Central America: Energy Key Topic

Energy looms large in El Salvador and Costa Rica elections.

BY ALEXIS ARTHUR

In a busy election year in Latin America, the issue of energy figures prominently. The outcomes in countries across Central and South America will have far-reaching implications for both the national energy landscape and the region as a whole.

The year kicked off with presidential elections in El Salvador and Costa Rica on February 2. Both are headed for a second round at the polls on March 9 and April 6, respectively, and the results could have important implications for energy policy.

Facing off in El Salvador are Norman Quijano – former San Salvador mayor and candidate for the right wing ARENA party – and Salvador Cerén, former guerilla leader and candidate for the ruling FMLN party. Cerén has maintained a lead in the polls ahead of this Sunday's run-off.

El Salvador is in many ways reflective of Central America - its energy market is small, and dominated by imported petroleum products, which are high in emissions, expensive, and subject to the volatility of global oil prices.

Across Central America, oil imports have averaged $10 billion per year, and surpassed $13 in 2011, adding to the pressure on the region’s economies.

But El Salvador is making an effort to reduce its reliance on oil, at least in the electricity market. In 2013 a Salvadoran–Finnish consortium won a 355MW tender with its plan to build Central America’s first natural gas plant.

Where this project fits as part of a broader energy strategy will depend on who wins this month’s presidential run-off.

The two remaining candidates overlap in several important areas. Both have underscored the importance of promoting energy efficiency and a greater contribution of renewable sources to the country’s electric generation mix, including investment in unconventional renewables such as solar, wind, geothermal and biomass. Both candidates recognize the importance of lowering electricity prices for consumers in a country that pays some of the highest rates in Latin America. 

Where the candidates differ is equally important. Quijano has emphasized the importance of regional electricity interconnection through SIEPAC and developing a regulatory framework that allows El Salvador to participate in an integrated Central American energy market. 

Cerén has said little on the matter and instead focused on increasing El Salvador’s energy self-suffiency and called for non-invasive oil and gas exploration in the country.

But perhaps the most controversial split is along political lines. Cerén has made no secret of his desire to join Petrocaribe – the regional oil-for-loans scheme led by Venezuela. The Petrocaribe alliance – which allows member countries to negotiate long-term, cheap oil loans has come under scrutiny recently as Venezuela’s declining oil production combined with political and economic challenges at home have led analysts to question how long the scheme can be maintained. 

As Guatemala recently discovered when it attempted to join the body, Venezuela is driving a harder bargain than in the past. Unable to come to a suitable agreement – they were seeking an interest rate below 2 percent -- Guatemala pulled out.

It remains unclear whether a Cerén Administration would come to a similar conclusion.

COSTA RICA

Costa Rica, by contrast, has led the region in terms of renewable energy – with over 90 percent of its electricity generated from renewable sources, and over 70 percent from hydroelectricity.

That said, there is much work to be done outside the country’s electric sector. 65 percent of Costa Rica’s energy consumption comes from petroleum, primarily in the transport sector.

In an interesting twist, despite the country’s green image, there has been widespread support for boosting natural gas in Costa Rica’s energy matrix during the presidential election campaign.

On April 6 surprise contender Luis Guillermo Solís of the center-left Citizen Action Party is expected be elected after his rival Johnny Araya withdrew on March 5. Solís is an academic and former diplomat who has never been elected to office.

As noted, Solís sees the benefits of natural gas in supporting renewable energy deployment, and both agree on the need to lower energy prices in Costa Rica and boost overall efficiency.

But while Araya was in favor of restructuring the country’s electric sector, and its state power company – ICE – Solis is adamantly against the proposal.

Solis has also supported geothermal exploration in national parks, though under “strict conditions of environmental preservation.”

As the focus of the campaigns in El Salvador and Costa Rica underscore, nations of Central America face important challenges when it comes to energy.

The continued dependency on largely imported oil products, costly subsidies and balancing economic growth and sustainable development are major hurdles confronting all of the candidates.

But let’s hope that any changes in domestic energy policy will not be at the cost of continued progress on regional energy cooperation and particularly the advances of Central America’s regional electric market.

Alexis Arthur is energy policy associate at the Institute of the Americas, a think tank focused on Western Hemisphere affairs based in La Jolla, California. Alexis can be found tweeting from @IOA_Energy or via email: alexis@iamericas.org