22 October 2014


Panama's PV Tender: Investing in the most competitive economy in Latin America

The World Economic Forum’s Global Competitiveness Report recently rated Panama as the most competitive country in Central America and the second in the whole of Latin America, just after Chile.  With its booming economy and strategic location in one of the regions enjoying the highest irradiation rates worldwide, Panama’s Government is determined to integrate solar energy into its energy mix, with the aim of eluding the energy crisis presently looming over the country.

To date, 500 MW PV licenses have already been authorized – although, according to GTM Research Solar Analyst Adam James,  “Very few of these projects are moving forward and the reason is that they are having a hard time finding offtakers (commercial clients) who are willing to sign long-term PPA agreements.”

“ This auction is a good opportunity to have some real demand and to lock in some offtakers”
Adam James - GTM

In this case, the regulator is acting as the mediator between project developers and commercial entities, facilitating the possibility of signing 20-year PPA contracts and assuring the purchase of their electricity output by the  local energy providers Chiriquí, Metro Oeste and Elektra Norte. In this sense,  “This auction is a good opportunity to have some real demand and to lock in some offtakers,”   asserts James, who is author of the  Latin America PV Playbook   and will be a speaker at the  El Futuro Solar Centroamérica   conference organized by Solarplaza that will take place from November 13-14 in Panama City.

“Not to mention the fact that Panama’s spot market price is expected to remain above 200US$ per MWh for the coming years, so companies don’t even need a PPA to earn back their investments in less than five years,”   points out Tom van Dorp, Project Manager of Solarplaza’s Solar PV Trade Mission Central America.

Together with the new auction date, a further modification was introduced: the price cap has now been established at $0.14/kWh, a drop from the originally announced $0.19/kWh.  “This price cap seems reasonable yet I'd anticipated that final prices would be between $0.10/kWh and $0.13/kWh,”   says GTM Research’s analyst.  “The final bidding prices depend on the size of the project, so the lower prices will encourage larger projects to capture more favorable economics. Structurally, this will also benefit larger and more experienced companies,”   he concludes.


Panama offers many advantages that make the country one of the most popular solar markets in which to invest. Firstly, due to its dollarized economy, from a contract perspective, the country offers companies a lot more security – and doing business in dollars is just easier for developers.

Secondly, it has the benefit of being an emerging economy, with its potential for high growth, but at the same time is less risky than some of its neighbors in terms of the country risk. As GTM Research’s Latin America expert explains,  “In other countries of the region there are a lot more risks for the counterparty, because their political system and the utility authorities are very closely related – whereas Panama is relatively stable in terms of government and utilities autonomy, so there is lot more security for the contracts.”   Lastly, culturally, Panama already enjoys investment from several international companies that have been investing there in infrastructure for several years.

As in every other developing market, some countries offer very high potential but high risk, and others present lower potential but also lower risk.  “Panama is one of the few countries that have pretty good potential and low risk so, together with Costa Rica, is on the top of the list of the safest countries for doing business in the region,”   highlights James.

Beyond the significant opportunities that this very new solar market has to offer, investors must always keep in mind the local idiosyncrasies. In this sense, as previously mentioned, one of the toughest issues to deal with is the different perceptions about investment returns. Commercial clients or business owners still do not conceive solar energy as a profitable investment choice, but rather as  “a buffer for when electricity drops.” “They ask for very demanding returns: we are talking with a client who wants to recover his investment in one or two years,”   points out David Celis, from Zenergy Solar, a Spanish company recently established in the country and specialized in small- and commercial-scale, primarily self-consumption, PV systems.

“ Here an 8% return is not sufficient at all, business return expectations are much higher than in Europe.”
Salvador Escobedo - Solam Group

“Here an 8% return is not sufficient at all,”   states Salvador Escobedo, founder of Panamanian company Solam Group and a speaker at Solarplaza’s conference. Due to the significant changes that the economy is used to experiencing throughout the decades in Panama, plans are made on a shorter-term basis and  “business return expectations are much higher than in Europe.”

Celis says of this niche market:  “The small-scale and self-consumption sector is a marathon race, slow but with definitive potential.” Panama, like the other countries in the Central American region, has a high energy need, and therefore the government is working significantly towards creating an infrastructure to diversify the energy mix.  “The legal framework is established and the project development side is very active nowadays, which is ideal for the sustainable development of the solar sector,”   he concludes.


As indicated on  Solarplaza’s ‘Facts and Figures: Central America’   report published in anticipation of the Solar PV Trade Mission Central America, businessmen are warning of an energy crisis: more gener­ation capacity is drastically needed, as the growth of ener­gy capacity in Panama is not keeping up with the country’s economic growth. But the government of Panama  “is not trying to build as much solar energy as they can,”   explains Adam James. Like the rest of Central American countries, they are trying to diversify their energy mix with several sources, like solar or wind power, in order to reduce their dependence on hydropower, biomass and fuel oil.

According to GTM Research’s analyst’s forecast, the large-scale market will be  “About 60 MW by 2015 and it will grow annually at about 150 MW per year in 2018. So an average over the next four years of 100 MW/year”   – and this involves mainly installations of under 10 MW – while the development of around 5MW per year is expected on the distributed generation segment.

“ Electricity prices are high: house owners and many companies pay over 20 US cents per kWh – the ROI is attractive.”
Tom van Dorp - Solarplaza

“Electricity prices are high: house owners and many companies pay over 20 US cents per kWh – the ROI is attractive. It is likely that these smaller installations, under 1 MW, will amount to a larger cumulative capacity than the utility-scale segment,”   indicates Tom van Dorp, emphasizing the significant opportunities that the small and commercial market segments offer.

El Futuro Solar Centroamérica , taking place in Panama City (November 13-14), will be a great opportunity to discover firsthand the opportunities and risks existing in Central America – a region expected to have a capacity of 1.5 GW by 2018. As part of the Solar PV Trade Mission to be held in San Jose (Costa Rica) and Panama City (November 10 to 14), executives from leading international solar companies will meet with the stakeholders of seven preselected emerging markets in Central America.

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