Caribbean & Central America - August 2023

On 18 July, Manuel Eduardo Arita took over as Guatemala’s minister of energy & mining (MEM), replacing Alberto Pimentel, who resigned just weeks after the country was forced to declare an energy emergency due to a lack of rain.

Pimentel and economy minister Janio Rosales Alegría both resigned for “personal reasons,” said presidential spokesman Kevin López Oliva on 12 July, without providing further details. Pimentel had been in post since January 2020, but left the government after the MEM declared an emergency on 26 June. As a result of the state of emergency, electricity exports will be limited and domestic supply will be prioritised.

This follows reports by the national institute of seismology, volcanology, meteorology, and hydrology (Insivumeh) that shortages of rain could continue in departments including Huehuetenango, Quiché, Alta Verapaz, and Izabal. Insivumeh forecasts cited by local media expect rainfall to be 10%-20% lower than normal due to the El Niño weather phenomenon. This is directly affecting electricity generation at hydroelectric plants due to lower water levels in reservoirs. Similar issues are also affecting Honduras, which has seen rolling blackouts blamed on insufficient energy generation at hydroelectric dams.

In Guatemala, demand for electricity has increased due to population growth, industrial development, and the increased availability of electric devices. The combination of reduced generating capacity and more demand has led to higher prices, with knock on effects on households and businesses that rely on electricity to operate. New generating capacity must be added to the system in order to deal with the situation, which has exposed the vulnerability of Guatemala’s energy matrix, said the Corporación de Electricidad Centroamericana (CEC), an electricity trader headquartered in Guatemala City, in an article published 20 June. The CEC recommends diversifying the country’s sources of electricity in order to better face future challenges.

The MEM recognized a number of challenges in its national energy efficiency policy 2023-2050, published by the ministry on 23 June. It predicts that if climate change increases average temperatures by 0.5-2 degrees Celsius by 2050, Guatemala will lose its rainforests and gain more dry forests. This will place more pressure on water resources, it says, including for the generation of electricity. Other issues acknowledged by the plan include inefficient use of resources due to significant losses from the electricity distribution system, as well as poor energy efficiency. 

As outlined above, the drought has exposed weaknesses in Guatemala’s electricity system, which has had something of a rocky history. In the 1990s the country experienced a serious energy crisis which disrupted the economy due to scheduled power cuts. The publishing of the electricity law (Ley General de Electricidad) in March 1997 allowed private companies to enter the energy market, and capacity increased from 1,209MW in 2003 to 3,284MW in 2023, according to Electronova, a Guatemala-based energy consultancy. Investment in transmission lines lagged behind, but the 2009 Plan de Expansion del Transporte, which set out plans to strengthen the transmission network, brought more lines and substations. Then came the interconnection with Mexico in 2010 and another connection with Honduras and El Salvador came online in 2014 as part of the regional electricity market (MER) set out in a 1996 framework treaty.

The problem is that the Central American electrical interconnection system (Siepac), a US$500m transmission line that runs from Guatemala to Panama, frequently suffers faults. Transmission systems in the region aren’t strong enough to deal with faults in the line, which as a result cause overloads and the collapse of local systems. This means there is a kind of domino effect in which a fault knocks out one part of the line, flooding other areas with huge amounts of electricity that the local systems cannot handle all at once. These blackouts are hugely disruptive and have led to criticisms of the MER and its continued viability. In July 2021 Guatemalan officials announced that they would leave the MER due to these continued issues, but there is a notification period of 10 years. 

The issues have continued since Guatemalan’s announcement. For example, on 8 June this year, a fault in Nicaragua knocked out power in Costa Rica and Panama, and in February a fault at a substation in northern Guatemala took out supplies to 30% of the country for over an hour. This goes to show that while the existence of the MER arguably makes it harder for Guatemala to secure its own electricity network, the country has plenty of work to do at home too.

To that end, the Comisión Nacional de Energía Eléctrica (CNEE), the state power regulator, announced a public tender process for 235MW of new generating capacity in September 2022. By 22 July, the CNEE announced that around 50 companies had submitted proposals for a total 1,500MW in capacity which were under evaluation. According to CNEE president Luis Ortiz, hydroelectric and solar projects feature heavily in the offerings. This could be cause for concern given the recent drought, but Ortiz told national daily Prensa Libre in an article published on 22 July that the priority is to ensure that demand can be met rather than focusing on diversifying the energy matrix. 

While strong interest in boosting generating capacity is positive, there also needs to be significant investment in transmission. According to Electronova, there needs to be regulatory reform in order to raise standards in electricity distribution, as the current rules (Normas Técnicas del Servicio de Distribución – NTSD) were designed to encourage rapid electrification around the country rather than guaranteeing quality service. Now that more than 90% of the country has an electricity connection, according to MEM figures, priorities can shift. Updating these regulations will be key to bringing Guatemala’s electricity system up to date, according to Electronova, as will installing more solar or wind farms instead of hydroelectric dams. Ernesto Solares, president of the Asociación de Comercializadores de Energía Eléctrica (ASCEE), a grouping of energy trading companies, also recommends regulatory changes to ensure a dynamic energy market that allows for the use of new technologies. This will not solve the issues caused by faults elsewhere in the regional system, but it will mean that the country is better prepared for its eventual exit in 2031.

Regulatory changes

One such change would include rules governing small-scale renewables projects, as well as the sale of excess energy generated from such projects to the national grid, said Solares.

Arita

Minister Arita will not have long to start on this extensive to-do list as he is expected to leave his post when a new president is sworn in on 14 January 2024 following recent elections. However the country is currently embroiled in a protracted political crisis as the judiciary debates whether or not to disqualify the anti-corruption Semilla party from the 20 August second-round presidential run-off. This means that the situation could deteriorate significantly as social unrest is likely if the democratic process is not respected.