15 September 2015


Panama solar on hold in midst of perfect storm

Author: Jason Deign, Solarplaza

Investors and developers in Panama’s much-hyped solar market face a wait as energy prices languish at an all-time low. An unusually high level of hydro resource along with globally available cheap oil has driven Panamanian energy spot prices down to around USD$80 per MWh, below the level at which solar can compete.

The current prospects for the market will be under review when the country hosts the Solar PV Trade Mission Central America & Colombia event this November.

Solar power is not subsidised in Panama, but last year projects selling into the spot market looked viable because energy prices were between $250 and $280 per MWh. “A year ago I would have said there was no way the spot price could come down so much without a new technology appearing on the scene,” said Salvador Escobedo of Solam, a Latin American solar consulting and asset management firm.

The seemingly good conditions for solar in Panama led to a rush for licences. Almost 1.4 GW of project licences have been issued, prompting the government to stall while seeking clarification of how much renewable energy can actually be admitted to the grid.

The administration briefly called a halt to new licensing in July, before a solar lobby backlash forced it to reopen the process. However, said Escobedo, current processing of applications has been slowed by a review of the country’s thermal power needs. There is also concern over the slow progress of projects once licences have been granted.

As of mid-July 2015, developers were holding 772 MW of provisional licences and only 395 MW of definitive licences, where a non-returnable deposit has been paid and an environmental study carried out. Less than 30 MW of solar had been built, however. How much more gets installed in the short term is very much open to question with spot prices below a level that can offer solar plant owners a reasonable return.

Solam has analysed hydro data from the last 30 years, to see if the spot price collapse could have been foreseen. The analysis shows Panama’s dams at their highest levels for the 30 years in which data is available. Escobedo says a freak La Niña weather pattern appears to be the cause. The five months to November 2014 were the wettest on in the last three decades, while the second-wettest period was from December 2014 to April 2015, traditionally a dry season.  Rainfall has been particularly heavy in the catchment area of Panama’s hydro reserves.

Meanwhile in the Barro Colorado Island section of the Panama Canal, the country has gone through its driest year on record, according to the Smithsonian Tropical Research Institute.

At the same time, thermal energy generation costs have plummeted due to the current low price of oil. For solar developers holding licences, said Escobedo: “The elephant in the room is the price of energy.” To help developers, Escobedo said the government might be flexible on current yearlong deadlines for action on licences.

But there is an additional problem in the mid-term, which is that the total licences issued already exceed the amount that Panama can potentially use. “Long term this country has the capacity for 700 MW to 800 MW,” Escobedo said.

To find out more about the opportunities and challenges of all the Central American markets and Panama, sign up now for the Solar PV Trade Mission Central America & Colombia. Thanks to the involvement of top-tier local solar stakeholders, the 5-day event will explore energy markets and PV project development opportunities on a country-by-country basis.

To get a preview of all relevant economic figures, solar incentives and entrepreneurial risks in the region check out the Solarplaza’s Facts and Figures: Central America & Colombia 2015.

Stay on top of the global solar market by joining one of our upcoming events.