited generation technology discrimination in the energy bids, and hence, such bids were open to all prospective generators. As a result, it was difficult for the National Public Services Authority to direct the development of the energy matrix. Furthermore, this limitation inhibited the entry of certain, largely unsubsidized, renewable generation technology sources, as they could not compete with traditional fossil and hydroelectric generators under the standard bid parameters.

Renewable energy sources are granted one advantage in that the price offered by them in a traditional energy bid is discounted by 5% for evaluation purposes, thus making them more competitive. Law 43 of 2012 expanded this benefit to natural gas energy generation as a clean energy source, and additional incentives for solar power are being considered by the legislature.

In 2011 Panama began to diversify the matrix further by enacting Law 44, which provided for energy bids solely for wind generation technology. In November 2012, Etesa carried out a wind exclusive energy bid, resulting in the award of 165MW, with a target commercial operation date of July 1 2013.

Thereafter, in 2012 Panama enacted Law 43, which enabled Etesa, with the acquiescence of the National Energy Secretary, to carry out energy bids based on so-called special tender documents which, among other things, may require offers based on one specific generation technology. On that basis, Etesa recently carried out one energy bid based on coal generation and another on natural gas. These bids resulted in the award of offers for 150MW produced by coal and up to 550MW by natural gas, with target commercial operation dates of January 1 and March 1 2017, respectively. Coal generation technology is already present in Panama through the recent conversion of an existing power plant. The new coal project will be the first green field project using such technology.

Since energy demand forecasts predict significant growth, it is foreseeable that the Panamanian energy matrix will continue to diversify into other generation sources while at the same time promoting the expansion of wind, coal and natural gas generation, thus creating investment opportunities.

James Sattin

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