A robust and interconnected energy system, supported by 1,800 km of transmission lines and strengthened by institutional development
For nearly five decades, the Inter-American Development Bank (IDB) has played a crucial role fostering electricity integration in Central America by supporting the development of the Regional Electricity Market (Mercado Eléctrico Regional – MER) and the System of Electricity Interconnection of the Countries of Central America (Sistema de Interconexión Eléctrica de los Países de América Central – SIEPAC).
This is not just a temporary commitment; it represents a sustained effort to build a more robust, resilient, and interconnected energy system that enables the region to optimize its resources and improve energy security for millions of people.
The IDB’s commitment to SIEPAC has been solid from the start. The Bank was the main financing source for the construction of electrical transmission infrastructure, supporting 12 projects worth a total of US$253.5 million, which represented nearly 53% of the total investment to create the market and the interconnection.
Thanks to this effort, 1,800 kilometers of transmission lines were built connecting the Central American countries, transforming weak national interconnections into a robust regional system with an initial capacity of 300MW, which has been consolidated over time.
In addition, with the creation of the Network Ownership Company (Empresa Propietaria de la Red –EPR), SIEPAC could count with a mechanism to ensure its long-term sustainability, supporting not only the operation and maintenance of the infrastructure but also its financing.
Institutional Development
The advances made by SIEPAC go hand-in-hand with the institutional development necessary to ensure the efficient and regulated operation of the system, another important element of the IDB’s work.
Toward this end, the following entities were established: the Regional Electricity Interconnection Commission (Comisión Regional de Interconexión Eléctrica – CRIE), which acts as the regulator; the Regional Operational Entity (Ente Operador Regional – EOR), which is in charge of system operations and the market; and the Steering Committee of the Regional Electricity Market (Consejo Director Mercado Eléctrico Regional – CDMER), which supervises the application of policy guidelines.
The success of this model is reflected in the growth of regional energy transactions, which increased from 700 GWh in 2013 to 3,100 GWh in 2022, with more than 300 participating agents. This demonstrates the potential of the market to provide energy security and more competitive costs.
A “Vision 2050” for Regional Integration
The IDB continues its commitment to the development of the MER, looking not only to consolidate its advances but also to project an ambitious future. Recently, we supported the development of an internal study called “Vision 2050” for the MER, a comprehensive effort that envisions a transformation of the region in terms of generation, integration, and sustainability.
According to this study, the installed capacity of photovoltaic installed energy will multiply, surpassing 2.3 GW in 2024 and increasing to almost 20 GW by 2050. This will demand investments of more than $22 billion, representing nearly 40%of total projected costs for generation. Together with solar energy, wind energy is set to become one of the main sources of electricity, with the two sources together covering approximately 45%of annual energy demand in 2050.
Greater Integration and Expansion of Renewable Energy Sources Helps to Reduce Costs
The greater integration scenario shows a 10%reduction in total costs compared to the business-as-usual scenario. With renewables, total costs are 16% less than the business-as-usual scenario. Similarly, the generation emissions factor in the region goes from 300 tons of CO2/GWh under the business-as-usual scenario to less than 100 tons of CO2/GWh under the scenario of greater integration with renewables. In other words, with greater integration, the region would be able to achieve a cleaner and lower-cost energy matrix.
However, this change in the energy matrix will require significant investments both in transmission lines as well as in technologies that support the flexibility of the system, such as hydroelectric, thermal plants, natural gas, and battery energy storage. It is estimated that these will require disbursements of nearly $20 billion to ensure the operational stability and security of the system. Also planned is the expansion of SIEPAC interconnections with Mexico, as well as new interconnections between Panama and Colombia, and between Belize and Guatemala, with a projected investment of $1.5 billion.
Challenges Ahead: Towards More Robust Energy Integration
Despite the progress achieved, challenges remain for total energy integration. Among the key challenges highlighted is maintenance of the capacity for exchange and the reliability of the Regional Transmission Network (Red de Transmisión Regional – RTR). This requires sustained investments both at the national and regional levels. An integrated and reliable transmission network will benefit all of the countries by enabling lower costs and greater diversification of energy resources.
Modernization of the regional regulation and national regulations is another important challenge. As the system grows and diversifies, it becomes essential to update the regulations to ensure the reliability of supply and the efficiency of the market. Therefore, encouraging long-term transactions and developing regional bids that take advantage of economies of scale will contribute to maximizing the economic benefits of the MER.
In the medium term, it is crucial to advance towards regulatory convergence and joint regional planning. The analysis shows that the greatest economic benefits are achieved when the region works as a united bloc, planning and developing projects in a coordinated manner. Therefore, the governance of the MER should be strengthened, incorporating the voices of all the actors and refining decision-making mechanisms.
Finally, integration with other markets presents a unique opportunity to consolidate a regional electricity market that connects all of Latin America. Interconnections with Mexico, Belize, and Colombia could bring significant economic and social benefits, although not without technical, regulatory, and policy challenges.
At the IDB, we are convinced that energy integration is one of the key elements for a more secure, sustainable, and prosperous future for the entire region, and especially for Central America, which has become an example of collaboration and progress towards more robust energy integration.
Topics: Energy
The Central America Electric Interconnection Project is building the infrastructure and market coordination needed to enable reliable energy exchange, strengthening regional ties, and powering sustainable growth across Central America.
Learn how the Central American electrical integration process has developed since its inception, along with its achievements, benefits, and perspectives for future development.