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Power sharing

An integrated energy system that could bring the people of the Central American Isthmus a cheaper and more reliable supply of electricity could be up and running by 2005, according to the latest estimates.

Although the focus so far has been on the construction of physical infrastructure, such as power lines and substations, this could turn out to be the easy part, say experts. The most difficult challenge is harmonizing the regulatory and legal systems of six different countries, an unprecedented task but a necessary precondition for a united market.

But the prize will make the effort well worthwhile, according to Gonzalo Arroyo, a senior energy specialist at the IDB, because successfully integrating an energy market serving a population of 34 million will mean cheaper electricity for consumers. "What we are seeking is a greater number of transactions by market agents that will put a downward pressure on prices. The more transactions there are by agents of the different countries, the greater the savings and the greater the benefits," he says. "A larger market will reduce the ‘market power’ of single entities that now dominate smaller markets."

In addition, a larger market, served by larger generating plants, will produce economies of scale that will also allow for cost reductions and lower rates for consumers. Those economies could also make it feasible to finance more ambitious regional energy projects. "In the future, we will have the possibility of introducing natural gas into the region, from Mexico and Colombia by pipeline," says Arroyo.

Although the initial phase of an integrated system could be in operation by 2005, Arroyo cautions that complete electrical integration of the Central American Isthmus could take a decade.

Framework treaty. The first concrete step toward integration was taken in 1996, when the governments of Costa Rica, El Salvador, Guatemala, Honduras, Nicaragua and Panama, signed a framework treaty that established the conceptual and theoretical basis for the regional electricity market. Over the following two years, the treaty was ratified by parliaments in each of the participating countries.

The company Empresa Propietaria de la Línea (EPL) was recently established to operate a proposed 1,802-km, 230 kV transmission line and several substations that will link the electricity systems of the six countries. The EPL was originally conceived as a company in which the six participating countries would hold stock. But now some of the shareholding nations are considering making their contributions through private investors rather than state funds.

In another crucial step, the initial structures of two regional agencies, the regulatory Regional Commission for Electrical Interconnection and the Regional Operating Entity, have been set up to oversee the ground rules for the new system.

In 1997 the IDB approved two loans totaling $180.5 million as well as a $5 million grant to support the system. The Spanish government has pledged $70 million to support the project, and the Spanish energy company Endesa plans to participate in EPL. A permanent executing unit with a professional staff has been established in Costa Rica to carry out the integration program.

It will take an estimated two years for governments to approve the adoption of detailed regulations for the new system and for the two regional entities to be fully operational. After that, it will take two more years to build the 1,802-km transmission line and the supporting substations.

Central American is not the only region attempting to gain savings and efficiency by integrating energy across national lines. Similar efforts are underway in the European Union, the Nordic countries, the Baltic States and among the nations of southern Africa, as well as in several regions within the United States.

Central America’s electricity integration project is among the world’s most difficult because of institutional weaknesses, historical differences in the regulatory structures and energy systems of the different countries, and the lack of a strong overall integration platform. "It is a very ambitious initiative," says Arroyo. "We don’t have an example of Central America’s case in another region of the world."

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